LightCounting: The optical module market is showing initial signs of recovery. News on September 18th, Beijing time (Shuiyi) Recently, market research organization LightCounting stated that the second quarter 2023 financial reports publicly released by companies in the optical communications industry show that the bullwhip effect continues to have an impact on optical device suppliers in the second quarter of this year. High inventory levels among equipment manufacturers and end customers have inhibited sales growth at the component level. However, optical module sales data collected by LightCounting show that demand for Ethernet optical modules and high-speed active optical cables (AOC) is showing initial signs of recovery. The diagram below illustrates what the industry supply chain looks like. Sales of telecom optical components (DWDM, FTTx and WFH) fell 33% year-on-year and 14% month-on-month. Sales of datacom optical components (Ethernet, FC and AOC) fell 15% year-on-year, but sales of Ethernet optical modules increased 5% month-on-month, and more growth is expected in the second half of 2023. AOC's sales fell sharply in the first quarter but rebounded quickly in the second quarter of 2023. LightCounting points out that most of the growth comes from the demand for optical connectivity in artificial intelligence clusters. However, this analysis does not include direct sales of optical components to Nvidia, which could easily increase sales of Ethernet optical modules by another 10% and AOC sales by 30%. As was the case in the previous two quarters, both ICPs and CSPs again reported slower growth in key business areas, layoffs are continuing, and most said capital spending would slow in 2023. What is particularly worrying is that the long-term trend of slowing cloud service sales growth among the four major hyperscale data center operators continued in the second quarter of 2023, but it seems to have been overshadowed by the artificial intelligence arms race . In sharp contrast to the sharp decline in sales of optical components, sales of network equipment remained stable in the second quarter of 2023 (down 0.4%-0.5%). The reason for this abnormal phenomenon is that many devices will be in short supply from 2021 to 2022, resulting in a large backlog of orders, and equipment suppliers are still following up on orders placed more than a year ago. In terms of guidance for the third quarter, Amazon and Meta, Calix and Ciena all said they would achieve double-digit sales growth compared with the third quarter of 2022. Coherent and Lumentum said they would see double-digit declines as inventory problems persisted at their major customers, primarily telecom equipment suppliers. Demand for telecom optical components is unlikely to recover in 2023