Huafu Securities: Optical chips are the core of optical communications value; CW + silicon photonics may become the next-generation mainstream.

Huafu Securities released a research report stating that optical chips are located upstream in the industry chain and are the core of optical communications value, accounting for 30% to 60% of the total cost of optical modules. As optical modules iterate toward 800G, 1.6T, and even 3.2T, their cost share is expected to exceed 60% or even 70%. Rate upgrades drive technological iteration, and CW + silicon photonics may become the next-generation mainstream. The global optical chip market size grew from RMB 13.5 billion in 2021 to RMB 32.8 billion in 2025, and LightCounting expects it to reach RMB 233.6 billion by 2030. Overseas leaders' capacity utilization rates have already exceeded 90%, and supply-demand imbalance is expected to become the norm in 2026-2027, presenting a critical window of opportunity for domestic optical chip manufacturers. Huafu Securities' main views are as follows: Optical chips are located upstream in the industry chain and are the core of optical communications value Optical communication chips are key components for achieving photoelectric signal conversion, typically made from III/V compound semiconductor materials such as indium phosphide (InP) and gallium arsenide (GaAs). As the core carrier for optical modules to achieve photoelectric signal conversion, with the rapid growth in demand for optical modules from AI data centers (AIDC) and rapid technological iteration, optical chips have become the capacity bottleneck of the entire industry chain and directly determine optical module performance. From the perspective of industry chain value, optical chips account for 30% to 60% of the total cost of optical modules and are rising rapidly. As optical modules iterate toward 800G, 1.6T, and even 3.2T, the cost share of optical chips in the entire device is expected to exceed 60% or even 70%. Gross margins for high-end optical chips are significantly higher than optical module assembly. With the mass production of new-generation technologies such as CPO, profits in the optical module assembly segment will decline rapidly, with profits further concentrating in CW light sources, high-speed EML array chips, and other areas. Rate upgrades drive technological iteration, CW + silicon photonics may become the next-generation mainstream Optical communication chips are developing toward higher speeds and higher integration levels. There are two main paths for improving optical communication rates and bandwidth: 1) continuously increasing the transmission rate of single-channel signals through more advanced materials and processes, with single-wavelength rate being the foundation; 2) multi-channel parallel transmission and multi-wavelength multiplexing. Traditional technologies mainly achieve speed improvements for optical modules above 100G through multi-channel solutions. However, relying solely on increasing the number of optical channels not only leads to larger module sizes and higher power consumption but also significantly increases packaging complexity and system costs. Silicon photonics can manufacture optical devices on a large scale like chips, greatly reducing the cost and power consumption of optical modules. CW lasers are a type of laser that only outputs stable continuous light without built-in modulation functionality. In silicon photonics solutions, CW laser chips serve as external core light sources, while silicon-based chips handle rate modulation. CW-DFB is the optimal solution for AI high-speed optical interconnect and CPO technology, and its industry position continues to rise. AI computing power drives high industry growth, domestic manufacturers may usher in a golden period of adoption The global optical chip industry market size grew from RMB 13.5 billion in 2021 to RMB 32.8 billion in 2025. As emerging technologies continue to push the limits of speed, integration, and energy efficiency, optical chips may continue to be the fundamental driver of next-generation optical communications. Nazhen Technology cited Frost & Sullivan, and LightCounting expects the global optical chip market to maintain strong growth momentum, reaching RMB 233.6 billion by 2030. Since optical chip manufacturing involves precision epitaxial growth processes, the cycle from capacity expansion decisions to capacity release takes 1 to 1.5 years. Overseas leaders' capacity utilization rates have exceeded 90%, leaving almost no room for flexibility. This means that supply-demand imbalance will become the industry norm in 2026-2027, with significant upward price pressure. Against this backdrop, domestic optical chip manufacturers have ushered in a critical window of opportunity. From CW light sources to 100G EML, from domestic customers to North American customers, domestic substitution is accelerating. Relevant domestic enterprises have achieved technological breakthroughs with sufficient capacity planning and are expected to benefit deeply from industry prosperity. Recommended stocks to watch Yuanjie Semiconductor Technology (a leading domestic optical chip supplier), Suzhou Everbright Photonics (one of the few companies globally that develops and mass-produces high-power semiconductor laser chips), Henan Shijia Photons Technology (with advantages in both passive and active dual-chip platforms), Accelink Technologies (R&D and mass production of optoelectronic chips, devices, modules, and subsystem products), Focuslight Technologies Inc. (an influential company in the global high-power semiconductor laser field), Suzhou Dongshan Precision Manufacturing (its subsidiary Source Photonics is a leading global optical communications technology supplier), Sanan Optoelectronics (its Quanzhou Sanan subsidiary precisely positions in gallium nitride, gallium arsenide, substrate materials, and other industrial clusters), Jiangsu Etern (covering the entire industry chain system of "chips-optical devices-MPO"), etc. Risk warnings: risks of technological upgrading and iteration, risks of failure in new product R&D and commercialization, risks of core talent loss and technology leakage, etc.