Summary of MPO Connector Industry Research Industry Overview - The MPO connector industry is experiencing a surge in demand driven by AI requirements, particularly in data centers, which have become the mainstream application scenario for MPO connectors, including backbone cables, jumpers, branch cables, and conversion cables [1][3][5] Key Growth Drivers 1. **Overall Demand Release and Rate Iteration**: The demand for optical modules is increasing, leading to a rise in both quantity and price of MPO connectors. The upgrade from 400G optical modules using 8/12 cores to 800G/1.6T modules using 16/24 cores significantly enhances product value [1][5][6] 2. **Structured Cabling System Upgrade**: Traditional point-to-point cabling is being replaced by structured cabling, which offers greater flexibility and scalability. This transition increases the demand for MPO connectors due to the need for intermediate devices like patch panels and adapters [1][7] 3. **CPO Technology Catalysis**: CPO technology does not affect external MPO usage but creates new internal application scenarios within switches, increasing the demand for multi-core and thin MPO products [1][8] Core Applications - MPO connectors play a crucial role in telecommunications and data centers, with AI demand significantly driving MPO usage in data centers. The main applications include backbone cables, jumpers, branch cables, and conversion cables [2][3] Market Dynamics - The MPO market is characterized by a shift towards high-density connections, with the ability to support multiple fiber cores (8, 12, 24, etc.), which reduces cabling complexity and space requirements in data centers [2][3] Key Players and Business Performance - **Longxin Bochuang**: Expected to contribute over 1 billion in revenue this year, with a projected growth rate exceeding 50% next year, driven by deep integration with Google and breakthroughs with major clients like Meta [3][14] - **Taichen Optics**: Contributes a significant portion of revenue from MPO business, with ongoing developments in CPO and new products like flexible optical boards, which have already generated tens of millions in revenue [3][15] - **Shijia Bochuang**: Achieved substantial growth in optical chip and device business due to increased demand for high-speed optical modules [12][13] Emerging Technologies - **Flexible Optical Boards**: A new product designed to optimize fiber arrangement in limited spaces, showcased by Taichen Optics, which aims to enhance internal interconnect bandwidth in data centers [10] Supply Chain Insights - Key suppliers include MT connectors and optical fibers, with major players being overseas manufacturers like ESCO and domestic suppliers like Fokxima. Midstream manufacturers include Bochuang, Changxin Bochuang, and others, with strategic acquisitions to enhance NPO product supply [11] Conclusion - The MPO connector industry is poised for significant growth driven by technological advancements, increasing demand for data center bandwidth, and strategic partnerships among key players. The transition to structured cabling and the rise of AI applications are critical factors influencing this market's trajectory [1][3][5][9]

Investment Rating - The report initiates coverage with a "Buy" rating for the company, assigning a target price of 132.30 RMB based on a 70x PE for 2025 [3]. Core Insights - The company is a leading domestic optical fiber connector manufacturer, heavily reliant on Corning, which accounts for 70% of its revenue. The partnership allows the company to indirectly supply major North American clients like NVIDIA and Microsoft [2][17]. - The main product, MPO (Multi-fiber Push On) connectors, is entering an upward cycle, supported by strong demand from data centers and advancements in technology such as CPO (Co-Packaged Optics) and OIO (Optical I/O) [2][49]. - The company has a competitive edge due to its close collaboration with Corning and its strategic positioning in the supply chain, which enhances profitability [2][36]. Summary by Sections 1. Company Overview - The company is a leader in the optical device industry, with a product portfolio that includes passive optical components, active optical products, and optical sensing products. Optical connectors contribute significantly to its revenue [13][14]. - Corning is the largest customer, contributing 70% of revenue, with a strong focus on exports, which account for nearly 80% of total sales [17][26]. 2. Main Products and Market Dynamics - MPO connectors are crucial for short-distance interconnections in data centers, with the market expected to grow significantly due to the increasing demand for high-speed data transmission [49][50]. - The report highlights that the value of MPO per GPU is expected to increase as data center architectures evolve and transmission speeds rise, with estimates showing values reaching up to $381 per GPU in advanced configurations [58][59]. 3. Financial Projections - Revenue projections for 2025-2027 are estimated at 2.01 billion RMB (+46%), 2.81 billion RMB (+40%), and 3.85 billion RMB (+37%), respectively. Net profit is projected to grow significantly, with estimates of 430 million RMB (+65%) for 2025 [3][6]. - The company's gross margin is expected to remain strong, with a forecasted gross margin of 42% in 1Q25, reflecting its competitive position in the industry [36][30]. 4. Competitive Landscape - The MPO market is characterized by a fragmented competitive landscape, with the top three players holding a combined market share of 36%. The company benefits from its established relationships and cost advantages in the supply chain [61][62]. - The report emphasizes the importance of technological advancements in the MPO industry, which are expected to enhance the overall market valuation and competitive dynamics [2][49].

