Greater China technology hardware is jointly driven by demand for AI servers, AI smartphones, and optical interconnects

Overview

This report is Morgan Stanley's investor presentation materials titled "Asia Summer School: Greater China Technology Hardware," published on July 2, 2026, covering the Greater China technology hardware industry chain. From the perspectives of AI smartphones, servers, optical interconnects, ABF substrates, MLCC, e-paper, automation, and the laptop and iPhone supply chain, the material discusses demand, supply, and earnings leverage for 2026-2028.

Core views

The core view is that AI is expanding hardware opportunities from a single end device to server racks, optical interconnects, PCB/substrates, passive components, thermal management, rails, and new terminal form factors. AI server momentum remains strong, with memory share in Rubin-related BOM potentially rising to 25%+; ODM value-add for VR200 racks is expected to increase by about 38%. On AI smartphones, the cooperation between ZTE nubia and Doubao is viewed as a potential positive catalyst. Optical interconnects and CPO/NPO drive opportunities for Crystal-Optech, optical modules, and PCB-related players; tight supply of ABF and T-glass reinforces the pricing power logic for upstream materials and substrates.

Analysis framework

The report adopts a bottom-up industry chain breakdown approach, combining end-demand, cloud capex, server rack structure, key component BOM, company revenue forecasts, and supply chain capacity constraints to assess investment opportunities. The material also uses company data, IDC, Yole, and Morgan Stanley Research estimates to support judgments on revenue, shipments, gross profit, and market share.

Methodology notes

• Industry chain analysisBottom-up hardware value decomposition

  Break down value across AI server racks, switches, optical modules, substrates, MLCC, rails, thermal management, and other links.

  This framework is used to judge the revenue leverage of AI server upgrades for different components and ODM vendors. The report specifically mentions that ODM value-add per VR200 rack is expected to increase by about 38%.

• Supply chain validationSupply chain research and shipment forecasting

  Estimate end-product and component shipments by combining supply chain checks, IDC data, and company data.

  The report uses this method to estimate 3Q26 laptop builds, 3Q26 iPhone builds, GB200/300 rack supply, and optical module shipments.

• Supply-demand cycleCapacity tightness and gap analysis

  Judge supply gaps through demand growth and the pace of capacity expansion.

  ABF substrates are expected to be in short supply starting in 2027, and T-glass is expected to remain supply-constrained through 2028, reflecting the supply-demand cycle logic of upstream materials and substrates.

Asset mapping & comparison

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

• Xiaomi / Transsion

  Observation targets for smartphone gross margin trends

  Strengths

  The report lists smartphone gross margin trends for both companies as an area to watch, reflecting that end-device profitability in consumer electronics remains an important variable for the hardware sector.

  Weaknesses

  The material does not provide explicit ratings, target prices, or complete gross margin figures.

  Comparison

  Both companies are in the smartphone end-market, but differ in region, product mix, and channel positioning.

  Risks

  Smartphone demand fluctuations, price competition, rising component costs, and exchange-rate changes.

• AAC Technologies Holdings

  Beneficiary of VC thermal management and AI hardware opportunities

  Strengths

  The report highlights rapid VC shipment growth and identifies new AI hardware form factors such as AR glasses, headphone-like devices, pendants, pens, and desktop robots as potential opportunities.

  Weaknesses

  New AI hardware form factors are still at an early stage, and the pace of mass production and consumer acceptance remain uncertain.

  Comparison

  Compared with traditional acoustics and precision components, VC and AI hardware may provide a new growth curve.

  Risks

  AI hardware penetration below expectations, customer concentration, and declining product ASPs.

• ZTE Corporation

  AI smartphone and server growth theme

  Strengths

  The first batch of nubia M153, about 30,000 units, sold out in one day, with a launch price of Rmb3,499 and resale prices as high as Rmb4,999; strong feedback drove notable gains in both H-shares and A-shares.

  Weaknesses

  The first-batch sales scale was limited, and AI smartphone commercialization still requires validation from follow-up models.

  Comparison

  Unlike ordinary AI chat functions, the product emphasizes deep integration of the Doubao model at the operating system level.

  Risks

  AI smartphone replacement demand below expectations, changes in ecosystem partnerships, and regulatory and supply chain constraints.

