Optical Communication Systems and Networking Market Size, Share & COVID-19 Impact Analysis, By Component (Optical Fiber, Optical Transceivers, Optical Amplifiers, Optical Switches, Optical Circulators, and Others), By Technology (WDM, SONET/SDH, Fiber Channel and Others), By Data Range (Up to 40 GBPS, a40 to 100 GBPS, and > 100 GBPS), By Vertical (IT & Telecom, BFSI, Government and Aerospace & Defense, Healthcare, Energy & Utilities, and Others) and Regional Forecast, 2023-2030

The global optical communication systems and networking market size was valued at USD 29.47 billion in 2022. The market is projected to grow from USD 31.63 billion in 2023 to USD 56.22 billion by 2030, exhibiting a CAGR of 8.6% during the forecast period. Asia Pacific dominated the optical communication systems and networking market with a market share of 53.44% in 2022. Moreover, the optical communication systems and networking market size in the U.S. is projected to grow significantly, reaching an estimated value of USD 11,691.8 million by 2030, driven by the rising adoption of 5g networks is expected to propel market size & share.

Optical communication system and networking refers to transmitting information from one place to another using light as the signal carrier. In this system, the information is converted into an optical signal using a light source, such as a laser diode or Light-emitting Diode (LED), and then transmitted through an optical fiber cable to achieve high-speed data rate over long distances. The optical signal is then detected and converted back into the original form of information at the receiving end.

The system consists of hardware, such as fiber-optic cables, optical transceivers, optical amplifiers, optical switches, and multiplexers, as well as software and networking protocols to manage and control the transmission of data. These systems are used in a wide range of applications including telecommunications, data centers, enterprise networking, healthcare, and aerospace & defense. The increasing demand for high-speed internet is expected to propel the growth of the global market size from 2023 to 2030.

COVID-19 Impact

COVID-19 Favored Market Growth Due to Increased Work-From-Home, Educational, and Social Demands

The COVID-19 pandemic propelled the global optical communication systems and networking market growth. The pandemic increased remote work and digitalization, leading to a surge in demand for video conferencing and streaming services. This, in turn, boosted the demand for data-intensive applications and services. This has enhanced the adoption of optical communication systems and networking as they provide high-speed and reliable data transfer over long distances. For instance, in April 2020, according to the Fiber Broadband Association (FBA), the pandemic increased the demand for fiber-optic broadband connections, as people were working and learning from home.

However, the pandemic caused supply chain disruptions, leading to delays in project implementation, and reduced investments in new projects. For instance, in March 2020, Huawei Technologies reported a decline in the supply of optical components due to the lockdown in China, which disrupted its global supply chain. However, the market recovered in the post-pandemic period owing to rising demand for high-speed and reliable communication networks.

LATEST TRENDS

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Coherent Optical Transmission and Emergence of Software-defined Networking (SDN) Technologies are Prominent Market Trends

Technological advancements and product innovations are the key trends catalyzing the market. Major market players in the market are focusing on developing technologically advanced solutions by integrating Artificial Intelligence (AI) and Machine learning (ML) with software-defined networking (SDN) and coherent optical transmission technologies to optimize the network. Coherent optical transmission is a technology that uses sophisticated signal processing algorithms and advanced modulation formats to enable high-speed data transmission over optical networks.

For instance, in February 2023, Nokia unveiled its latest PSE-6s super-coherent photonic service engine, which is the sixth generation of its kind. It has the ability to decrease network power usage by 60%. Its optical engines support a distinct chip-to-chip interface that allows them to be used in pairs for the industry's first 2.4Tb/s coherent transport solution. This enables network operators to effectively transfer any combination of high-speed client services, such as 400 and 800GE.

Additionally, Software-Defined Networking (SDN) is a key trend gaining popularity in the market. SDN is an approach to networking that employs software-based controllers or Application Programming Interfaces (APIs) to interact with the underlying hardware infrastructure and control traffic flow on a network. SDN is used to manage and control the flow of data through optical networks. Furthermore, government initiatives, cloud-based optical communication systems, product innovations & developments, and strategic partnerships & collaborations are also key trends in the market.

