Yangtze River - Optical Chip

1. Industry Positioning: The Core Segment with the Highest Technical Barriers and Value in the Optical Communication Industry Chain

Optical chips are the performance cornerstone of optical communication systems, determining the quality, speed, and energy efficiency of optical signal transmission. They are the key components with the highest technical barriers and added value in optical modules.

2. Technology Path: Silicon Photonics Penetration Accelerates, Light Source Shifts from EML to CW

Traditional discrete solutions face bottlenecks at 1.6T and higher speeds, driving increased penetration of high-integration, low-cost silicon photonics solutions.
This triggers a structural shift in light sources: from EML chips suitable for discrete solutions to high-power CW (Continuous Wave) light sources suitable for silicon photonics integration. Both are based on the InP material system.

3. Competitive Landscape: Overseas Dominates EML, Domestic Focuses on CW for Differentiated Competition

EML Chips: Overseas leaders (e.g., Lumentum) hold a technological lead. Domestic manufacturers are catching up but face difficulties in securing major overseas customers.
CW Light Sources: Have become the main focus for domestic manufacturers. Due to their shorter process chain, easier yield optimization, and high synergy with domestic module manufacturers, domestic players (e.g., Shijia Photons, Yuanjie Technology) have achieved mass production breakthroughs.

4. Core Barriers: R&D, Yield, and Production Capacity Form the Industry's Three Major Moats

R&D Iteration: Must keep pace with the AI-driven accelerated iteration rhythm of optical modules.
Process Yield: The key "Know-How" for profitability, particularly reflected in the two major challenges of epitaxial growth and grating construction.
Capacity Expansion: High dependence on imported core equipment (MOCVD, EBL), long expansion cycles (1-1.5 years), resulting in relatively rigid supply.

5. Demand Drivers: AI Computing Power Surge is the Core Growth Engine, Bringing Triple Growth Logic

Industry Volume Growth: AI interconnectivity demands drive optical modules towards 800G/1.6T high-speed iterations, directly boosting optical chip demand.
Silicon Photonics Structural Opportunity: Accelerating silicon photonics penetration continuously increases the proportion and value of CW light source configurations.
Domestic Substitution Share Increase: Global optical module production capacity is concentrating in China, coupled with supply chain security considerations, the share of domestic optical chips is expected to rise continuously.

6. Supply Bottleneck: Upstream Material Shortage, Short-term Supply-Demand Gap Reaches 25%-30%

Upstream Constraints: The InP substrate market is highly concentrated with long expansion cycles. Export controls further extend delivery lead times.
Tight Capacity: Overseas leaders are operating at full capacity. According to Lumentum's forecast, there is currently a **25%-30%** supply-demand gap for optical chips, and the tight supply situation is difficult to alleviate in the short term.

7. Process Challenges: Epitaxy and Grating are Key to Determining Performance and Yield

Epitaxial Growth: Uses MOCVD process, with complex structures (especially for EML). It is the segment with the highest technical barrier and cost, directly determining laser performance.
Grating Construction: Mainstream methods include Electron Beam Lithography (EBL) or Nanoimprint Lithography (NIL). Precision directly affects core characteristics like product reliability and output power.

8. Domestic Advantage: CW Light Source Process is Shorter, Yield Easier to Optimize, Strong Synergy

Compared to EML, CW light sources have a more concentrated structure, eliminating the need for monolithic modulator integration, significantly shortening the process chain, making mass production yield easier to improve and optimize.
Domestic CW light source manufacturers possess natural high synergy advantages with local module and silicon photonics chip manufacturers in terms of geography, communication, and supply chain, enabling faster response times.

9. Market Size: CW Light Source Market Offers Vast Space, Entering Volume Realization Phase

According to estimates, with the ramp-up of 400G/800G/1.6T silicon photonics modules, the global CW laser market size is expected to grow rapidly from approximately $40 million in 2024 to $1.03 billion in 2027, demonstrating significant growth elasticity.

10. Investment Recommendation: Focus on Leading Domestic CW Light Source Manufacturers

The report clearly recommends focusing on leading domestic CW light source manufacturers under the triple resonance logic of industry volume growth, silicon photonics penetration, and domestic substitution.
Key Recommendation: Shijia Photons
Key Focus: Yuanjie Technology

Summary:
The core logic of the report is: The AI computing power demand ignites optical module upgrades, making silicon photonics the inevitable path, thereby creating a deterministic surge in demand for the core light source — CW laser chips. Domestic manufacturers, leveraging their process advantages, yield potential, and local synergy on the CW path, have encountered a historic opportunity for differentiated overtaking. The short-term supply gap currently facing the industry further strengthens the earnings elasticity of leading manufacturers. Investment should closely follow the core theme of "Domestic CW Light Sources", capturing the trend of value transfer towards the most upstream core segment in the optical communication industry chain.