Summary of Key Points
Fiber-optic concept stock Tongding Interconnect, which has risen by more than 400% this year, recently experienced a sudden limit-down, triggering a collective pullback in the "fiber-optic trio" (Changfei Fiber Optics, Zhongtian Technology, and Hengtong Optoelectronics). The reasons behind this include concerns about changes in technological routes (with Corning introducing Glass Bridge) and capacity expansion (Dahua Laser increasing production of fiber preforms), as well as fundamental issues with Tongding Interconnect itself, such as a low proportion of its business focused on fiber optics and profits eroded by non-core activities. These factors have led to a cooling of the concept-driven speculation, causing the stock price to fall ahead of its underlying fundamentals.
I. Tongding Interconnect's Limit-Down: The Bursting of a "Concept Bubble" in a 4-Fold Bull Stock
Tongding Interconnect's stock price has quadrupled this year, making it a "star stock" in the fiber-optic sector. However, its actual business does not match the market's perception of it as a fiber-optic company:
- Low proportion of fiber-optic business: The 2025 annual report shows that fiber-optic and cable revenue only accounts for 5.34% of total revenue, with the main sources being power cables (38%) and communication cables (26%), indicating it is essentially a traditional cable manufacturer.
- Repeated clarifications failed to stop speculation: The company issued five announcements regarding significant price increases, repeatedly emphasizing that it does not manufacture optical modules or chips and has no connection with NVIDIA, and that its fiber-optic products have little impact on data centers. However, market speculation continued.
- The decline triggered the first risk announcement: Starting June 26, the sector experienced a sharp drop, and Tongding Interconnect saw net outflows of over 1 billion yuan in five days. On July 1, it issued a notice due to three consecutive days of more than 20% declines, and on July 2, its stock price hit the daily limit-down.
II. The Trigger for the Sector's Pullback: Concerns about Technological Replacement and Capacity Expansion
The collective decline in the fiber-optic sector was not accidental, with two events directly fueling market anxiety:
1. Corning's new technology raises fears of replacement: Corning introduced the "Glass Bridge" glass optical interconnection component, claiming it can simplify the optical connection process. Although officials described it as a complement to traditional solutions, the market fears it may replace some fiber-optic components (such as Fiber Array Units, FAUs), potentially reducing midstream demand. However, industry experts are more cautious: Changfei Fiber Optics' president stated that even if 100 million CPOs were using this technology, the impact on fiber-optic demand would be minimal in the short term (1-2 years).
2. Dahua Laser's capacity expansion raises concerns about oversupply: Dahua Laser announced a $2.5 billion investment to produce 60 million kilometers of fiber and preforms. The fiber-optic industry has a history of overcapacity leading to price collapses: the Broadband China initiative in 2013 led to massive production increases, and in 2019, operator procurement prices dropped from 60 yuan/kilometer to less than 30 yuan, resulting in a 80% drop in company profits. With Dahua Laser entering the industry as a leader in laser equipment, there are concerns that this expansion could repeat the same scenario.
III. Tongding Interconnect's Fundamentals: The Core Business is Improving, but Profits Are Hindered by Non-Core Activities
Tongding Interconnect saw a 61% increase in revenue and a 765% rise in net profit (excluding non-recurring items) in the first quarter of this year. However, its parent company's net profit decreased by 61%. The issues lie with non-core activities:
- Investment and futures losses: The company suffered losses of 45.38 million yuan from changes in the fair value of its *ST Yunchuang* equity and 13.78 million yuan from copper futures hedging, totaling over 59 million yuan, which eroded most of the profits generated by its core business.
- Business structure: Its core business is traditional, while new businesses are still in their early stages. The optoelectronic communications segment accounts for 70% of revenue, and the security business is growing rapidly (20%, up 456% year-over-year), but the new energy business only accounts for 1.29% and is still being developed. Despite this, the company is considered a "fiber-optic leader" by the market, creating a bubble in its stock price.
IV. The Future of the Fiber-Optic Industry: Will Overcapacity Repeat the Past Tragedy?
The fundamentals of the fiber-optic industry are not weak—orders are full, prices are stable, and demand from AI applications is strong. However, the impulse for expansion raises concerns about future oversupply:
- Past lessons: Overcapacity in 2013 led to price collapses in 2019. With current AI-driven demand, companies are expanding aggressively. Senior analyst Ding Daoshi predicts that if capacity continues to exceed demand, fiber-optic prices may fall around 2028, potentially affecting other hardware products such as memory and hard drives.
- Insider perspectives: While there are no short-term issues, the long-term outlook depends on demand. CITIC Securities believes the industry's fundamentals remain unchanged, but market focus has shifted from current prosperity to future expectations. Morgan Stanley argues that existing CPO solutions are not affected by Glass Bridge, so the impact will be limited in the short term.
In summary, the recent pullback in the fiber-optic sector is a result of market concerns about technological replacement and capacity expansion. Tongding Interconnect's limit-down serves as a reminder that stock prices driven by speculation must ultimately reflect underlying fundamentals.