DRIVING FACTORS

Rising Adoption of 5G Networks is Expected to Propel Market Share

The rising adoption of 5G network is expected to drive the market growth. 5G networks require high-speed connectivity and low latency, which can be achieved through the use of optical communication technologies. For instance, in December 2022, according to 5G Americas, a U.S.- based telecommunications trade organization, as of Q3 2022, 75 countries had 5G connections. The number of 5G connections increased by 433 million since Q3 2021, bringing the total to 922 million. Sequential quarterly growth from Q2 to Q3 2022 was 14.4%, resulting in a total of 921 million connections.

The increased demand for cloud-based services and growing penetration of IoT devices have further intensified the need for advanced optical communication systems and networking technologies. In addition, the low latency and high-speed capabilities of 5G networks are critical for various applications, such as fixed-mobile substitution, synergistic AI, autonomous vehicles, virtual & augmented reality, healthcare, cloud gaming, automotive, drones, video surveillance, education, smart cities & homes, wearable computing, infrastructure monitoring, manufacturing, agriculture, and others. These vast applications of 5G networks are predicted to drive the market growth.

Expansion of Data Centers Projected to Boost Optical Communication Systems and Networking Market Growth

Data centers are facilities that contain computing systems, such as servers, storage devices, and networking & communication equipment for storing, managing, and processing vast amounts of digital information. The expansion of data centers is driving the adoption of optical communication systems as they provide faster and more reliable data transmission. For instance, in November 2022, Blackstone, a U.S.-based private equity investor firm, announced the expansion of its data centre business in India with the launch of Lumina CloudInfra. The company aimed to expand its capacity by 600 megawatts for critical IT loads. This will propel the demand for optical communication and networking equipment.

Additionally, the increasing demand for data storage and processing is driving the expansion of data centers, which in turn requires higher bandwidth and faster communication speeds. Furthermore, the robust demand for high-definition video streaming, online gaming, and virtual reality applications is driving the establishment of data centers and optical communication systems. These applications require high-speed data transmission and low latency, and optical communication systems are ideal for fulfilling these requirements.

RESTRAINING FACTORS

High Installation Costs, Security Concerns, and Competition from Wireless Communication Technologies Expected to Hinder Market Growth

High installation costs are expected to hinder the market’s growth. The initial setup cost of optical communication systems, such as fiber optic cables and related infrastructure is significantly higher than that of the traditional systems. These systems also need specialized equipment, skilled technicians, and civil engineering work which leads to higher capital expenditures. The installation process is also technically complex, and any mistakes during installation or maintenance can result in major disruptions and loss for businesses.

Security concerns are also a major challenge for optical communication systems as they use light to transmit data, and the data is vulnerable to interception by malicious entities. For instance, in February 2023, according to a survey by the Armed Forces Communications & Electronics Association (AFCEA), 76% of corporate data centers worry about data security. Data centers are one of the largest users of optical communication systems and networking equipment.

Furthermore, wireless communication technologies are gaining popularity due to their convenience, affordability, and flexibility. They also offer faster data transmission speeds and lower latency, which make them a viable alternative to optical communication systems. These factors are expected to hinder the market forecast.

SEGMENTATION

By Component Analysis

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Optical Transceivers to Gain Notable Traction Owing to Increasing Demand for Compact and Energy-efficient Transceivers

By component, the market is segmented into optical fibers, optical transceivers, optical amplifiers, optical switches, optical circulators, and others. The optical transceiver segment dominated the market share in 2022. An optical transceiver is a device used to transmit and receive optical signals over an optical fiber. It consists of a transmitter and a receiver, which are put into a single unit and responsible for converting electrical signals into optical ones. These signals are then transmitted over the fiber. This segment is also estimated to be the fastest growing segment during the forecast period because of rising demand for compact and energy efficient transceivers. Compact optical transceivers are easier to integrate with other electronic devices as they are smaller in size and also require less energy to operate which is a major concern of various end users. These advantages which in turn increasing the demand for optical transceivers.

