According to a research report from Orient Securities, the high growth in demand for optical modules, driven by speed upgrades and structural iterations, is fueling equipment requirements. The future gradual implementation of all-optical interconnection architectures and OCS switches will impose new demands on upstream core packaging equipment. With comprehensive leaps in the precision and intelligence of domestic equipment, the optical equipment sector is approaching a significant inflection point for increased localization rates. The firm recommends focusing on domestic equipment companies that have passed validation from leading clients and possess core technological barriers at this critical expansion phase. Key points from Orient Securities are as follows:
The surge in optical module demand, propelled by rate upgrades and structural changes, is boosting equipment needs. Benefiting from the expansion of AI training and inference cluster scales, leading overseas cloud providers have significantly increased capital expenditures, fully investing in AI computing power and cloud infrastructure. According to Yole data, global data center optical modules, as core components, are projected to reach a market size of $14.7 billion by 2029, with an average annual growth rate exceeding 14.8%. In terms of speed, optical modules are rapidly advancing towards 1.6T and 3.2T, with shortening iteration cycles. Structurally, silicon photonics technology is accelerating its penetration due to advantages in high integration and low cost, evolving subsequently towards CPO architecture. Coupled with the future rollout of all-optical interconnection and OCS switches, new requirements are emerging for upstream core packaging equipment.
As optical module structures advance, the automation rate of equipment and the coverage of semiconductor equipment are gradually increasing. Within the process flow, the coupling and testing segments present the highest technical barriers and value. The coupling process demands extremely high tolerance for optical signal loss, where a mere 1μm positional misalignment can lead to up to 3dB of optical loss, requiring equipment capable of six-degree-of-freedom precise alignment. The testing segment inevitably requires substitution; as downstream optical module speeds increase, the transmission rates and bandwidth of testing machines must also rise, placing new demands on the domestic independent R&D level of specialized data processing chips for underlying instruments like high-end oscilloscopes and bit error rate testers. Furthermore, the capital expenditure share of the testing segment is expected to gradually increase. Frost & Sullivan data indicates that in 2024, local enterprises held only a 16% share of the Chinese optical communication test instrument market, indicating substantial room for substitution.
Leveraging the industrial synergy where Chinese companies hold seven out of the top ten global optical module manufacturer spots, domestic equipment makers are increasing their market share through self-sufficiency and controllability. In the testing field, Lianxun Instruments, as a leading domestic optical communication test company, has launched a 65GHz sampling oscilloscope and a 1.6Tbps bit error rate analyzer meeting 1.6T requirements, successfully introduced to companies like Zhongji Innolight. Companies such as华盛昌,普源精电,坤恒顺维, and鼎阳科技 are also making continuous efforts in aging systems and high-end instruments. In the coupling sector, companies like科瑞技术 and博众精工 have achieved industrialization in sub-micron high-precision placement and optical coupling equipment, receiving validation from leading overseas clients. With comprehensive improvements in the precision and intelligence of domestic equipment, the optical equipment sector is at a node for a significant increase in localization rates.
Risks include downstream demand falling short of expectations; technology R&D not meeting targets; capacity expansion delays; and intensifying industry competition.