Summary of the Conference Call for Shijia Photonics Company Overview - Shijia Photonics initially entered the telecom market with PLC splitter chips and devices, later expanding into data center AWG chips and devices, and further into active chip fields, creating a product portfolio of passive and active chips. In 2024, optical chips and devices contributed approximately 56% of the company's revenue, serving as the main profit source [2][6]. Key Industry Insights - The AWG products are used for wavelength division multiplexing in optical modules, primarily applied in FR optical modules for distances over two kilometers, achieving cost savings on fiber and connectors. Despite a revenue decline in 2023 due to Nvidia's network design impact, AWG demand is expected to recover significantly in 2024 due to network architecture decoupling and demand recovery from clients like Meta [2][14]. - The AWG market is projected to experience several-fold growth from 2025 to 2026, driven by the sustained demand for Meta's 800G FR optical modules. Shijia Photonics holds a significant market share as the largest AWG wafer manufacturer, benefiting from scale effects and cost advantages [2][14]. - The MPO connector market is currently in a high-growth phase, with a market size estimated between 10 billion to 20 billion RMB, driven by the increasing demand for multi-channel transmission [4][22]. Financial Performance - In 2024, the revenue structure of Shijia Photonics shows that optical chips and devices account for about 56% of total revenue, with other products contributing approximately 44%. The breakdown includes PLC splitter chips at 7%, AWG chips and devices at 26%, DFB laser chips at 7%, and fiber connectors at about 12% [6]. Strategic Focus - Shijia Photonics focuses on the optical chip and device sector based on the anticipated future trends in the optical communication industry. The company aims to penetrate the data center market with its core product being high-power CW light sources, which have a significantly lower technical barrier compared to EML and VCSEL chips, presenting opportunities for Chinese manufacturers [3][25][26]. Market Dynamics - The fiber connector market is expected to explode in the second half of 2024, primarily benefiting from the increased construction of data centers in North America. The demand for MPO connectors is driven by data center cabling companies rather than direct sales from optical modules [4][16][18]. - The demand cycle for MPO products differs from that of optical modules, as MPO connectors have a longer lifespan and are primarily driven by the procurement of data center cabling systems [16]. Competitive Landscape - The MPO connector market is highly fragmented, with major players like Changying Sheng, Taichen Light, Shijia Photonics, and Tianfu holding a combined market share of less than 30%. Shijia Photonics reported a revenue of 150 million RMB from fiber connectors in 2023, with significant growth expected in 2024 [22]. Future Outlook - The market for CW laser modules is projected to reach a potential scale of approximately 3.6 billion RMB by 2025, driven by the expected shipment of 30 to 40 million units of 400G and above high-speed optical modules [27]. - The penetration rate of AWG products in FR optical modules is currently low, estimated at under 30%, with potential growth to 50% in the future [28]. - The growth of the MPO product market is driven by the active construction of new data centers and the expansion of channel numbers due to new product forms like CPO and OIO [29][20]. Internal Management Reforms - Shijia Photonics has implemented internal reforms, including the establishment of business units and the introduction of KPI assessment mechanisms, leading to improved management precision and a significant increase in gross margins [31].

Summary of Conference Call Records Industry Overview - The conference call primarily discusses the domestic computing power industry and the optical communication sector, highlighting the performance of various companies within these industries [1][4][8]. Key Points and Arguments Domestic Computing Power Industry - The Ascend 910C chip has shown performance improvements, narrowing the gap with NVIDIA's H100, primarily used in Huawei's cloud infrastructure. Strong demand from downstream internet companies is expected to lead to large-scale shipments by May 2025, utilizing a dual 910B chip packaging solution [1][2]. - The overall performance of domestic graphics cards has improved, with increased customer acceptance and a positive outlook for the upstream supply chain, including connectors, liquid cooling, and servers [2]. Optical Communication Sector - The optical communication segment has exceeded expectations, with companies like NewEase and Shijia Photon showing strong performance. Source Technology's CW light source shipments have significantly improved revenue and profitability, with new product gross margins exceeding 80% [1][4]. - Domestic optical module companies, such as Guangxun Technology, experienced a slight decline in Q1 but showed significant improvement in profitability. Demand for domestic optical modules remains high, with production capacity expected to ramp up to 700,000 to 800,000 units per month this year [1][4]. Company Performance Highlights - NewEase and Shijia Photon have reported strong revenue and profit growth, driven by overseas demand for passive devices and corresponding chip products. Their revenue and gross margins for AWG, MPO connectors, and indoor optical cable products have significantly improved [5]. - In contrast, Invec's performance in the liquid cooling segment fell short of expectations, leading to a stock price decline. However, revenue met expectations, and the company faces increased margin pressure due to intensified competition in domestic temperature control orders [8]. Market Trends and Future Outlook - The communication sector's overall performance has been mixed, with some companies meeting expectations while others, like Invec, have struggled. The industry remains optimistic due to high investment from major players like ByteDance, Alibaba, and Tencent, which is expected to drive growth [8][9]. - The AI large model continues to evolve, with significant increases in computing power demand. For instance, Baidu's new model has reduced costs to about one-fourth per million tokens, indicating a growing need for computing resources [12]. - Investment recommendations focus on three areas: self-controlled supply chains (including high-speed connectors and liquid cooling), domestic computing power and AI data center industry trends, and advancements in AI applications, particularly in IoT smart modules and controllers [13]. Additional Important Insights - The optical communication sector's performance is expected to see rapid growth in domestic and international capacity releases over the next few years, particularly in overseas DCI business, which will contribute to significant revenue growth [5]. - The overall sentiment in the communication sector is optimistic, with expectations of continued improvement in profitability and growth trajectories for companies involved in new product releases and increased shipments [6][7].