Lower Prices Boosting 10-GigE

Lower Prices Boosting 10-GigE
JULY 31, 2006

The 10-Gbit/s Ethernet market could be poised for a growth spurt, as
prices are getting down to the critical level to kick up some serious
demand, according to the latest Heavy Reading report.

That's the conclusion of "10-Gbit/s Ethernet Components: A Heavy Reading
Competitive Analysis," which was published last week. The report breaks
down the 10-Gbit/s market, looking at transceivers, transponders, and
chips, covering 225 devices from 38 vendors. (See Cheaper Chips Drive
Sales.)

Chip vendors "shipped as many 10-Gbit/s Ethernet devices in 2005 as they
did in the preceding three to four years combined," analyst Simon
Stanley writes in the report. "This activity at the components level
means significant growth in 10-Gbit/s Ethernet port shipments will
accelerate, as the cost reductions work through the supply chain."

That's good news to some, because while volumes have been enough to fuel
some cost reductions, they've been too low for some suppliers' tastes.

The ultimate demand for 10-Gbit/s Ethernet has never been in doubt,
particularly when it comes to short-reach environments such as data
centers or carrier hotels. The problem is that pricing has stayed high
enough to keep some customers from diving in wholeheartedly.

"Its deployment has lagged behind the forecasts because the prices were
higher than people expected, or higher than the value proposition,"
Finisar Corp. (Nasdaq: FNSR - message board) CEO Jerry Rawls tells Light
Reading.

Of course, 10-Gbit/s Ethernet isn't completely stalled -- otherwise
Force10 Networks Inc. wouldn't still be around. And transceiver modules
for 10 Gbit/s are fueling the IPO filing of Optium Corp. , although that
company sells to the Sonet market in addition to Ethernet. (See Optium
Files for $100M IPO.)

For each generation of Ethernet, the magic number has been between 3 and
4 -- that is, the next speed grade starts to take off when its price
falls to three or four times the previous generation's.

By some metrics, 10-Gbit/s Ethernet is finally getting there. Prices for
10-Gbit/s ports have only recently dropped to less than $10,000 per
uplink -- which, with 48-port switches on the market, translates to less
than $200 per user. That's finally an acceptable premium over the $50 to
$100 per port for Gigabit Ethernet.

Suppliers, likewise, are reporting a bounty of shipments. "We expect to
see 10-Gbit/s Ethernet shipments nearly triple this year from last
year," Mitch Kahn, Quake Technologies Inc. VP of marketing, tells Light
Reading.

If volumes didn't drive those prices down, what did? It's the chip
technology -- PHY prices are one-tenth what they were in the first
generation of 10-Gbit/s Ethernet, Stanley notes.

Modules are lowering systems prices, too, by getting smaller. The
industry started with the 300-pin multisource agreement (MSA) and has
been moving through smaller module generations since -- to Xenpak, then
X2, and eventually XFP.

And vendors are already working on the next step beyond the XFP
transceiver, called SFP+. It's even smaller -- Stanley reports it's
one-third the size of an XFP -- and pluggable. It's expected to bring
prices down even further by lowering power consumption while increasing
the potential port density of equipment. (See XFP Module Gets a Shrink.)

Quake has declared itself an SFP+ frontrunner, having recently announced
the necessary PHY chip for such a module. Not surprisingly, the company
now sees a bigger future for SFP+ than for the long anticipated XFP MSA.
"It looks like that's going to be displaced in favor of SFP+," Kahn
says. (See Quake Intros SFP+ PHY.)

That may be a bit hyperbolic, given SFP+ is only starting. Stanley notes
50 XFP modules are available from 13 vendors. XFP "is already being used
by OEMs across the industry for a wide range of applications," he writes.

The report compares the offerings of 38 vendors, noting that Finisar and
Broadcom Corp. (Nasdaq: BRCM - message board) offer the broadest range
in transponders and PHY chips, respectively.

— Craig Matsumoto, Senior Editor, Light Reading

Please don't feed the monkey. Copyright © 2000-2006 Light Reading Inc. -
All rights reserved.