Light Chip Shortage Continues Until 2027, CPO and OCS Markets Booming

Overview

This report is based on the latest financial statements of Lumentum (LITE), Coherent (COHR), and Corning (GLW) investor day information, deeply analyzing the supply-demand landscape and technological evolution of the optical communication industry under the wave of global AI infrastructure. The core view is driven by strong demand for 800G/1.6T optical modules, the supply-demand gap for optical chips (especially EML and CW lasers) will persist and even widen in 2026-2027. Meanwhile, optical circuit switch (OCS) and co-packaged optics (CPO) technologies are accelerating commercialization, expected to ramp up significantly starting H2 2026. This high enthusiasm is spilling over into the fiber optic cable industry, benefiting Chinese optical module leaders with strong supply chain management capabilities and Chinese fiber manufacturers actively expanding overseas markets.

Core views

Optical chip supply-demand imbalance intensifies, supporting industry optimism. Lumentum data shows its EML (Electro-absorption Modulated Laser) revenue doubled sequentially, management points out the EML supply-demand gap has expanded to over 30% (previously 25%-30%), with no sign of relief in the short term, laser chips possess pricing power. Meanwhile, ultra-high power CW lasers used for CPO are also ramping up, the company has secured orders worth hundreds of millions of dollars, expected delivery in first half of 2027. New technical paths OCS and CPO market space is huge. Coherent upgrades OCS market opportunity estimate to over $4 billion, reflecting application scenario expansion and customer participation increase. For CPO, Coherent believes it represents over $15 billion incremental addressable market, estimated scale-out CPO revenue will start climbing in second half of 2026, while scale-up CPO revenue will start climbing in second half of 2027. Lumentum also confirms CPO-related CW lasers are ramping up, and 1.6T optical modules will start climbing in FY26 Q4. Corning strategic upgrade, deep binding with NVIDIA. At investor day, Corning raised 2028 revenue run-rate target from $30 billion to higher levels, extended to reach $40 billion by 2030. Its growth drivers include AI cluster scale expansion (requiring increase in third layer optical layer, content volume increases 50%), bandwidth growth, and optical penetration in scale-up networks. Corning announced long-term technology and commercial partnership with NVIDIA, expanding its US-based optical connection manufacturing capacity 10x, fiber capacity expanding over 50%, to meet accelerated demand from AI factory construction. In addition, Corning is optimistic about passive photonics business (new MAP), expected $10 billion market opportunity by 2030. Chinese companies benefit logic is clear. Report believes optical chip shortage and technology upgrades (evolution from 800G to 1.6T, silicon photonics) will benefit existing market leaders. Zhongji Xinchuang (300308 CH) is favored due to strong execution in supply chain management; Tianfu Communications (300394 CH) mentioned as potential beneficiary of CPO progress; Yangtze Fiber (6869 HK) benefits due to Corning's optimistic outlook on fiber product demand in scaled networks, and its active overseas market expansion strategy.

Analysis framework

Report adopts 'Upstream validation of downstream' analysis approach. First, by interpreting global optical communication core component厂商 (Lumentum, Coherent) financial statements and guidance, capture upstream optical chips (EML, CW Laser) supply tension signals and capacity expansion rhythm, thereby inferring midstream optical module industry demand sustainability and technology iteration direction (such as 1.6T, CPO). Second, combined with infrastructure material giant Corning investor day information, verify macro trend of optical connection density improvement for AI computing clusters, and through details of its cooperation with NVIDIA, confirm market certainty of high-end optical connection solutions. Finally, map these global supply chain logic to Chinese core targets, evaluate degree of benefit in supply chain advantages, technical positioning and market expansion.

Methodology notes

• Industry / Industrial Analysis FrameworkSupply-demand framework

  Judge sustainability of optimism in midstream (optical modules) industry through supply-demand gap of upstream core components (optical chips)

  When there is severe undersupply and lagging capacity expansion of upstream key components, it usually means midstream manufacturers have stronger bargaining power and confirmed order visibility, which is an important indicator for judging industry cycle position.

• Industry / Industrial Analysis FrameworkSupply Chain Upstream-Midstream-Downstream Transmission

  Transmission mechanism of AI computing infrastructure optimism to optical communication entire industry chain

  Report shows how expansion of AI GPU cluster scale transmits step-by-step to optical module rate upgrade (800G->1.6T), new architecture introduction (OCS/CPO), and basic material demand increase (fiber/passive devices), embodying vertical value transmission of industry chain.

• Competition and Strategy FrameworkMoat / competitive advantage

  Supply chain management capability as core competitive advantage of optical module enterprises

  Against background of core component shortage, enterprises that can stably secure supplies and guarantee delivery (such as Zhongji Xinchuang) have significant moats compared to competitors, this directly converts to market share and profit advantages.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Zhongji Xinchuang (300308 CH)

  Beneficiary: Optical Module market leader, benefits from 800G/1.6T demand and technology upgrades

  Strengths

  Strong supply chain management capabilities, guarantee delivery in chip shortage environment

  Comparison

  Advantage in acquiring scarce optical chips compared to other module vendors

  Risks

  Customer demand below expectations; Technology change risk; Large client strategy changes; Geopolitical risk

• Tianfu Communications (300394 CH)

  Beneficiary: Potential beneficiary of CPO technology progress

  Strengths

  Technology accumulation in passive optical devices and optical engine fields

• Yangtze Fiber (6869 HK)

  Beneficiary: Favorable demand for optical fiber products in scaled networks, actively expanding overseas markets

  Strengths

  Leading Chinese optical fiber and cable manufacturer, active overseas expansion

Key data

• Lumentum Q4 FY26E Revenue Guidance Midpoint$985 millionYoY Growth Rate approx 104.9%
• Lumentum EML Supply-Demand Gap>30%Expanded further from previous quarter 25%-30%
• Coherent OCS Market Opportunity Estimate>$4 billionReflects application scenario expansion
• Coherent CPO Incremental Market Opportunity>$150 billionEstimated scale-out CPO ramping up starts 2H26E
• Corning US Optical Connection Capacity Expansion Plan10xCooperation with NVIDIA, meet AI factory demand
• Zhongji Xinchuang Target PriceCNY 1,015.00Based on 50x 2026F EPS
• Tianfu Communications Target PriceCNY 420.00Based on 50x 2026F EPS
• Yangtze Fiber Target PriceHKD 266.00Based on 23.7x FY27F EPS

Impact & implications

Report believes high optimism in optical communication industry has shifted from pure volume increase to 'volume and price rising together' and 'technology iteration' dual-wheel drive. For industry leaders like Zhongji Xinchuang, upstream chip shortage instead consolidates their market position, because smaller players struggle to obtain sufficient key component supplies. For passive/engine component vendors like Tianfu Communications, CPO technology push means value shifts inside the box, bringing new growth poles. For fiber vendors like Yangtze Fiber, AI cluster demand for fiber density improvement (fiber content per GPU increases 1.3-1.5x) provides long-term structural growth动力。Overall, AI infrastructure capital expenditure still accelerating, optical communication sector is one of the most certain beneficiary segments.

Risks

• Optical component/module market demand weaker than expected
• Optical communication technology changes weaken company competitiveness
• Top customer strategy change or supply chain diversification
• Geopolitical risk

What to watch

• Ramp-up situation of scale-out CPO revenue in second half of 2026
• Start of scale-up CPO revenue in second half of 2027
• Trend changes in EML and CW laser chip supply-demand gaps
• Actual landing progress of Corning-NVIDIA cooperation capacity
• Shipment volume of 1.6T optical modules in FY26 Q4