The Optical Module Will Maintain 14 persent Growth

According to Lightcounting's prediction, the market size of optical modules will keep growing by CAGR 14% in the next five years, and is expected to reach 17.6 billion dollars in 2026. According to Lightcounting data, the global optical module device market will be about 8.7 billion dollars in 2021, with Chinese suppliers accounting for more than 50%. In 2021, there will be 5 Chinese manufacturers in the top ten global optical module sales. The research report of BOC Securities (601696) pointed out that the optical module, as an indispensable basic equipment in the communication industry, is optimistic about the continued high increase of data traffic in the future and the expansion and iteration of downstream network equipment driving the demand for optical modules and optical devices. Superposing the gradual increase of 200G and the iteration of 800G demand in China, it is believed that the industry is still in the boom cycle, so the sector industry has broad prospects and high rising space. It is expected that the market valuation will further rise.

Optical module is one of the core accessories of network communication, which is used for photoelectric conversion. The sending end converts electrical signals into optical signals. After transmission through optical fiber, the receiving end converts optical signals into electrical signals. In short, optical modules will be used where optical fibers are used.

The raw materials required for optical module products are mainly optical components, circuit chips, PCBs and structural parts. Among them, the cost of optical devices accounts for the highest proportion, about 73%. According to Lightcounting, the sales of Chinese optical component suppliers exceeded 500 million dollars in 2010, and increased to 3 billion dollars by 2018. In 2021, the global optical module device market will be about US $8.7 billion, with Chinese suppliers accounting for more than 50%.

In 2021, there will be 5 Chinese manufacturers in the top ten global optical module sales. Benefiting from the construction of the data center and the in-depth layout of the 5G network, Yole predicted that the size of China's optical module market is expected to reach 3.3 billion dollars in 2022, an increase of 22% year on year. According to insiders, the data center (DC) is the first to open the transition to 400G. In 2019, 400G has opened applications, and will become the dominant in 2023. At the same time, the public telecommunications network has also started the transition to 400G at the network edge. In terms of traffic driving, 400G will be the main growth point of optical modules in the next five years, with a compound growth rate of 44%.

At present, domestic optical module enterprises have achieved a full product layout in the field of products with transmission rates of 10G, 25G, 40G, 100G and 400G. Among the next generation products, 800G, many domestic manufacturers have launched faster than overseas manufacturers, gradually building a first mover advantage. The domestic 400/800G optical modules are about to enter the mass production explosion period.

In terms of optical module applications, with the emerging industries and application scenarios, the application fields of optical modules have also been broadened. Telecommunication network, data center, optical fiber access, consumer electronics, autopilot, industrial automation, satellite communication, remote monitoring, smart grid, etc. will become important markets for the development of optical modules. Among them, the optical module company deeply cultivates laser optics, and uses the commonalities in the technical field to horizontally expand the blue ocean market of laser radar. According to Sullivan's prediction, the global market size of lidar will be 13.54 billion US dollars by 2025, which will achieve a compound annual growth rate of 64.5% compared with 2019, bringing new development opportunities for related companies.

The research paper of BOC Securities pointed out that the optical module, as an indispensable basic equipment in the communication industry, is optimistic about the demand for optical modules and optical devices driven by the continuous high growth of data traffic and the expansion and iteration of downstream network equipment in the future. Superposing the gradual increase of 200G and the iteration of 800G demand in China, it is believed that the industry is still in the boom cycle, so the sector industry has broad prospects and high rising space. It is expected that the market valuation will further rise.

Everbright Securities believes that the development trend of the optical module industry is getting better, and domestic companies related to the optical module industry chain have shown excellent competitive strength in different fields. The following recommendations are highlighted: (1) Zhongji Xuchuang (300308): the optical module business is leading in the world and the first in China, with obvious advantages in scale, comprehensive layout of products and technologies, and fully benefits from industry growth. (2) Tianfu Communication (300394): It provides eight technology platform vertical integrated solutions for optical communication customers, closely follows the technology frontier, develops high-speed optical engine projects, lays out laser radar and medical products, and opens a new blue ocean market. (3) New Eason (300502): vigorously expand overseas business, closely follow the cutting-edge technologies such as 800G, silicon light and coherence, and gradually move towards high-end products. (4) Guangxun Technology (002281): With the layout of upstream optical devices, the performance has grown steadily, which is expected to benefit from the recovery of transmission landscape. (5) Optical library technology (300620): a rare upstream core device supplier, the company's optical fiber laser devices have broken the foreign monopoly and reached the global leading level. Optical communicators have maintained a leading position in some fields. The prospective layout of lithium niobate modulator is expected to break through the bottleneck of China's optical chips, actively layout the laser radar field and embrace a new blue ocean of automatic driving. (6) Bochuang Technology (300548): the leader of 10GPON market segmentation, the telecom market maintains its advantages, and the cutting-edge layout of silicon photonic technology is expected to open up growth space. (7) Changguang Huaxin: a domestic leader in high-power laser chips, focusing on the core devices in the upstream of the industrial chain, the high-power laser chips are leading in China, developing VCSEL and high-speed optical communication products, and expanding new markets.