Due to the surge in demand for artificial intelligence, the United States Netcom and Marvell, a major optical communication chip manufacturer, recently issued a notice announcing that the full product line will raise prices from January 1, 2025, taking the lead in the price increase tide in the field of optical communications.

Under the current situation of the market where the price of storage is likely to fall, the optical chip has made a bold decision to increase prices in January next year, why is it so bold?

01 The scale of optical chips continues to expand

The market is decisive. Optical chip is the basic component of photoelectric signal conversion, and its performance directly determines the transmission efficiency of optical communication system.

From 1998 to the present, the trend of optical modules towards higher rates continues to develop. From 1.25Gbit/s to 2.5Gbit/s, then to 10Gbit/s, 40Gbit/s, 100Gbit/s, single wavelength 100Gbit/s, 400Gbit/s and even 1T.

The higher the speed and high-end optical modules, the higher the value proportion of optical chips.

Today, the optical chip market continues to expand, occupying an increasingly important position in various downstream application fields. With the rapid development of communication technology, the optical chip market is showing strong growth momentum globally, mainly due to the increasing demand for high-speed, high-bandwidth, low-latency communication in downstream applications. For example, in the field of data centers and cloud computing, high-density, high-performance optical interconnection solutions have become the core of infrastructure, and the proportion of optical chips in these areas is increasing.

According to C&C statistics, the global optical communication optical chip market size in 2020 is $2 billion, and it is expected to reach $3.6 billion in 2025, with a CAGR of about 12.59%. According to the forecast of Guan Yan World, China's optical chip market is expected to reach 2.607 billion US dollars in 2025, with a CAGR of about 15.16% in 2020-2025. In addition, optical chips play a key role in areas such as artificial intelligence industrial automation. With the continuous upgrading of AI technology, the market demand for large computing power clusters continues to increase, driving the shipment of high-speed optical chips.

Tai Chi, an AI optical chip developed by Tsinghua University, uses light instead of electricity to process data and is hundreds of times more energy efficient than traditional electronic chips, making it suitable for complex AI tasks. In addition, the Shanghai Institute of Microsystems and Information Technology of the Chinese Academy of Sciences has developed high-performance photonic chip materials that can be manufactured on a large scale, providing a new foundation for the future information industry.

The latest application cases of optical chips in the field of optical communication and optical computing mainly focus on the photoelectric hybrid integration technology, especially the photoelectric co-package (CPO) technology, which promotes the research and application in the field of optical communication. Companies such as Intel are working to improve computing efficiency by combining optical interconnected I/O with electrical processors, and have achieved remarkable results. Although CPO still faces some challenges, it is expected to gradually become commercially available in the next few years, bringing benefits such as reduced power consumption, improved integration and lower cost per bit.

Uv communication uses optical integration (PIC) technology, which has the advantage of reducing system size, power and cost. Wei Tongbo's team used InGaN material with asymmetric multi-quantum well structure to fabricate a monolithic integrated chip with a 450 nm wavelength visible light LED, waveguide and light detector, enhancing the optical connection between LED and PD.

In addition, IBM researchers have made a breakthrough in using light pulses to speed up the transfer of data between chips, a technique that could increase the performance of supercomputers by more than a thousand times. This technology has greatly increased the computing power of supercomputers, the fastest supercomputers can reach 20 trillion instructions per second, and photon technology can increase the speed to 100 trillion times per second.

At the same time, with the commercialization of 5G communication and the popularity of the Internet of Things, the application of optical chips in mobile communications, wireless networks and smart devices is becoming more and more important. Overall, the growth in the size of the optical chip market and its increase in the proportion of various downstream application fields reflect the key position of optoelectronic technology in the field of modern communication and information, as well as its indispensable role in promoting scientific and technological progress and social development.

02 market first shot

At the beginning, Marvell, a major optical communication indicator, recently sent a letter to inform customers that the full product line will be raised from January 1 next year. Marvell opened the first shot of the industry price increase, which also reflects the market demand "how crazy", echoing Nvidia CEO Huang Jenhsun's previous release of "market demand is very crazy", and simultaneously triggered greater imagination for the potential business opportunities in the optical communication industry chain.

Lumentun, an optical chip company, recently released its fiscal year 2024 results, indicating strong demand for optical chips. Lumentum said that the industry is facing a general shortage of indium phosphide lasers, the company by the end of 2025 indium phosphide production capacity will be full, the overall supply is tight. The company's chip business bookings have reached a record high, the company has invested $43 million this quarter to increase fab capacity, is expected to see incremental capacity in the first half of 2025, but in the short term, considering the fab cycle and other factors, incremental capacity is relatively fixed.

