The optical data center interconnect (DCI) equipment market revenue rose 49 percent to $1.9 billion in 2016.

Heidi Adams, senior research director, transport networks, IHS Markit, said service providers, internet content providers (ICPs) and enterprises invested to interconnect expanding and proliferating data center facilities.

Nearly all the major optical equipment vendors delivered new compact DCI segment characterized by wavelength-division multiplexing (WDM) platforms designed and optimized for deployment in data center environments, kicking off a competitive battle for ICP spending.

The compact DCI segment accounts for 8 percent or $154 million (+285 percent) of the total optical DCI market. Traditional DCI equipment segment grew 41 percent.

The size of the optical DCI market will be $4.5 billion by 2021— a five-year compound annual growth rate (CAGR) of 18 percent.

The growth in optical transport network (OTN) hardware market revenue was 8 percent to $10.7 billion in 2016. The emergence of OTN-free compact DCI platforms, combined with sales of WDM equipment for common public radio interface (CPRI) fronthaul applications, signaled the start of a reversal in OTN as a percentage of total optical equipment.

OTN transport and switching capabilities were de facto in all new WDM equipment up until 2016. Close to 80 percent of all optical equipment revenue and 90 percent of all WDM equipment revenue last year was tied to OTN-capable equipment.

The rise of ICPs as a tour de force in optical equipment spending has put a limit on OTN’s dominance of the WDM market. ICPs have no need for OTN because they have no legacy Synchronous Optical Networking (SONET) and Synchronous Digital Hierarchy (SDH) traffic to support and are aligned to Ethernet as the base packet transport and switching technology.

OTN as a percentage of overall optical equipment will peak in 2019 and then decline somewhat in subsequent years.

Revenue growth in the packet-optical transport system (P-OTS) segment was 6 percent to $2.2 billion in 2016.

“We expect P-OTS to continue to grow for deployments supporting legacy and more modern Ethernet and wavelength services. The native Ethernet capabilities in P-OTS also give it a role to play in DCI network deployments,” said Heidi Adams, senior research director, transport networks, IHS Markit.