Guosheng Securities: Photonic module upgrade returning to rational pace, passive components and CPO value reassessment.

800G1.6TCPO - 5 - 800G1.6T - 2-3 - 1.6T - CPO -Research predicts that the AWG chip market will grow from $1.13 billion in 2023 to $2.89 billion in 2032, with a compound annual growth rate of 11.1%.MPO/MMC socket upgrade drives growth: MPO sockets can significantly save space in high-density interconnect scenarios, and the implementation of the MMC standard greatly improves the efficiency of large-scale data center cabling; Customization of AWG becomes a new incremental opportunity: Large cloud providers have continuously increasing demands for wavelength customization in wavelength division multiplexing; With the stabilization of the active product market from chips to modules, breaking through becomes more difficult, but the passive product market is currently in a period of intense iteration, with a wide variety of products, providing opportunities for small and medium-sized enterprises. Broadex Technologies' first quarter revenue increased by over 70% year-on-year, and the cluster calculations are rapidly evolving towards high-density interconnection. With the cooperation of MPO and shuffle solutions, they can solve the complex inter-cabinet cabling challenges. Driven by this, there is a surge in demand for MPO, and the company acquired Changxin Sheng in cash at the end of November 2023 to integrate its MPO business, fully benefiting from the increasing demand brought by the prosperity of MPO. Henan Shijia Photons Technology reported revenue of 436 million yuan in Q1, a year-on-year increase of 120.6%, with a net profit growth rate of 1003.8%. Cluster calculations are evolving towards high speed and low power consumption direction, and the advantages of AWG chips being highly integrated and flexible make them more suitable for the trend of data center upgrades and will continue to increase in demand. As a leading domestic supplier of AWG chips, the company's DWDM AWG products have been successfully introduced into the supply chain of mainstream equipment manufacturers at home and abroad and have achieved large-scale production. The performance growth will fully benefit from this trend. 4. Game Structure and Positioning Stable structure of downstream CSP and upstream optical module suppliers The industry structure is stable, with high concentration of downstream CSPs and an oligopoly structure in the upstream. Various companies achieve positioning through deep cultivation of segmented markets. According to Synergy Research Group data, in the first quarter of 2025, the top three cloud vendors Amazon, Google, Microsoft accounted for 63% of the global cloud services market share; domestically, according to Canalys reports, by 2024, the top three cloud vendors in China, Alibaba Cloud, Huawei Cloud, and Tencent Cloud, accounted for approximately 71% of the market share. Their data center expansions will directly drive the demand for optical modules. Among the upstream optical module suppliers, Chinese companies have a clear advantage globally, such as Zhongji Innolight, Suzhou TFC Optical Communication, Eoptolink Technology Inc., etc., have formed a leading position in "technology + customer structure" through deep cultivation in professional fields. Segmented optical communication manufacturers also benefit from positioning Henan Shijia Photons Technology leverages mainstream optical module channels in AWG mass production, while Yuanjie Semiconductor Technology relies on deep cooperation with major manufacturers for silicon optical sources, each holding their position in vertical segmented markets to form a moat. Whether in the optical module or optical communication industry, once a positioning advantage is formed, it is difficult for other manufacturers to enter due to considerations such as supply chain security, stability, and consistency in product quality, so the strong will continue to thrive. In conclusion, the industry continues to favor the computing power sector, and we strongly recommend companies related to the computing power industry chain, such as leading companies in the optical module industry Zhongji Innolight, Eoptolink Technology Inc., and suggest focusing on the "one large, four small" companies in optical devices: Suzhou TFC Optical Communication, Henan Shijia Photons Technology, T&S Communications, Broadex Technologies, and Wuxi Taclink Optoelectronics Technology. Also, pay attention to companies like Wetown Electric Group (busbar) that have been significantly affected by tariffs but have a logic for new growth. Recommended focus: Compute Power - Optical Communication: Zhongji Innolight, Eoptolink Technology Inc., Suzhou TFC Optical Communication, T&S Communications, Optowide Technologies, Advanced Fiber Resources, Accelink Technologies, Wuxi Taclink Optoelectronics Technology, Linktel Technologies, Huagong Tech, Yuanjie Semiconductor Technology, Cig Shanghai, Dongguan Mentech Optical & Magnetic. Copper Connections: Shenzhen Woer Heat-shrinkable Material, Tongling Jingda Special Magnet Wire. Compute Power Equipment: ZTE Corporation, Unisplendour Corporation, Ruijie Networks, Shengke Telecom, Shenzhen Phoenix Telecom Technology, Foxconn Industrial Internet, Wus Printed Circuit, Cambricon, Hygon Information Technology.Liquid cooling: Shenzhen Envicool Technology, Guangdong Shenling Environmental Systems, Guangzhou Goaland Energy Conservation Tech. Edge computing support platform: MeiG Smart Technology, Fibocom Wireless Inc., Quectel Wireless Solutions. Satellite communication: China Satellite Communications, China Spacesat, Genew Technologies, Guangzhou Haige Communications Group Incorporated. IDC: Range Intelligent Computing Technology Group, Beijing Sinnet Technology, Guangdong Aofei Data Technology, Kehua Data Co.,Ltd., RunJian Co.,Ltd.Data elements - telecom operators: China Telecom Corporation, China Mobile Limited, China United Network Communications. Data visualization: Beijing Haohan Data Technology, EmbedWay Technologies, Shenzhen Sinovatio Technology. Risk warning: AI development falls short of expectations, computing power demand falls short of expectations, market competition risks.