LPO vs DSP Optical Transceivers: Key Differences and Use Cases

Power consumption – the critical bottleneck in modern data centers. With the growth of cloud computing, AI/ML clusters, and hyperscale networking, operators face mounting challenges in balancing performance with energy efficiency. Every watt saved at the transceiver level can cascade into significant reductions in cooling requirements, operational costs, and carbon footprint.

With the traditional DSP-based technology, modules remain versatile and reliable, but they come at the cost of higher power usage, added latency, and heat generation. This has given rise to Linear Pluggable Optics (LPO). A simplified, DSP-free approach that prioritizes efficiency and low latency, making it particularly attractive for short-reach, high-density deployments such as AI training fabrics and data center interconnects.

In this article, we’ll compare LPO and DSP technologies in optical transceivers, outline their strengths and limitations, and highlight the scenarios where each delivers the most value.

Background

The design of optical transceivers has evolved in step with the ever-increasing bandwidth demands of modern networks.

Pic.1. Evolution of optical transceiver design

The early generations or simple optics primarily focused on straightforward electrical to optical conversion. These transceivers has relatively low power and were pretty simple, but they lacked the ability to handle signal degradation over longer distances or higher data rates. We speak in past form because these type of transceiver have reached their end of life status. The form factors described here are GBIC, XENPAK, X2 and the start of SFP.

DSP-enabled modules: to address all the challenges that came with the old simple optics, like signal loss, dispersion and crosstalk, vendors introduced modules with integrated digital signal processors (DSPs). However, the trade-offs with DSP include increased power consumption, higher heat output, and added latency.

And then the new-comer LPO re-emergence for efficiency. By removing the DSP and relying on high-performance switch ASICs to handle signal conditioning, LPO modules reduce power draw, lower heat, and cut latency.

What is DSP technology?

Also called as fully-retimed optics, but we like to call this “the standard”. Fully-retimed optics use re-timing circuits on both the transmit (Tx) and receive (Rx) paths, which means they incorporate two DSPs. In this design, the incoming signals are re-clocked in each direction, effectively removing jitter and correcting signal distortions. By refreshing the clock and data streams at both ends, these modules deliver cleaner signals, which enables reliable, low-latency transmission even at very high data rates.

The key functions of DSP-based optics include equalization that compensates for signal loss and distortion caused by the fiber and host circuitry, FEC availability for detecting and correcting bit errors, re-timing that refreshes clock and data signals to reduce jitter and maintain clean signal integrity and the DSP technology enabled advanced formats like the PAM4 for higher data rates.

The advantages

• The DSP-enabled transceivers can handle long fiber reach.
• Highest signal integrity and reliability
• By minimizing signal distortions and maintaining signal integrity, they support low-latency communication

The challenges

• Higher power consumption as DSPs are both on Tx and Rx signals.
• More power leads to more heat, creating thermal management challenges.
• Increased cost – adding DSP chips increases module complexity and manufacturing expense

What is LPO technology?

With the challenges of DSP-based or fully retimed optical technology, Linear-drive Pluggable Optics (LPO) emerged. Basically what does this mean, is that the transceiver does not have DSP, it is removed. Instead of it the transceiver rely on the host device’s switch ASIC or NIC to handle signal conditioning and equalization.

With this technology the question comes – how a transceiver can work without a DSP, that is responsible for signal correcting and jitter removing? Well, latest generations of switch ASICs and network processors already integrate many of the functions that were traditionally offloaded to the DSP inside the transceiver. Modern switches are built with advanced SerDes (serializer/deserializer) technology, capable of:

• Linear equalization and FEC
• Jitter cleaning and re-clocking
• Support for advanced modulation schemes (PAM4 as an example)

So because the host device now provides the signal conditioning, there is no need to have DSP installed in the transceiver.

The advantages

• First and more important is the low power consumption – without DSPs, LPO modules consume significantly less power
• Lower costs per transceiver as there is no DSP
• No digital processing means near-zero added delay
• LPO has a simplified design, meaning fewer active components inside the module reduce complexity and cos

The challenges

• Only applicable for short reach connections
• Has tighter host requirements – as there is no DSP, the host device need to be with the advanced SerDes
• Limited interoperability meaning it cant be easily interconnected with DSP-based optics due to different signal handling approach

The LRO technology

There is a gap between DSP and LPO though. A gap that is not fully DSP, but not yet a full LPO transceiver. It is called a LRO transceiver that stands for Linear Receiver Optic. The modules have DSP on the transmit portion of the device, but on the receiver side the DSP is removed. That is why they are also called as Half Retimed Optics, as only the transmitter remains with the full functionality.

This approach offers a balance between performance and cost. By retiming only one direction, LRO modules still enhance signal quality and reduce jitter, although not as effectively as fully retimed optics.

