China Technology & Communications Implications from GTC & OFC 2026 CITI'S TAKE Vi e w p o i n t | 22 Mar 2026 16:58:08 ET │ 16 pages We gathered more comments from the supply chain based on our US tech team publications and checks from the GTC and OFC events. As highlighted in our First Take, LPU production progress and ratio of Rubin Ultra Rack vs. LPX was higher than expected benefiting WUS as the first and largest beneficiary. We see further upside to 2026 pluggable optical transceiver demand and bullish ...

Tower Semiconductor stock is among today’s top performers. What’s fueling TSEM momentum?Tower, Coherent Demonstrate 400 Gbps Per Lane Silicon Photonics BreakthroughThe companies said they successfully demonstrated 400 Gbps per lane data transmission using a silicon modulator built in a production-ready silicon photonics, or SiPho, process. According to the announcement, the demonstration showed a clear open eye at 420 Gb/s PAM4 and used Coherent's InP CW high-power laser. Tower said the achievement is aimed ...

Accessible version US Semiconductors Industry Overview As role of optics in AI grows, TAM reaches $73bn by CY30 AI data center networking trends are accelerating towards higher bandwidth and data rate speeds (doubling every two years), low latency, dense clusters (100Ks of XPUs) for training and inference, longer distances (10m to 10km), and complex architectures for scale-out and scale-up domains. We believe these challenges put the optical communications industry in a strong position to benefit, especiall ...

Core Insights - ShunYun Technology Ltd. (SYT) and Enablence Technologies Inc. have formed a strategic OSAT partnership to enhance the volume manufacturing of optical products, leveraging SYT's manufacturing capabilities and Enablence's optical technology [1][4] Company Overview - ShunYun Technology, founded in 1991, is a leading manufacturer of optical transceiver modules and operates facilities in Vietnam and China, with a branch office in Taiwan [5] - Enablence Technologies is publicly traded on the TSX Venture Exchange and specializes in designing and manufacturing optical components, particularly planar lightwave circuits (PLC) [6] Market Dynamics - The demand for optical assemblies and modules is rapidly increasing, particularly in the AI datacenter sector, which is projected to exceed $40 billion by 2035 [3] - North America currently accounts for approximately 37% of the optical assembly market, driven by investments from major cloud service providers like Google, Meta, Microsoft, and Amazon [3] Partnership Benefits - The collaboration between SYT and Enablence aims to accelerate the production of high-quality optical products for the North American market, combining Enablence's PLC technology with SYT's manufacturing expertise [4]

Summary of Innolight (300308.SZ) FY25/4Q25 Preliminary Results Company Overview - **Company**: Innolight (300308.SZ) - **Market Capitalization**: Rmb593.34 billion (approximately US$86.52 billion) [2] Financial Performance - **Revenue Growth**: FY25 preliminary revenue increased by 60% year-over-year (YoY) to Rmb38.2 billion [1][3] - **Net Profit Growth**: FY25 preliminary net profit rose by 109% YoY to Rmb10.8 billion, aligning with the mid-point of prior guidance [1] - **Optical Transceiver Business**: Excluding the impact of Employee Stock Ownership Plan (ESOP), the optical transceiver segment achieved a net profit of Rmb11.986 billion, up 112% YoY, also in line with guidance [1] Key Focus Areas for Upcoming Report - **Report Release Date**: The full FY25 report is scheduled for release on March 30, 2026, after market close [1] - **Key Focus Areas**: - Margins - Future outlook - Progress on 1.6T and 3.2T product ramps - Development of new optical technologies, including LPO (Low Power Optical), NPO (Next-Generation Optical), and CPO (Coherent Optical) content [1] Analyst Insights - **Citi's Take**: The preliminary results are in line with expectations, indicating strong operational performance and growth in the optical transceiver market [1] Risks and Ratings - **Rating Status**: Currently, the rating for Innolight is suspended [4] - **Investment Banking Relationship**: Citigroup is advising Terahop on a pending M&A transaction involving Zhongji Innolight and expects to receive compensation for investment banking services from Innolight within the next three months [9] Additional Information - **Analyst Contacts**: Kyna Wong, Karen Huang, and Kevin Chen from Citi Research are the primary analysts covering Innolight [3] - **Important Disclosures**: Citigroup has received compensation for services other than investment banking from Innolight in the past 12 months [10][11] This summary encapsulates the key financial metrics, future outlook, and analyst insights regarding Innolight's performance and strategic direction.

