Explosive growth in computing power demand is driving data center optical modules toward higher transmission rates. According to a May 28th release from the independent optical communication research firm LightCounting, seven Chinese manufacturers are now ranked among the global top ten optical module suppliers for 2025.
However, compared to the high market share in manufacturing and packaging, the localization rate for high-speed optical chips—a core upstream component—remains low. Currently, with ongoing supply constraints for overseas optical chips and collective technological breakthroughs by domestic players, this critical component is entering a crucial window for import substitution. The core challenge for the industry now is how to transform this window of opportunity into a sustainable, large-scale competitive advantage.
A supply-demand gap has emerged for high-end EML chips. LightCounting's latest forecast indicates the global optical module market will maintain a high growth rate of approximately 60% in 2026, reaching a scale nearing $60 billion by 2031. Industry consensus points to 1.6T optical modules entering the phase of commercial volume production, with supply bottlenecks concentrated in core components like high-end EML (Electro-absorption Modulated Laser) chips and DSP (Digital Signal Processor) chips.
An industry expert from central China explained that in high-speed optical modules, optical chips represent a key value node and a major profit segment in the supply chain. The localization rate for high-end chips (such as 50G, 100G, and above) remains low, with capable suppliers primarily located overseas, making this a focal point for import substitution. The convergence of global supply chain restructuring and surging computing power demand is transforming import substitution from a past "option" into a current "necessity," providing domestic manufacturers with a critical substitution window of 2 to 3 years.
Against this backdrop, Yuanjie Semiconductor Technology Co.,Ltd. saw its stock price increase tenfold within a year, becoming an industry dark horse with a market capitalization in the hundreds of billions. Its profit for a single quarter in Q1 2026 approached the level of its entire 2025 annual profit.
Domestic manufacturers are becoming a significant force. In terms of the progress of import substitution, due to shorter process chains and easier yield optimization, CW (Continuous Wave) light sources have become the initial breakthrough point for domestic manufacturers. Using this as an entry point, domestic players are rapidly integrating into mainstream downstream supply chains and achieving higher synergy with domestic optical module makers.
Yuanjie Semiconductor Technology Co.,Ltd. experienced an earnings reversal in 2025, with performance concentrated in the third and fourth quarters as its CW products began batch deliveries. Companies like Henan Shijia Photons Technology Co.,Ltd., Suzhou Dongshan Precision Manufacturing Co.,Ltd., and Accelink Technologies Co.,Ltd. have also made notable progress in related fields.
In the EML domain, Wu Zhenlin, Vice General Manager of Suzhou Everbright Photonics Co.,Ltd., noted that the biggest challenge for EML is balancing speed increases with power consumption control. "Yield rate is the core variable for amortizing manufacturing costs and improving gross margin," stated the aforementioned industry expert from central China. Domestic manufacturers are continuously breaking through technical barriers, evolving from single-point breakthroughs to multi-faceted progress, becoming an important force in filling the supply gap.
Recently, the progress of domestic manufacturers in sampling and mass-producing high-end EML chips has become a focus for investors. Jiangsu Etern Company Limited disclosed that its 100G EML series has completed R&D verification and customer adaptation testing, achieved supply, and is now actively engaging with mainstream optical module companies domestically and internationally. Suzhou Everbright Photonics Co.,Ltd. indicated that its 100G EML is currently in mass production, while its 200G EML is in the customer verification stage. Suzhou Dongshan Precision Manufacturing Co.,Ltd. stated in its 2025 annual report that its 100G PAM4 EML chips have seen cumulative usage exceeding ten million units in 400G and 800G optical modules, and its 200G PAM4 EML chips have entered the mass production stage.
"Current expansion plans by overseas leaders are also advancing. During this window, domestic manufacturers are not merely filling gaps," said a head of an optical chip company in Hubei province. "The goal is to complete the transition from 'usable' to 'reliable' and then to securing large-scale customer purchases as quickly as possible. This is essentially a battle for market position." Optical chip companies must not only keep pace with the current capacity gap but also strive for a defining role in new technological pathways.
The industrial logic of import substitution, combined with a market structure of supply-demand imbalance, is attracting substantial capital into the optical chip sector. Some funds continue to invest in the EML solution path, while other forward-looking capital is focusing on silicon photonics chips.
According to several industry insiders, the optical chip sector is characterized by high barriers and strong customer loyalty. Companies that can truly endure market cycles are those with integrated IDM (Integrated Device Manufacturer) capabilities, deep partnerships with core clients, and sustained high-intensity R&D investment. The window of opportunity is now open. How to evolve from a "substitute" to a "leader" is the real test facing every company in the field.
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