Huafu Securities: Benefiting from the trends in AR glasses and optical communication industries, the thin film lithium niobate industry is expected to continue growing.

Huafu Securities released a research report stating that lithium niobate is long considered a "basic functional material platform" for integrated/waveguide optics. With the growth of 5G/6G, AI computing power, data center upgrades, and the rise of AR smart glasses, lithium niobate crystal, with its excellent piezoelectric, ferroelectric, and electro-optical properties, has become the core basic material for the new generation of photon chips. AR glasses and optical communication are potential incremental markets. The company is optimistic about the benefits of the thin-film lithium niobate industry from the continued growth of the industry trends of AR glasses and optical communication, and recommends paying attention to investment opportunities in related companies. Key points of Huafu Securities: Lithium niobate and thin-film lithium niobate Lithium niobate is a typical ferroelectric single crystal functional oxide, which has long been considered as a "basic functional material platform" for integrated/waveguide optics. Thin-film lithium niobate (TFLN/LNOI) turns single crystal LiNbO into sub-micron thin films. Due to the higher refractive index contrast between lithium niobate and SiO, stronger light field constraints and smaller bending radii can be achieved, significantly reducing device size and increasing on-chip integration density. Compared to traditional bulk lithium niobate waveguide processes that are limited in structure size due to weak refractive index, high-density integration is difficult. LNOI uses "thin-filmization + high refractive index" to bring the advantages of lithium niobate's electro-optical/nonlinear properties to nanometer-level strongly constrained photon structures, and brings it closer to the scalable manufacturing path of mature semiconductor photon platforms. Industry trends & competitive landscape With the growth of 5G/6G, AI computing power, data center upgrades, and the rise of AR smart glasses, lithium niobate crystals, with their excellent piezoelectric, ferroelectric, and electro-optical properties, have become the core basic materials for the new generation of photon chips. With breakthroughs in large-scale preparation and thin-film technology for mass production, demand in fields such as optical communication, RF devices, and consumer electronics is growing rapidly, and the market size continues to expand. In the industry chain, China has become a global manufacturing center for lithium niobate, accounting for 42% of global capacity (according to Credence data). TDG Holding has independently mass-produced 6-inch lithium niobate/tantalum niobate crystals and blackened polished wafers, achieving technological controllability; Jinan Crystal Optoelectronics is expected to account for 78% of global supply of thin-film lithium niobate wafers by 2023, demonstrating the leading competitiveness of domestic enterprises in key links. AR glasses and optical communication are potential incremental markets AR glasses: In AR glasses, thin-film lithium niobate (TFLN/LNOI) mainly brings two increments: full-color light modulators can achieve <100 ps ultra-fast electro-optical response, increase color switching speed by about 10 times, and have been industrialized; optical waveguides can achieve >50 FOV with distortion <1.2%, with losses as low as 0.027 dB/cm at 1550nm (significantly lower than glass waveguides), and device thickness can be reduced to <0.3mm for thinness and high integration. On the demand side, global AR glasses are expected to reach around 1.06 million pairs by 2025 (+41%), with the Asia-Pacific region contributing nearly half and China around 489,000 pairs (+83.2%), coupled with favorable policies, the industry prospects are promising. Optical communication: Driven by the growth of AI computing power, global optical communication is transitioning from the traditional telecommunications cycle to a new boom cycle centered on high-speed interconnections in data centers. As the industry evolves from 400G/800G to 1.6T, electro-optical modulators have become a key bottleneck, and thin-film lithium niobate (TFLN) with high bandwidth (>100 GHz), low drive voltage (V1.9 V), high linearity, and strong light field constraints has been verified to stably support advanced modulation schemes such as 80 Gbaud 16-QAM (320 Gbit/s), making it a breakthrough material. According to data from Cognitive and LightCounting, the global optical module market is expected to reach $9.43 billion in 2024, with revenue from high-speed Ethernet modules increasing by 93% year-on-year. This growth is expected to remain high at 48% and 35% in 2025-2026; coupled with China's clear promotion of the "broadband in the east, computing in the west" project focusing on 400G/800G and all-optical network construction, domestic demand for optical communication is being driven by continuous policy and industry support. Risk factors Technology commercialization risk, yield risk, lower-than-expected demand, and technological innovation risk.