Summary of Key Points from the Conference Call Industry Overview - The focus is on the Chinese AI sector, which comprises 3,012 stocks with a total market capitalization of approximately US$10 trillion across five key AI thematic layers and 20 industries [1][6][12]. Core Insights and Arguments - **Investment Approach**: The report emphasizes an "alpha over beta" mindset for investing in Chinese AI equities, highlighting the significant variance in growth expectations and valuations across the sector [1][6]. - **Market Segmentation**: A- and H-shares provide different exposures; A-shares are more focused on sectors like Semiconductors, Power, and Infrastructure, while H-shares are more concentrated on AI applications [5][9]. - **Performance Metrics**: The revamped GS Select China AI Portfolio, which includes 50 names from 22 AI-related industries, has outperformed MSCI China by 67 percentage points since the "DeepSeek moment," with a 97% gain [41][37]. Investment Strategies - **Asset Allocators**: A- and H-shares are complementary, with A-shares showing higher Sharpe ratios until concerns about AI disruption subside [5][9]. - **Index Users**: STAR50, ChiNext, and HSTECH are identified as key AI benchmarks with high AI index weights, significantly outperforming traditional indexes [13][14]. - **Portfolio Managers**: Focus on Infrastructure, Power, and Semiconductors due to China's competitive advantages and the shift in investor focus towards supply bottlenecks [19][24]. - **Theme-based Investors**: The "HALO" strategy targets companies in Old-Economy sectors with high tangible assets and low sensitivity to AI disruptions [28][31]. Additional Important Insights - **Valuation Variance**: There is a notable dispersion in returns among Chinese AI equities, indicating that not all AI proxies are equally attractive [7][8]. - **Growth Expectations**: Market-implied growth expectations in sectors like Power, Infrastructure, and AI Models appear conservative compared to their potential total addressable market (TAM) upside [26][24]. - **Stock Selection**: The updated AI portfolio is strategically balanced towards upstream sectors and incorporates newly listed AI model companies, with 64% of revenue directly linked to AI-related businesses [37][38]. Conclusion - The Chinese AI market presents diverse investment opportunities, but requires a nuanced approach to navigate the varying growth expectations and sector-specific dynamics. Investors are encouraged to adopt a strategic focus on sectors with strong fundamentals and growth potential while being mindful of the risks associated with AI disruptions.

Summary of Optical Market Opportunities Conference Call Industry Overview - The optical market is projected to exceed $65 billion by 2028, growing at a compound annual growth rate (CAGR) of approximately 30% due to increased speed and investment in AI data centers [1][8] - The current optical market is estimated at around $30 billion in 2025, having grown at a CAGR of about 40% over the past four years [3][8] Key Market Insights - Incremental optical opportunities are estimated to create an additional $23 billion in total addressable market (TAM) by 2028 [3][8] - Traditional networks are reaching their limits, necessitating the adoption of new optical technologies [1][3] - Five key markets are identified for increased optical investment: 1. Transition from copper to fiber in scale-up 2. Co-packaged optics (CPO) on-chip 3. CPO on-board 4. Optical circuit switching (OCS) 5. Passive optical for out-of-band management [3][8] Market Dynamics - The transition to optical technologies is expected to be gradual, with significant architectural changes required for implementation [11][12] - The optical transceiver market is projected to be the largest segment, estimated at around $50 billion [10][12] - Current pricing dynamics are uncertain, with potential for price increases due to tightness in the Electro-absorption Modulated Laser (EML) market [10][31] Company Valuations and Recommendations - Current valuations for optical companies are high, with many trading at 30-40 times FY28 estimates [9][26] - Corning Inc (GLW) is viewed as the best long-term opportunity due to its exposure to the copper to fiber transition, while Lumentum Holdings Inc (LITE) is seen as the most cautious investment due to high expectations built into its valuation [9][26] Risks and Unknowns - The biggest unknowns include the pace of CPO adoption and pricing stability in the optical market [10][31] - The transition to new architectures may take longer than anticipated, impacting market growth [30][31] - The potential for pricing to revert to historical declines (10-15% annually) poses a risk to current valuations [31][32] Conclusion - The optical market is poised for significant growth driven by technological advancements and increasing demand from AI data centers - Investors should be cautious of high valuations and the uncertainties surrounding market dynamics and adoption timelines for new technologies