For instance, in February 2021, according to the survey by Vertiv, a U.S.-based company that provides equipment and services for data centers, while deploying the 5G networks, out of the 500 enterprises, 40% of them believed that energy efficiency should be the top priority or second most important priority for telecom operators.

The optical fiber segment is expected to witness significant growth during the forecast period due to the rising trend of Fiber to the Home (FTTH) solutions. An optical fiber is a type of transmission medium used to transmit information in the form of light pulses. It consists of a thin strand of glass or plastic, which is capable of transmitting light signals over long distances with minimal loss of signal quality.

By Technology Analysis 

Rising Demand For High Capacity Network and Effective Communication to Boost Adoption of WDM Technology

Based on technology, the market is categorized into WDM, SONET/SDH, fiber channel, and others. The Wavelength-Division Multiplexing (WDM) segment dominates the market and is estimated to be the fastest growing segment during the forecast period owing to the rising demand for high capacity network and effective communication.

The fiber channel segment has the second-largest share in the market. Fibre channel (FC) is a high-speed data transfer protocol used to connect storage devices. The rising demand for data storage is anticipated to boost the product installation.

By Vertical Analysis 

Increased Demand for High Speed Data Transfer to Enhance Product Deployment in BFSI Sector

By vertical, the market is segmented into IT & telecom, BFSI, government and aerospace & defense, healthcare, and energy & utilities. The BFSI segment dominated the market in the base year due to the rising demand for high-speed data transfer capabilities that enable quick and efficient access to critical financial data. This segment is also estimated to be the fastest growing segment during the forecast period.

The IT & telecom segment is predicted to witness significant growth during the forecast period due to increasing data traffic. Additionally, rising demand for video streaming and internet of things (IoT) is expected to foster the segment’s growth.

By Data Range Analysis

Wider Applications Across Many Verticals to Augment Demand for 40-100 GBPS Data Range

By data range, the market is segmented into up to 40 GBPS, 40 to 100 GBPS, and >100 GBPS. The 40 to 100 GBPS segment dominated the optical communication systems and networking market share in the base year due to its wider applications across the globe, especially after the COVID-19 pandemic. The greater than 100 GBPS segment is estimated to be the fastest-growing segment during the forecast period due to rising investments from public and private entities and greater emphasis on 5G communication across the globe. The up to 40 GBPS segment will grow moderately during the forecast timeframe owing to demand from fragmented users.

REGIONAL INSIGHTS

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In terms of geography, the market is divided into North America, South America, Europe, Asia Pacific, and Middle East & Africa.

Asia Pacific dominated the market in 2022 and is anticipated to be the fastest growing region during the forecast period. The market in Asia Pacific was valued at USD 15.75 billion in 2022. This growth is attributed to the presence of major OEMs in the region and increasing investments in the research and development of next-generation communication technologies, such as 5G and fiber-optic communication systems. For instance, in 2020, Cisco Systems Inc. introduced its new 8000 series routers that are designed to enable high-speed connectivity for 5G networks and cloud-based services. Hence, the regional optical communication and networking market is expected to be the fastest growing during the forecast period.

The North American market held the second-largest share in the base year. This region's growth is due to the rising demand for smart homes and Internet of Things (IoT) devices. Companies such as Cisco Systems, Intel Corporation, and Corning Incorporated with strong technological capabilities are investing in research and development, which is driving the innovation and competitiveness in the region. For instance, in February 2023, Frontier Communications Parent, Inc., a U.S.-based telecommunications company, launched Fiber Innovation Labs, which are intended to invent and experiment with new patents, technologies, and processes that will enhance its fiber-optic network.