• Crystal-Optech

  Beneficiary of CPO/NPO optical infrastructure

  Strengths

  The company is leveraging its optical, thin-film coating, and precision manufacturing capabilities to position itself in key CPO ecosystem layers such as silicon lenses, TGV glass substrates, and WDM filters.

  Weaknesses

  There is uncertainty around the industrialization pace of CPO/NPO, customer adoption, and capex realization.

  Comparison

  Compared with traditional optical consumer electronics businesses, AI optical infrastructure offers a higher-growth theme.

  Risks

  Technology route changes, yield ramp-up, and delays in customer validation.

• Accton Technology Corporation

  Dual driver from network switches and AI accelerator modules

  Strengths

  The report shows 2025-2028E revenue CAGR of 29% and focuses on ODM switch share, network switch revenue, and network application revenue forecasts.

  Weaknesses

  Growth depends on cloud customer capex and the pace of AI network deployment.

  Comparison

  Compared with traditional network equipment demand, AI cluster networking places higher demands on high-speed switching and accelerator modules.

  Risks

  Slower cloud capex, customer concentration, intensifying competition, and margin pressure.

• King Slide

  Beneficiary of server rail kits

  Strengths

  The report notes favorable dynamics in the server rail market and shows 2025-2028E earnings CAGR of 30%.

  Weaknesses

  The business is tied to the shipment pace of AI server racks; slower rack deployment would affect revenue leverage.

  Comparison

  Compared with chips and optical modules, which have higher technical barriers, rails are a steadier beneficiary within the server mechanical structure value chain.

  Risks

  Server order volatility, pricing pressure, capacity risk, and customer qualification risk.

• E Ink Holdings Inc.

  Long-term e-paper growth theme

  Strengths

  The report says it has re-entered the coverage focus, with e-paper signage and multi-scenario applications likely to drive long-term growth, alongside 2025-2028E revenue CAGR of 18%.

  Weaknesses

  E-paper demand still requires expansion of application scenarios and cost reductions.

  Comparison

  Compared with traditional consumer electronics displays, e-paper is differentiated in low-power signage and IoT scenarios.

  Risks

  Penetration below expectations, competition from alternative display technologies, and customer budget fluctuations.

• Hiwin Technologies Corp. / AirTAC International

  Observation targets related to automation and China's manufacturing PMI

  Strengths

  The report compares monthly sales with China's manufacturing PMI, showing that automation demand is linked to manufacturing conditions.

  Weaknesses

  Automation demand is heavily influenced by the broader manufacturing cycle.

  Comparison

  Unlike AI server hardware, the automation sector is more affected by the industrial cycle and China's manufacturing capex.

  Risks

  Weakening manufacturing PMI, slower equipment investment, and declining order visibility.

• ABF substrates, T-glass, and PCB supply chain

  Key upstream materials for AI servers and high-speed interconnects

  Strengths

  The report expects ABF substrates to be in short supply from 2027 onward, with AI-related applications rising to 75%+ by 2030, while T-glass remains supply-constrained through 2028.

  Weaknesses

  The tight-supply view depends on AI accelerator demand and the pace of capacity expansion.

  Comparison

  Compared with end brands, substrate and material segments benefit more directly from rising complexity in advanced packaging and high-compute chips.

  Risks

  Slower AI chip demand, capacity expansion exceeding expectations, and changes in substitute materials or packaging routes.

• Optical modules and AI interconnect supply chain

  Beneficiary direction of high-speed interconnects in AI data centers

  Strengths

  The report expects combined shipments of 800G, 1.6T, and 3.2T to rise from 73mn units in 2026E to 158mn units in 2028E.

  Weaknesses

  The high-growth forecast is sensitive to cloud capex, GPU cluster deployment, and interconnect architecture upgrades.

  Comparison

  1.6T and 3.2T represent higher-speed upgrades and have greater growth elasticity than mature lower-speed products.

  Risks

  Adjustments in cloud vendor capex, technology route migration, price declines, and intensifying competition.

