Summary of Key Points
Rumors that the United States intends to ban the import of Chinese optical modules have caused a significant drop in the prices of A-share stocks related to this industry (with the market value of three companies, including "Yizhongtian," evaporating by over 120 billion yuan). Although the ban has not yet been implemented and its details are unclear, domestic manufacturers have begun to assess its potential impact. These companies have already established overseas production facilities in Thailand and Malaysia as a precaution against risks. However, the optical module industry is highly integrated globally: Chinese manufacturers account for more than 60% of the global market share, while American cloud service providers rely on Chinese production capacity. Chinese manufacturers, in turn, depend on American chips and components. As a result, most analysts believe that the likelihood of a ban is low; however, if it were to happen, it would harm both countries. Chinese manufacturers would lose their major overseas customers (from whom they derive over 90% of their revenue), and American cloud service providers would face capacity shortages and increased costs. In the long run, domestic manufacturers will need to rely more on the domestic computing market.
Detailed Analysis
1. The Rumor Causes a Market Shock: How Do Companies Respond?
The rumor caused a sharp decline in A-share stocks related to optical modules. Three leading companies—Zhongji Xuchuang, New Yisheng, and Tianfu Communication—lost a combined market value of 128.9 billion yuan. In response to investor inquiries, the companies were cautious:
- Zhongji Xuchuang: They had not seen any official documents from the FCC and declined to comment on the impact for now.
- New Yisheng: They are verifying the accuracy of the information and will issue a statement if there is an effect.
- Tianfu Communication (a supplier of components): The ban would have a more direct impact on their downstream customers, and they are still assessing the situation.
- Dongshan Precision: They are monitoring the developments and will announce anything that meets their disclosure requirements.
In short, all companies are waiting for official confirmation, but the market has already reacted negatively, given that the United States is a major customer for Chinese optical module manufacturers.
2. Preparations for Overseas Production: Can Thailand and Malaysia Serve as Buffers?
Domestic manufacturers had anticipated potential trade restrictions and have been preparing by setting up production facilities overseas:
- Zhongji Xuchuang: Established a factory in Thailand in 2019, which is now fully operational.
- New Yisheng: The second phase of their Thai facility is expected to be completed by early 2025, and they are expanding production this year to meet future orders.
- Guangxun Technology: Their Malaysian factory has already received orders for high-end optical modules, and they are planning a base in Thailand as well.
- Dongshan Precision: The main building of their Thai facility is complete, and they are in the process of coordinating tests with overseas cloud service providers.
Theoretically, products manufactured in Thailand and Malaysia might not be affected if the ban targets only Chinese-made optical modules. However, it depends on the specific terms of the ban; if it also prohibits products produced by Chinese companies overseas, these facilities would be useless. Since the details are unclear, this remains a potential buffer.
3. Deep Global Integration: A Ban Could Be Self-Damaging for Both Sides
The optical module industry is highly interconnected:
- China Accounts for Over 60% of the Global Market Share: According to LightCounting, Zhongji Xuchuang holds 27% of the global data center optical module market, and Chinese manufacturers together supply two-thirds of the total.
- American Cloud Service Providers Rely on Chinese Production: Companies like Amazon and Microsoft have invested $700 billion this year in building AI data centers, purchasing most of their optical modules from China.
- Chinese Manufacturers Depend on American Components: Optical modules require components from American companies such as Broadcom and Lumentum; without these, Chinese manufacturers cannot produce high-end products.
Experts suggest that a blanket ban would harm both parties, as American manufacturers (e.g., Coherent) lack the capacity to quickly replace Chinese suppliers, leading to increased costs for American cloud service providers.
4. If the Ban Happens: Domestic Manufacturers Will Suffer, and American Cloud Service Providers Will Face Higher Prices
If the ban is implemented, both sides will be adversely affected:
- For Domestic Manufacturers: Zhongji Xuchuang derives 90% of its revenue from overseas markets; New Yisheng gets 96%. Losing American customers would be a major blow. High-end 800G/1.6T optical modules, which are most profitable, are mainly sold to American AI clients, and the domestic market currently does not have a demand for such products.
- For American Cloud Service Providers: They would face capacity shortages and higher costs, which could be passed on to users in the form of increased prices for cloud services.
In other words, the ban is not aimed at punishing China alone but rather at causing mutual damage.
5. Long-Term Strategy: Domestic Manufacturers Need to Diversify into the Local Market
Given the risks in overseas markets, domestic manufacturers must focus more on the domestic market:
- The domestic computing industry is growing rapidly (e.g., through projects like "East Data West Computing" and large AI models). Although current demand focuses on 100G/400G optical modules, there is a shift towards higher-end products in the future.
- Experts recommend that domestic manufacturers integrate more deeply into the local computing supply chain to reduce their reliance on overseas customers. For example, Tianfu Communication is expanding production domestically, and Dongshan Precision is collaborating with domestic cloud service providers. This represents a step toward diversification.
Conclusion
While the rumor caused market volatility, the likelihood of a ban is low due to the deep global integration in the optical module industry. Even if it occurs, domestic manufacturers’ overseas facilities could provide some relief. However, to reduce risks, they must accelerate their development in the domestic market. For investors, there is no need for excessive panic, but it is important to monitor the developments regarding the ban, as optical modules are a critical component of the AI ecosystem with significant implications.