Europe captured a significant market share in the base year. This growth is attributed to factors, such as increasing adoption of digital transformation technologies, rise in usage of mobile devices, and growth in cloud-based services. This will boost the European market. Furthermore, the region has witnessed heavy investments in R&D programs in the field of photonics, further boosting the growth of the industry.

South America and Middle East & Africa markets are anticipated to witness moderate growth during the forecast period. This is due to increasing investments in the telecom sector. For instance, in February 2023, Nokia plans to set up its communication infrastructure in African countries, which will catalyze Africa optical communication systems and networking market. Furthermore, expansion of the e-commerce industry and increasing demand for online services are driving the need for high-speed internet connectivity in the regions. This is creating significant market opportunities in these regions.

KEY INDUSTRY PLAYERS

Technological Advancements and Product Innovations are Key Focus of Leading Players 

The global market consists of key players, such as Huawei Technologies Co. Ltd., Corning Incorporated, Ciena Corporation, Nokia, Cisco Systems Inc., Adva Optical Networking SE, and others. These players are focusing on technological advancements, product innovations, and expanding in emerging markets to increase their market share. For instance, in March 2023, Ayar Labs, Inc., a U.S.-based company that develops an optical I/O solution, unveiled the industry's first 4 terabit-per-second (Tbps) bidirectional Wavelength Division Multiplexing (WDM) optical solution. This solution is expected to pave the way for the development of next-generation AI and data center designs.

LIST OF KEY COMPANIES PROFILED:

• Huawei Technologies Co. Ltd. (China)


• Corning Incorporated (U.S.)


• Ciena Corporation (U.S.)


• Nokia (Finland)


• Cisco Systems Inc. (U.S.)


• Fujitsu (Japan)


• ADVA Optical Networking SE (Germany)


• NEC Corporation (Japan)


• Infinera Corporation (U.S.)


• Juniper Networks Inc. (U.S.)

KEY INDUSTRY DEVELOPMENTS:

• March 2023 – Commsworld, an Edinburgh-based telecommunications network provider and ISP, secured a contract worth USD 24 million (£22 million) from the Northumberland County Council to upgrade the county's digital infrastructure. As part of the contract, Commsworld will install around 262 km of fresh fiber infrastructure to connect nearly 150 Northumberland council locations, enabling roughly 120,000 residential and commercial properties to access Fibre To The Premises (FTTP) networks.


• March 2023 – Sunwalk (Pvt) Ltd, a China-based telecom and technology company, plans to invest USD 2 billion in Pakistan's telecom sector to install an optical fiber network that will cover 100,000 km over time. After investing about USD 5 million in the initial deployment, the company plans to install 5,000 km of optical fiber cable (OFC) in the next phase.


• February 2023 – Cisco Systems Inc., a U.S.-based digital technology company, announced that it had partnered with V.tal to accelerate the delivery of 5G services. V.tal is a Brazil-based end-to-end fiber-optic neutral network company and owns the largest infrastructure in the country, with over 450,000 kilometers of terrestrial optical fiber connecting more than 2,380 municipalities.


• January 2023 – HFCL, an India-based telecommunication equipment, optic fibre and optic fibre cable manufacturer, announced that it had received an order worth approximately USD 11.5 million from Reliance Projects and Property Management Services Ltd. According to the contract, HFCL and its subsidiary, HTL Ltd, will provide optical fiber cables to one of India's top private telecom operators.


• June 2021 – Corning Incorporated, a U.S.-based company, introduced Corning SMF-28® Contour optical fiber. This innovative product aids telecom operators in addressing the ever-expanding number of connected devices, build-out of 5G networks, and improvements in cloud computing.

REPORT COVERAGE

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The market report provides a detailed analysis of the market. It comprises all major aspects, such as R&D capabilities and optimization of the operating services. Moreover, the market report offers valuable insights into the latest market trends and competitive landscape, and highlights key industry developments. In addition to the above-mentioned factors, the report focuses on several factors that have contributed to the global market growth in recent years.

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