Analyst: Network equipment manufacturers gouge end users, squeeze transceiver vendors

Writing in her blog titled Optical Components, industry analyst Lisa Huff says not much has changed in the market for optical transceivers—and that is not a good thing. In her post titled “How the Optical Transceiver Module Sales Channel is Broken,” Huff describes that segment of the optical market as “not sustainable for the long term.”

Illustrating that the market’s inequities favor network equipment manufacturers (NEMs) to the financial detriment of transceiver manufacturers, she notes, “Some transceiver manufacturers sell products at gross margins in the 20-percent (or less) range, while their biggest customers (NEMs) enjoy upwards of 50-percent.”

Later, she specifically points out, “Cisco pays around $20 for a 10GBase-SR SFP+ module from its top vendors and turns around and sells it for over $100.”

The blog post also reminds us of so-called “magic key” that requires users to purchase SFP+ direct-attach copper cables carrying the same brand name as the network equipment or the NEM’s designate, “or the equipment won’t work.” The “magic key,” programmed into the network equipment, allows the gear to work only with specific equipment—i.e. the branded direct-attach cables.

You can read Lisa Huff’s complete blog post here.