Key data

• Report date2026-07-02Morgan Stanley Research investor presentation materials.
• ZTE nubia M153 launch priceRmb3,499 (about US$494)Integrated with the ByteDance Doubao model at the operating system level and launched in limited release in China on December 1, 2025.
• First-batch sales of ZTE nubia M153About 30,000 units, sold out within one dayStrong feedback drove ZTE H-shares up 13.9% and A-shares up 10.0% that day.
• ZTE nubia M153 resale priceUp to Rmb4,999, about a 43% premiumReflecting early demand enthusiasm for the AI smartphone concept.
• Accton revenue growth2025-2028E revenue CAGR 29%The report identifies network switches and AI accelerator modules as dual drivers.
• King Slide earnings growth2025-2028E earnings CAGR 30%Server rail kits are driven by AI server demand.
• E Ink revenue growth2025-2028E revenue CAGR 18%E-paper signage and IoT/consumer electronics applications drive long-term growth.
• VR200 NVL72 single-rack costAbout US$7.8mnThe report estimates the procurement cost of a single VR200 NVL72 rack for hyperscale cloud vendors.
• 2026e GB200/300 racks70-80KThe report forecasts 2026 GB200/300 rack scale.
• VR200 ODM value-addAbout +38%Bottom-up analysis shows increased ODM value-add per VR200 rack.
• ABF substrate supply-demandExpected to be in short supply starting in 2027AI-related applications are expected to account for 75%+ by 2030.
• T-glass supplyExpected to remain tight through 2028Related to ABF substrates and high-end packaging demand.
• Optical module shipment forecast2026E 73mn, 2027E 141mn, 2028E 158mn unitsIncluding 800G, 1.6T, and 3.2T optical modules; 3.2T is expected to reach 8mn units by 2028E.
• 3Q26 laptop builds29mn units (-1% q/q, -15% y/y)Based on IDC and Morgan Stanley Research estimates.
• 3Q26 iPhone builds54mn units (+4% q/q, -2% y/y)2026 full-year supply chain checks show iPhone builds may grow by low- to mid-single digits y/y.

Impact & implications

The report implies that the main investment theme in Greater China technology hardware is expanding from the traditional consumer electronics cycle to AI infrastructure and new AI terminals. Midstream and upstream segments such as servers, optical interconnects, ABF, MLCC, rails, and thermal management may benefit from higher value per AI rack; if AI smartphones move from proof of concept to mass production, they could bring new catalysts for brands, system integration, and the component supply chain. At the same time, laptops and some consumer electronics still face cyclical pressure, requiring a distinction between structural AI-driven increments and fluctuations in traditional end demand.

Risks

• If AI servers and cloud capex come in below expectations, the growth logic for racks, optical modules, ABF, MLCC, and ODMs will weaken.
• AI smartphones are still in the early validation stage, and strong initial sales do not necessarily mean a large-scale replacement cycle has formed.
• High-growth areas such as ABF, T-glass, optical modules, and CPO/NPO face uncertainties in technology routes, capacity expansion, and customer qualification.
• Traditional consumer electronics demand may remain weak; the report expects 3Q26 laptop builds to decline 15% y/y.
• Morgan Stanley states in its disclosures that it has or may have investment banking, shareholding, and other business relationships with multiple covered companies, and investors should note potential conflicts of interest.
• Restrictions related to U.S. Executive Order 14032 may affect compliance for trading certain securities.

What to watch

• Whether ZTE's second AI smartphone co-developed with Doubao launches on schedule in 2026, and whether sales shift from limited-release hype to sustainable demand.
• Whether the 2026e forecast of 70-80K GB200/300 racks materializes, and whether the cost and ODM value-add increase of VR200 NVL72 racks are validated by supply chain orders.
• Whether memory BOM share on the Rubin platform rises to 25%+, and whether demand for high-capacitance MLCC and related passive components expands accordingly.
• The 2027 supply-demand gap for ABF substrates, the degree of tightness in T-glass through 2028, and the pace of capacity expansion by related suppliers.
• Whether shipment forecasts for 800G, 1.6T, and 3.2T optical modules materialize, especially growth in higher-speed products in 2027E and 2028E.
• Progress in mass production of mechanical components for the foldable iPhone model in 2H26, and whether full-year 2026 iPhone builds achieve low- to mid-single-digit y/y growth.
• Changes in the linkage between China's manufacturing PMI and monthly sales of automation companies such as Hiwin and AirTAC.