Domestically, on October 21, the Action Plan of Guangdong Province to Accelerate the Innovation and Development of optical chip Industry (2024-2030) was issued. It was mentioned that the research and development of key materials for optical chips should be accelerated. Support silicon optical materials, compound semiconductors, thin films lithium niobate, gallium oxide thin films, electro-optical polymers, flexible substrate materials, metasurface materials, optical sensing materials, electro-optical topological phase change materials, photoresist, quartz crystals and other key materials for optical chips research and development and manufacturing; Promote the development and manufacturing of key optical chip equipment. Vigorously promote the development and localization of key optical chip equipment such as etching machine, bonding machine, epitaxial growth equipment and optical vector parameter network tester.

Some netizens commented that the ultimate goal of localization is to achieve better results.

03 Medium and low speed optical chips have a high degree of localization

The localization of medium and low rate laser chips is higher, and the localization of high rate laser chips is accelerated. In the field of 2.5G and below speed optical chips, Chinese optical chip companies have basically mastered the core technology and have a high localization rate. According to ICC's forecast, in 2021, domestic optical chips will occupy more than 90% of the global market share in this rate range. In the field of 10G optical chips, there are certain differences in the localization of 10G optical chips according to its technology and process, and some optical chips with higher performance requirements and greater difficulty.

In the field of 25G and above optical chips, with the advancement of 5G base station construction, Chinese optical chip manufacturers have made some breakthroughs in the 25G DFB laser chip applied to the 5G base station forward optical module. In 2021, the localization rate of 25G optical chips is about 20%. However, the localization rate of optical chips above 25G is still low, about 5%. In addition, high-speed optical chip products used in data centers are also owned by overseas manufacturers.

The localization of some 2.5G/10G markets has been done, and there is a lot of room for import substitution in the 25G market. Overseas optical communication companies, relying on the advantages of the first mover to accumulate core technology and production experience, slowly formed a closed-loop industry to establish a very high industry barriers. There are relevant domestic industrial policy support, enterprises are also increasing investment in innovation, and domestic optical chip enterprises such as Source Jie Technology, Yunling Optoelectronics, and Wuhan Minxin have gradually emerged.

Now 2.5G/10G laser chip localization has made a breakthrough, 25G and higher rate of optical chip localization rate or mostly rely on imports, according to ICC statistics, in 2021 the global 2.5G and below DFB/FP laser chip market, the proportion of domestic manufacturers accounted for a higher, Among them, the leading manufacturers accounting for more than 10% are Wuhan Mincore (share is 17%), Zhongke Optical core (share is 17%), Guanglong Technology (share is 13%), Guanganlun (share is 11%).

2.5G and higher speed products, its import substitution room is large. 25G and above optical chips include 25G, 50G, 100G laser and detector chips. With the continuous development of 5G construction, China's optical chip manufacturers have made breakthroughs in the 25G DFB laser chip for 5G base station forward optical module, and optical module enterprises in the data center market have begun to slowly adopt the 25G DFB laser chip of domestic manufacturers. According to ICC statistics, the localization rate of 25G optical chips is about 20%, while the localization rate of 25G optical chips is only 5%.

It can be said that high-speed products are still waiting. According to Bizhi, the three types of DFB chip, VCSEL chip and EML chip in the market share reached 42.1%, 29.2% and 18.6% respectively in 2021. From the perspective of the development trend of localization, at present, China's high-power laser chips and some high-rate laser chips (such as 10Gbps and 25Gbps, etc.) have entered the stage of accelerating the breakthrough of localization, while optical detection chips and 25Gbps and above high-rate laser chips are still in the early stage of import substitution, and the future of localization has broad potential for improvement.

From the production point of view, the production process of optical chips includes five main links: chip design, substrate manufacturing, epitaxial growth, grain manufacturing, packaging and testing.

Most Chinese enterprises are mainly concentrated in the chip design process, while the global enterprises that can achieve the mass production of high-purity single crystal substrates are mainly overseas enterprises.

Epitaxial growth/epitaxial wafer is the highest technical barrier in the optical chip industry, and the mature technology process is mainly concentrated in Taiwan, China and the United States and Japan. Grain manufacturing and packaging testing are mainly concentrated in Taiwan, China.

The various processes used in optical chip production are more comprehensive, and leading manufacturers mostly use IDM business model. Among logic chip manufacturers, new entrants mostly adopt the Fabless model to reduce capital investment and concentrate more resources on research and development. Manufacturers in the optical chip industry mostly use the IDM mode, because optoelectronic devices follow the characteristic process, and the value of devices is not entirely dependent on size reduction, but on the increase of functions.

IDM mode is more conducive to the autonomy and control of each link, can respond to various market demands in time, flexibly adjust the production plan, and efficiently troubleshoot the causes of problems, so as to improve the chip performance and meet the needs of downstream customers.