Summary of Telecom & Networking Equipment Conference Call Industry Overview - The optical market is projected to exceed $65 billion by 2028, with a compound annual growth rate (CAGR) of approximately 30% driven by increased speed and investment in AI data centers [1][8] - The current optical market is estimated at around $30 billion in 2025, having grown at a CAGR of about 40% over the past four years due to AI data center investments [3][8] Key Market Opportunities - An additional $23 billion in total addressable market (TAM) is expected from new optical technologies by 2028, potentially bringing the industry total to around $90 billion [1][3][8] - Five key markets identified for optical investment as network speeds increase: 1. Transition from copper to fiber in scale-up applications 2. Co-packaged optics (CPO) on-chip 3. CPO on-board 4. Optical circuit switching (OCS) 5. Passive optical networks for out-of-band management [3][8] Company Insights - Price targets for key companies in the optical space have been adjusted: - Lumentum Holdings Inc (LITE): from $420 to $520 - Coherent Corp (COHR): from $200 to $250 - Ciena Corporation (CIEN): from $213 to $280 - Corning Inc (GLW): from $103 to $127 [5] Market Dynamics - The optical transceiver market is estimated to be around $50 billion, with significant players including LITE, COHR, and others [10] - The adoption of CPO in scale-out networks is projected to be around 15% by 2028, which could impact transceiver revenues negatively [10][11] - Current market conditions show tightness in pricing, with optical components experiencing price increases rather than the typical annual declines of 10-15% [10][31] Risks and Unknowns - The biggest uncertainties include the pace of CPO adoption and pricing dynamics in the optical market [10][31] - The transition from copper to fiber is expected to take time, with significant architectural changes required for widespread adoption [11][12] - The market is currently experiencing high valuations, with many stocks trading at 30-40 times FY28 estimates, leading to concerns about pricing in perfection [9][26] Future Outlook - The optical market is expected to evolve significantly over the next 5-10 years, with many innovations requiring new supply chain ecosystems [11][12] - The transition to optical technologies is driven by increasing bandwidth needs and the limitations of existing copper technologies [66][70] - Companies like GLW are viewed as better long-term opportunities due to their positioning in the copper to fiber transition, while LITE is seen as more vulnerable due to high expectations built into its valuation [9][26] Conclusion - The optical market is poised for substantial growth, driven by technological advancements and increasing demand from AI data centers. However, investors should be cautious of high valuations and the uncertainties surrounding market dynamics and adoption rates of new technologies.

