VCSEL industry: a $3.9BN market driven by consumer and datacom applications

Starting in 2023, datacom could regain its supremacy and dominate the VCSEL market for the following five years. VCSEL revenues for datacom are expected to reach $2.1bn in 2027, while VCSEL revenue for mobile and consumer could reach $1.7bn.

In the past, the VCSEL market was driven by datacom, the technology’s first volume application. In November 2017, Apple released the iPhone X embedding VCSELs for face recognition. This changed the game. In 2018, mobile and consumer became the largest market for VCSELs, reaching $440m.

Other smartphone makers soon joined this trend but then stopped using these components a few years later in favour of under-screen fingerprint sensors. Apple remains almost the only player integrating VCSELs.

Yole Intelligence has followed and investigated the VCSEL industry for a while. The company, part of Yole Group, develops dedicated products and services focused on in-depth analyses of the market, its forecasts and evolution, the latest technical innovations, and the supply chain.

Yole Intelligence is working closely with PISÉO, another member of Yole Group. Their objective is to provide a comprehensive understanding of VCSEL technologies and related functions. Products and services include accurate and valuable analyses of the overall market as well as specific developments around the integration of VCSEL technology, the design of systems, the characterisation of optical performance, as well as qualification, manufacturing monitoring

Yole Intelligence’s annual VCSEL – Market and Technology Trends 2022 report provides market data on different VCSEL applications. It delivers an in-depth understanding of the VCSEL business value chain, players, and trends and gives insights into manufacturing and associated challenges.

From an oligopoly to a duopoly in the VCSEL market

Since 2017, the VCSEL ecosystem has changed drastically. At that time, the market was an oligopoly, dominated mainly by Lumentum, though several other players had significant market shares. By 2022, the VCSEL ecosystem had changed and is now a duopoly. Lumentum and II-VI are now the largest players, with 80% of the VCSEL market.

So, what happened in the five years? Lumentum was the only supplier qualified by Apple at that time. Finisar was still in R&D and struggling to qualify products for Apple. Other players were involved with other smartphone makers or supplying tiny VCSELs for proximity sensors. Then, Coherent (formerly II-VI) acquired Finisar.

These two players, Lumentum and II-VI, are still the only players qualified by Apple for 3D sensing. At the same time, the leaders also acquired other companies, such as Oclaro and Coherent, amongst several others. This reinforced their positions in the optical communication market, vertically integrating from the VCSEL device to the entire transceiver module.

Two major changes are expected in the coming years

In May 2022, IQE demonstrated its first 8” wafers based on germanium instead of GaAs. These wafers may not be needed to answer a sudden rise in VCSEL demand but to make possible the integration of photonics devices with CMOS technology. It also gives a potential roadmap toward 12” wafer manufacturing in the long term.

The second major change expected is a shift in wavelength from 940 to 1,380nm using dilute nitride active layers. This shift is needed to enable the integration of VCSELs behind OLED displays, which are transparent at this wavelength.