According to the report released by GF Securities, based on IDC data, the global Ethernet switch market revenue reached USD 11.7 billion in Q1 2025, a year-on-year increase of 32.3%, with data center Ethernet switch revenue increasing by 54.7% year-on-year. Looking ahead to 2026, 1.6T rate data center switches are expected to ramp up, with NVIDIA's Rubin anticipated to be released. The trend for high-frequency and high-speed AI PCBs is clear and developing rapidly, and quartz electronic cloth may welcome a year of significant demand growth. On the supply side, domestic companies' products are entering the sample testing and capacity expansion phase, waiting for demand to ramp up, and are expected to fully benefit from industry dividends, with corporate profit elasticity expected to be released. It is recommended to pay attention to FEILIHUA (300395.SZ), SINOMATECH (002080.SZ), and Grace (603256.SH).

The main points of GF Securities are as follows:

Quartz electronic cloth has excellent electrical insulation and temperature resistance, mainly used in high-frequency and high-speed PCBs

Quartz fiber is made by melting high-purity quartz at high temperatures and drawing it into filaments, which is an inorganic high-performance fiber with a high SiO2 content (>99.95%). The rod drawing method is the main preparation method for quartz glass fiber. Depending on the product form, quartz fiber products can be divided into quartz fiber yarn, quartz cotton, quartz felt, quartz fabric, quartz cloth, quartz tubing, and quartz fiber chopped strands. Quartz fiber yarn is a relatively common product, widely used in the manufacture of aircraft antenna covers. Quartz cloth is used in the electronics industry's high-frequency printed circuit boards.

The trend for high-frequency and high-speed AI PCBs is clear, and quartz electronic cloth may welcome a year of significant demand growth in 2026

CCL (400G and above) above M7 level requires the use of low dielectric fiber electronic cloth, while M9 level CCL (1.6T) requires the use of quartz fiber electronic cloth (Q cloth) to meet dielectric requirements. Quartz electronic cloth may welcome a year of significant demand growth in 2026: (1) The scale of data center switches is growing rapidly, and it is expected that 1.6T switches will gradually ramp up in 2026. According to IDC data, the global Ethernet switch market revenue reached USD 11.7 billion in Q1 2025, a year-on-year increase of 32.3%, with data center Ethernet switch revenue increasing by 54.7% year-on-year. According to Arista, it is expected that 1.6T rate data center switches will gradually ramp up in 2026. (2) GB300 is expected to ship on schedule, and Rubin is anticipated to be released in 2026, with AI servers and switches likely to upgrade to M9 level materials, driving the demand growth for quartz fiber electronic cloth.

Domestic quartz electronic cloth is entering the sample testing and capacity expansion phase, waiting for demand to ramp up

Due to high processing costs, quartz fiber electronic cloth has not previously opened up the electronic application market. Starting in 2024, AI will accelerate the industrialization process of high-end electronic cloth, and currently, multiple companies have begun to send samples of quartz fiber cloth to downstream CCL customers for performance testing. Major companies involved in quartz electronic cloth include Shin-Etsu Chemical from Japan, FEILIHUA, and International Composites. Currently, SINOMATECH and Grace, which have high-end electronic cloth production capacity, may have the ability to further supply quartz electronic cloth. Shin-Etsu Chemical launched quartz electronic cloth products in 2019. FEILIHUA has developed first and second-generation quartz electronic cloth products, with an annual production capacity of 1 million meters expected in 2024, and an anticipated annual production capacity of 20 million meters by 2030 Risk Warning

AI server shipments are below expectations, the release pace of NVIDIA GPU products is slower than expected, and industry capacity expansion exceeds expectations