Summary of Conference Call Notes Industry and Companies Involved - **Industry**: Communications Equipment - **Companies Covered**: - Accelink Technologies (002281.SZ) - Eoptolink Technology (300502.SZ) - EverProX Technologies (300548.SZ) - GDS Holdings (GDS.O) - Innolight (300308.SZ) - Suzhou TFC Optical Communication (300394.SZ) - T&S Communications (300570.SZ) - VNET Group (VNET.O) - ZTE (0763.HK) Key Points and Arguments EverProX Technologies (300548.SZ) - Target price raised to Rmb122 from Rmb63, reflecting a 46.5x 2026E EPS valuation, which is +1 standard deviation above the 5-year historical mean due to stronger earnings growth projected at a 152% 3-year CAGR [2][11] - 2025/26/27E earnings increased by 1%/26%/45% driven by robust overseas demand for MPO/AOC components, datacenter cables, and optical transceivers [2][11] - Rated as Neutral due to high current trading P/E of ~45x compared to T&S Communications at ~32x, indicating less upside potential [2][11] Suzhou TFC Optical Communication (300394.SZ) - Target price increased to Rmb222 from Rmb196, with 2026/27E earnings raised by 36%/56% due to anticipated growth in the 1.6T light engine market [3][15] - Maintained Buy rating, citing strong long-term earnings growth potential from CPO/OIO total addressable market opportunities and expected sales of FAU, ELSFP, and MT products [3][15] ZTE (0763.HK) - Downgraded to Neutral from Buy, with target price raised to HK$29.20 from HK$27.50 [4][19] - 2025/26/27E earnings reduced by 16%/14%/11% due to margin impacts from a ramping server business and memory price effects on the smartphone segment, partially offset by tighter operating expenses [4][19] - Valuation set at 15.0x 2026E P/E, which is 1.5 standard deviations above the stock's historical average, supported by positive sentiment towards AI server developments [4][19] Accelink Technologies (002281.SZ) - Coverage transferred with a maintained Sell rating and target price of Rmb24.60 [8][20] Eoptolink Technology (300502.SZ) - Coverage transferred with a maintained Buy rating and target price of Rmb472.00 [9][21] GDS Holdings (GDS.O) - Coverage transferred with a maintained Buy rating and target price of US$51.20 [12] Innolight (300308.SZ) - Coverage transferred with rating suspended [13] T&S Communications (300570.SZ) - Coverage transferred with a maintained Buy rating and target price of Rmb137.00 [16] VNET Group (VNET.O) - Coverage transferred with a maintained Buy rating and target price of US$20.00 [17] Other Important Information - The report indicates potential conflicts of interest due to the firm's business relationships with covered companies, advising investors to consider this report as one of several factors in their investment decisions [5] - The report is not for distribution in the People's Republic of China, excluding Hong Kong and Qualified Foreign Institutional Investors [5]

Summary of Key Points from the Conference Call Industry Overview - The report discusses the **global AI networking supercycle** driven by technology upgrades and supply shortages, particularly in the optical transceiver market [3][6][12]. - The focus is on **AI infrastructure investments** from global hyperscale AI cloud companies, which are expected to continue through **2026 and 2027** due to competition in large language model (LLM) training and inference [6][14]. Core Companies and Recommendations - **InnoLight (300308 CH)**: Maintained as a **Buy**; expected to dominate the high-end market due to strong R&D and production capabilities, benefiting from the transition to **1.6T transceivers** and **SiPh technology** [3][12]. - **YOFC (6869 HK)**: Upgraded to **Buy** from Neutral; the AIDC business is experiencing strong demand, and the telecom market is stabilizing [3][12]. - **TFC (300394 CH)** and **T&S (300570 CH)**: Both rated as **Buy**; expected to benefit from the CPO value chain and demand for high-end optical transceivers [3][12]. Market Dynamics - **Transceiver Shipments**: Estimated growth from **20 million** units of 800G transceivers and **2.5 million** units of 1.6T transceivers in **2025** to **43 million** and **20 million** units respectively in **2026** [3][7]. - **Market Share**: SiPh transceivers are projected to capture **50-70%** of the market share in the 1.6T segment by **2026** [7]. - **Component Shortages**: Persistent shortages in optical chips are expected to continue, benefiting dominant players with potential price and margin increases [6][7]. Technology Trends - **Optical Transceivers**: The migration to **SiPh** and the introduction of **CPO** technologies are key drivers for the market in **2026** [7][12]. - **Copper Cables**: Despite narratives suggesting a shift to optical communication, copper cables are expected to maintain a significant role in scale-up networks due to their cost advantages and efficiency [8][10]. - **AI Switches**: The adoption of **CPO switches** is increasing, with companies like **Broadcom** and **Nvidia** leading the charge in developing high-performance networking solutions [11][12]. Financial Projections - The report anticipates that the **high-speed copper cable market** could double, reaching **USD 2.8 billion** by **2028** [10]. - The **AI data center** market is expected to expand significantly, with increased demand for high-bandwidth and low-latency solutions [6][14]. Competitive Landscape - Major players in the optical transceiver market include **Nvidia**, **Google**, and **Meta**, each developing proprietary technologies to enhance their AI infrastructure [37][51]. - The competition is intensifying as companies strive to establish their networking standards, such as **Nvidia's NVLink** and **Broadcom's SUE** [20][27]. Conclusion - The global AI networking market is poised for significant growth driven by technological advancements and increasing demand from hyperscale AI companies. Key players are expected to benefit from ongoing innovations and market dynamics, making them attractive investment opportunities.