13 December 2025 | 5:13PM HKT Equity Research Global Optical transceivers: TAM introduced; rising 800G / 1.6T driven by growing AI servers infrastructure We are introducing our global optical transceiver TAM, a demand angle based on our server forecasts and the corresponding connection needed. We cover (1) the adoption trend by speed, with 1.6T ramping up adoption in 2026-27E and 3.2T starting adoption in 2027E. (2) the penetration of silicon photonics solutions, increasing along with optical module speed m ...

Summary of Conference Call Notes Industry Overview - The report focuses on the **optical networking industry** in China, specifically companies **Innolight**, **Eoptolink**, and **TFC Optical**. - The industry is expected to experience significant growth driven by **800G technology** and the **pull-in of 1.6T orders**. Key Financial Expectations - **Revenue Growth**: Anticipated revenue growth of approximately **25%-30%** for 3Q25, primarily due to strong demand for **800G** products and increased orders for **1.6T** technology [1][2]. - **Innolight**: Expected to report **Rmb10.5 billion** in revenue and **Rmb3.3 billion** in net profit for 3Q25, reflecting **29%** revenue growth and **37%** net profit growth quarter-over-quarter [1]. - **Eoptolink**: Projected to achieve **Rmb8.3 billion** in revenue and **Rmb3.1 billion** in net profit, indicating **30%** revenue growth and **31%** net profit growth quarter-over-quarter [1]. - **TFC Optical**: Expected to report revenue of **Rmb700 million**, with performance likely in line with expectations due to constraints in **200G EML** despite strong demand for **1.6T** orders [1]. Long-Term Industry Outlook - The long-term outlook for the optical transceiver market remains positive, with improved demand visibility for **FY26-27**. The industry demand is projected to grow by approximately **43% YoY** in FY27, driven by robust demand from **Cloud Service Providers (CSPs)** and advancements in **ASIC technology** [1][2]. Valuation and Target Prices - **Eoptolink**: Target price set at **Rmb472**, based on a **24.0x FY26E** forward PE, reflecting the strong cycle of **800G/1.6T** products [7]. - **Innolight**: Target price established at **Rmb569**, based on a **25x FY26E** forward PE, factoring in margin improvements from higher **SiPh transceiver** sales [9]. - **TFC Optical**: Target price of **Rmb196**, based on a **36.0x FY26E** PE, considering the strength of **1.6T** products and new customer contributions [11]. Risks to Consider - **General Risks**: - Slower-than-expected investments in data centers [8][10][12]. - Lower-than-expected capital expenditures on optical networks by telecommunications companies and government entities in China [8][10][12]. - Margin pressures due to price competition [8][10][12]. - Potential impacts from escalating **China-US tech disputes** [8][10][12]. Conclusion - The optical networking industry in China is poised for significant growth in the upcoming quarters, with key players like Innolight and Eoptolink expected to outperform market expectations. The long-term outlook remains constructive, supported by technological advancements and increasing demand from CSPs. However, investors should remain cautious of potential risks that could impact growth trajectories.