A-share optical module sector plunges 7% on U.S. lawmaker's proposal to ban Chinese optical transceivers in government projects

On the first trading day after the holiday, China's A-share market fell sharply despite positive news. The Shanghai Composite Index dropped over 1%, while the ChiNext Index and the STAR 50 Index both fell more than 4%.

The optical communication sector led the decline, plunging 7%. Stocks including Tefa Information, Tongding Interconnection, Hengtong Optic-Electric, FiberHome Telecommunication, and Huamai Technology hit their daily downside limits. Other stocks such as Huiyuan Communication, Huagong Tech, Accelink Technologies, Tongyu Communication, and Tianfu Communication fell over 5%. Industry leaders—collectively referred to as "Yi Zhong Tian"—also suffered heavy losses, with Zhongji Innolight, Eoptolink Technology, and Tianfu Communication all dropping more than 7%.

Market News

On the news front, a minor negative factor emerged for optical modules. A retiring U.S. lawmaker proposed banning government projects from purchasing Chinese-made optical transceivers, citing national security concerns. This follows a previous record on the U.S. FCC website showing that Zhongji Innolight obtained FCC certification for three of its product series on September 21.

Industry Fundamentals

Despite the sell-off, demand for high-speed optical modules driven by AI computing infrastructure continues to grow. Current total demand for optical modules is led by AI computing clusters:

• 800G modules: North American cloud providers continue to expand existing clusters, maintaining steady large orders.
• 1.6T modules: The growth focus is gradually shifting to 1.6T products.
• Timeline: Certification and batch delivery are expected to begin in the second half of 2026, with 1.6T becoming the main high-speed optical module product in North America by 2027, representing the core incremental growth.

Meanwhile, overseas cloud providers continue to expand capital expenditures. Institutional forecasts for industry demand have been repeatedly revised upward. The accelerated implementation of new technology pathways—such as near-package optics and co-packaged optics—has raised market expectations for sustained industry chain growth.

Company News

Huilv Ecology recently announced that its controlled subsidiary, Wuhan Junheng Technology, plans to invest 309 million yuan to build a research, development, and production base. The project will add a production line capable of producing 2 million high-speed optical modules annually. The total annual production capacity in the Wuhan region will reach 3.5 million units. This capacity expansion is generally aligned with current market demand growth for 800G and 1.6T optical modules.

Additionally, multiple institutions have recently raised their optical module shipment forecasts. A foreign institution increased its global optical module shipment projections for 2026–2028 by 21%, 31%, and 31%, respectively. Among these, shipments of 1.6T and higher-rate products were revised upward by 29% to 61%. The institution estimates the global optical module market size will reach approximately $67.7 billion in 2026 and $148.5 billion by 2028.

Domestic leading optical module companies saw their first-half revenue grow over 180% year-on-year, with 1.6T products becoming the main driver of shipments.

Related Industry Sectors

• Optical Modules: As core components for internal interconnection within AI data centers, high-speed optical modules are in strong demand. 800G and 1.6T products continue to ramp up, with speed upgrades driving higher per-module value.

• Optical Chips and Optical Components: Supply of high-speed optical chips is tightening. Some companies have order backlogs extending to 2028 and beyond. Upstream segments—including optical chips and passive components—benefit from increased optical module shipments, with demand transmitting upward along the supply chain.

• Printed Circuit Boards (PCBs): Demand for high-speed PCBs is rising due to optical modules and AI servers. The industry is upgrading toward high-layer-count, high-speed materials. Some manufacturers are passing upstream price pressures downstream.

• Communication Equipment: Segments such as optical communication, servers, optical fiber, and copper connectivity benefit from AI computing infrastructure construction. Optical modules carry significant weight in the communication equipment index.

• Optical Module Equipment: Expansion by optical module manufacturers is driving demand for testing, packaging, and automation equipment. Orders and performance for related equipment companies are entering an accelerated realization phase.

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