The signal processing chain described in Act 3 has a problem: the DSP inside the pluggable module is expensive, hot, and increasingly redundant in a world where switch ASICs are already performing sophisticated signal processing.
Three architectural responses are entering the market in 2025-2026, each moving DSP function differently.
CPO evolution — DSP migration path
Each stage moves DSP work out of the pluggable module to reduce cost and power
The economics of DSP displacement
Today, in a standard pluggable transceiver:
- DSP: 20-40% of module Bill of Materials
- DSP: ~50% of module power consumption
- DSP cost scales with lane count and speed
As port speeds increase, module cost and power grow proportionally. A cluster with thousands of links pays for DSP silicon thousands of times over, in thousands of separate pluggable modules, each needing its own power supply and thermal management. This is the economic pressure driving change.
Linear-Drive Pluggable Optics (LPO)
LPO removes the DSP from the pluggable module entirely. The switch ASIC takes over the DSP functions -- FEC, equalization, clock recovery -- for the connected link.
The result: a dramatically simpler, smaller, cheaper pluggable module. No DSP silicon. Lower power. Less heat per transceiver.
The tradeoff: each switch vendor implements DSP differently. A pluggable LPO module designed for a Broadcom-based ASIC may not work with an Intel or NVIDIA ASIC. Mixed-vendor fabrics -- common in large deployments where you may have multiple switch brands -- face interoperability challenges that were not present with pluggable optics that contained their own standardised DSP.
LPO primarily benefits switch vendors, who gain simpler, cheaper optics and can sell the integrated DSP capability as a feature of their ASIC.
Linear Receive Optics (LRO)
LRO is a partial solution: the DSP is removed from the receive path of the module only. The transmit path retains its DSP for signal conditioning before the signal enters the cable.
This gives a better interoperability profile than full LPO -- the receive-side DSP removal is more standardisable across vendors -- while still reducing module cost and power. LRO primarily benefits optics vendors: they can offer a reduced-cost, reduced-power module while the interface contract with the switch ASIC is more tractable than full LPO.
Co-Packaged Optics (CPO)
CPO takes the most radical approach: the optical module is integrated directly into the switch package, co-located with the switch ASIC on the same substrate. There is no pluggable interface at all. The optics become part of the switch.
The result is dramatic: photons leave the switch faceplate directly from the package without passing through a pluggable connector. Port density increases because there are no module cages consuming faceplate space. Power drops because the DSP's heat is managed by the ASIC's already-engineered cooling system. Cost per bit falls because the optics and ASIC are manufactured and cooled together.
The tradeoff: there are no field-replaceable optics. When a laser in a CPO switch fails, you do not pull a module and install a replacement. You open a support ticket and schedule a board replacement or factory repair. The operational model changes from "hot-swap a transceiver in 30 seconds" to "coordinate a maintenance window with the vendor."
CPO also means the optics are selected at switch purchase time. You cannot upgrade from SR to DR reach post-installation by swapping modules. The cluster architect must correctly specify reach requirements before hardware is ordered.
The 2026 CPO inflection point
Dell'Oro Group's January 2026 analysis confirmed: 2026 is the initial volume ramp year for CPO on both InfiniBand and Ethernet AI switches. NVIDIA is leading the deployment, with other vendors expected to follow shortly. Major hyperscalers are actively trialing CPO technology on the demand side. Dell'Oro projects CPO could add multi-billions of dollars to the AI networking market size as optics costs are absorbed into switch pricing.
The practical meaning for infrastructure teams: switches purchased from 2026 onward may ship with CPO by default on some port types, particularly spine-layer connections where the reach profile is fixed at design time. Understanding CPO is not just academic preparation -- it will appear in procurement decisions within the current hardware refresh cycle.