LRO was seen as a transition step. It allowed the ecosystem to start moving away from the standard DSPs, while host ASICs and SerDes were still trying to catch up. So vendors currently are pushing strongly towards LPO and most analysis show that the LRO will not be a long term solution. So lets now focus on the two more popular ones.

Direct Comparison: LPO vs DSP

While both technologies LPO and DSP serve the same fundamental purpose – converting electrical signals to optical and back, their design philosophies differ significantly.

Pic.2. LPO and DSP design differences

This shifts intelligence from the optical module to the switch ASIC, resulting in lower power and latency, but requiring stronger signal-processing capabilities in the host device.

Typical Use Cases

So when to use which? An LPO-based transceiver is not ideal for all applications. Because these transceivers are more sensitive to fiber issues (bends, splices, connectors) because there is nothing onboard to compensate for signal issues due to fiber plant. It is for this reason that LPO transceivers are best suited for shorter reach applications (500m to 2km range). DSP-based transceivers are still the design of choice for longer reach applications, because they can compensate as needed. A typical LPO and DSP deployment can be seen in the image below

Pic.3. Typical LPO and DSP deployment for DCI

By removing the DSP from inside the module, an LPO transceiver consumes far less power because it no longer carries a dedicated processor chip. For an 800G module, this can mean dropping from roughly 12 W down to just 4–6 W. Less power draw also means less heat, which makes it easier to design switches and servers with higher port density while easing the burden on data center cooling systems.

So the short version of the question when to use LPO transceivers lies in two easy answers: short distance and high-end switches/NICs (with advanced SerDes). If you can’t say yes to both of those, then the standard DSP is the way to go in your scenario.

The long version when to use which depends largely on the type of network and its performance requirements. Each technology has environments where it offers the most value. LPO transceivers are used in:

• Hyperscale data centers, where the benefit of power and cooling savings is well appreciated
• AI/ML clusters that demands ultra-low latency.
• Intra-rack and intra-row connections (short-reach).

Whereas the DSP or the “standard” is mostly used in:

• Enterprise networks that provide robust, easy-to-deploy optics.
• Metro and long-haul data transport.
• Multi-vendor interoperability environments: DSP modules are more forgiving of differences in signal integrity, making them easier to mix and match across different vendors’ gear.

Industry Trends and Future Outlook

As already mentioned the LPO transceiver is a critical component in optical communication systems – reducing power consumption by 20% and cost by 30%.

The fastest-growing application segment in terms of revenue is data centers, driven by the increasing demand for cloud services and big data analytics, which require high-capacity and efficient optical communication solutions to handle massive data loads effectively. LPO modules in data centers ensure high-speed data transmission between servers and storage systems, optimizing performance and reducing latency. So it is expected that the LPO module market will witness a robust CAGR – about 12.4% growth annually as explained by the Global LPO Optical Transceiver Module Market Growth 2024-2030.

Key players such as Eoptolink, FiberMall, Macom, Semtech, and CIG Tech are vital contributors to this dynamic landscape. All of them are important for different steps of the market expansion.

As the market evolves, opportunities lie in the expansion of 5G infrastructure, enhancing broadband capabilities, and the growing emphasis on the Internet of Things (IoT). These factors create a fertile ground for investment and innovation, positioning the LPO Optical Transceiver Module market for sustained growth. But there still is a lot to work on the LPO technology. As explained, there are some downsides to consider when using these, for example, limited interoperability. Organizations like the Optical Internetworking Forum (OIF) and the IEEE are working on specifications to improve interoperability and accelerate LPO adoption. These standards aim to provide a common framework for vendors and hyperscalers, helping ensure that LPO can scale beyond proprietary implementations.

So what about DSP? Will we consider it as EOL? No, DSP remains dominant. Despite LPO’s advantages, DSP-based optics continue to be the mainstream choice (as well as with the rise of CPO technology). Their ability to support longer distances, tolerate varied link conditions, and provide strong multi-vendor interoperability ensures that DSP modules remain critical for metro, long-haul, and enterprise deployments.

Conclusion

As we see that the demand for hyperscale, AI/ML workload data centers has an upward tendency market scope, the knowledge of how to decrease power consumption is on the line. DSP-based optics have been the foundation of high-speed networking for the past decade and still remains the default option. But LPO technology reflects the shift in priorities – it offers a high reductions in power consumption, heat, and latency, what makes them well suited for short-reach, high-density interconnects, precisely the ones that hyperscale data centers and AI clusters are looking for.

Looking ahead, the industry will not see a one-size-fits-all replacement. Instead, DSP and LPO will coexist. Overall, the combination of technological advancements, strategic partnerships, and a shift towards greener solutions positions the LPO Optical Transceiver Module Market for significant expansion in the coming years, capitalizing on evolving consumer and industrial needs.