Three Interesting Facts About Cost Structure in the Optical Transceiver Market

Maximizing profit margins is the goal of most companies selling optical transceivers. Some original equipment manufacturer’s (OEM’s) are able achieve high price margins because of the cost structure they’ve established. It’s important to examine the cost structure of optical transceivers to determine how to earn more and save more on optical transceivers. Here are three interesting facts about optical transceivers and cost structures:

Cost Structure in the Optical Transceiver

OEM’s Can Yield High Profit Margins
OEM’s such as Cisco and Juniper receive lower pricing from the same contract manufacturers. They want the best profit margins possible. OEMs like Cisco and Juniper have achieved up to 90 percent gross profit on their transceivers and memory. They enjoy these high profit margins, and thus, they do whatever it takes to protect them. This is one of the little known facts about OEMs that can be beneficial to OEMs everywhere.

Quality Affects Cost Structure
Sure, companies want to price their product to maximize their products, but they also want to remain competitive. Some of the competition will offer an inferior product to keep the price low and be wrought with problems and angry customers later. Other companies take a more strategic approach and offer a product that is high quality and will withstand the rigors of use. This helps to build customer loyalty. They may sacrifice margins or competitive pricing, but long term they’ll have a larger more loyal customer base, which is the foundation of most successful businesses.

For instance, some companies pay close attention to Q/A stateside. If the product advertised on the web costs less than the direct price on a company’s official website, it’s more than likely an inferior product that is off-spec or improperly tested. This could mean danger to your network.

Design Elements Affect Cost Structure
Some designers will eliminate unnecessary, but useful, components to improve the cost of the devices. For instance, one company lowered the cost of the sensor node by eliminating the need for frequency regulation. The use of the white light emitting diode and photo detector pair also lowered the cost of the sensor node. Eliminating some components and adding other, more cost efficient components, can be helpful.

In general, the shift for optical transceivers is going away from using discrete optical components to using pluggable modules, which provide the flexibility of the pay-as-you-go plans and also allows manufacturers to leverage design. When manufacturers integrate the latest and most innovative technology, they are more apt to get what they need to produce a superior product that sells at higher profit margins. This is what many experts have found during their search for the best way to improve cost structure.

Cost Structure in the Optical Transceiver Market
The global optical transceiver market is expected to grow to $9.9 billion by 2020. In 2013, the market was supposed to reach $3.2 billion. These numbers are all based on the cost effectiveness of the devices. The new generation devices are expected to use less power, have a smaller footprint, and be more affordable.

The increases in Internet traffic are also expected to help the devices sell. As the change in the communications infrastructure occurs, the demand of optical transceivers is expected to increase. Experts anticipate widespread use of the 100 Gbps optical transceivers. This is good news to companies that sell these devices to the public.

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