Looking ahead: Gen AI could amplify optical opportunities

The utopia of higher profit margins and fewer people to deal with is driving the American enterprise into the arms of generative AI. It promises innovation and huge productivity gains if used correctly and served by high-performance, high-capacity networks.

Those network demands are on the minds of optical networking vendors in 2024. "Gen AI may be a significant stimulant or accelerator of network demand, both inside and outside of the data center, in future periods," stated Ciena's annual report, which could have been written by ChatGPT, for all we know.

AI reshapes data centers

"Omdia has seen all major enterprise verticals take a substantial interest in cloud services, and we believe the enterprise interest will extend into the AI realm to aid their business model evolution," said Ian Redpath, research director, transport networks and components at Omdia. "Google Cloud has coined the term 'ultrascale infrastructure' to describe their vision of next-generation infrastructure required. Omdia has begun tracking the trigger points that will signal the transition to an ultrascale DCI [data center interconnect] environment."

Dell'Oro Group VP Sameh Boujelbene agreed. "We expect 2024 to be a tremendous year for 800 Gbit/s deployments inside the data center, as we expect a swift adoption of a second wave of 800 Gbit/s (based on 51.2 Tbit/s chips) from a couple of large cloud service providers," she said.

Related:Dell'Oro's Sameh Boujelbene: AI is changing data center hardware

She noted that the first wave of 800-gig data center connections (based on 25.6 Tbit/s chips) was mainly driven by one major cloud provider from 2022 to 2023. "The pace of its adoption gained momentum towards the end of 2023, setting the stage for a more accelerated trajectory next year," she projects. In her research, Boujelbene said nearly all switch ports in the AI back-end networks will be 800 Gbit/s and faster by 2025.

While a lot of news in 2023 was around the introduction of new coherent DSPs and higher wavelength speed, Dell'Oro Group VP Jimmy Yu predicted that 2024 will be about sales growth in those categories: "I imagine a swelling number of announcements by optical manufacturers and operators about deploying coherent DWDM capable of 1.2 Tbit/s and 1.6 Tbit/s. We should also see more news about hyperscalers using 800ZR QSFP-DD (Quad Small Form Factor Pluggable Double Density)."

Will AI flood the WAN?

Indeed, the drive to deploy gen AI and tap into all its potential will be among the dozens of things driving short-reach data center links to keep getting absurdly faster, with more sophisticated pluggable coherent modules making it all possible. All that activity is happening inside the data center. What about outside? "In the WAN, I think it's too early to say how much the AI hype will translate into DCI optics sales in 2024 or even beyond," said Heavy Reading Senior Principal Analyst Sterling Perrin. "I'm sure it will be discussed, but I think there are too many unknowns right now."

Related:Ciena's Steve Alexander: A terabit in the hand

Supply chain calm

Yu also sees that 2024 may be the year that we finally shake off the inventory woes that have needled the industry since the start of the COVID-19 pandemic. "I think in 2024, a new chapter is started where the narrative is around the alignment of shipments with service provider demand, and that the rate of new orders is growing now that backlog levels have returned to normal levels," Yu said. "Stated another way, the effects of the supply chain crises are officially behind us."

Pluggable optics (at the edge, in the RAN and more)

Last year, we noted that pluggable optics would start showing up everywhere – and they did. And they won't stop. Coherent pluggable optics will continue to march deeper into telecom throughout 2024, Heavy Reading's Perrin said. 

"The commercial introduction of coherent 100G pluggables in QSFP-28 form factors is set to occur. These new pluggables open a whole new coherent optics opportunity at the service provider's edge," Perrin said. "Coherent 100G pluggables will also be closely linked to advancing 'multi-host' optics. Switches and routers are the prominent examples today (i.e., IP over DWDM). But coherent optics at the edge introduce new types of host devices, including PON OLTs, RAN elements, servers, and others," he said.

Related:Infinera marks metro milestones with new 400G ICE-X pluggables

"It will be interesting to watch how the market for coherent optics at the edge begins to take shape during the year."

We'll certainly keep an eye on it. In the meantime, here are links to analyst notes and reports where you can dig into many of the issues raised and watch their progress in the coming year: