China Galaxy Securities: High-speed optical module volume expands, optimistic about core testing instruments.

China Galaxy Securities released a research report stating that the demand for AI computing power is accelerating the iteration and commercialization of optical modules. Frost & Sullivan predicts that with the continuous growth of downstream optical module market demand and the upgrading of CKH HOLDINGS optical communication testing technology, the global and Chinese optical communication testing instrument market size will reach 20.2 billion US dollars and 65.9 billion yuan respectively in 2029, doubling from the size in 2024. The domestic replacement of electronic measuring instruments is continuously advancing, with the competitiveness of domestic brand products constantly improving. Domestic electronic measuring instrument manufacturers are expected to fully benefit from the incremental market space brought by the commercialization of high-speed optical modules. The main points of China Galaxy Securities are as follows: Event AI-driven optical module acceleration iteration, 800G/1.6T optical modules are experiencing rapid commercialization. Recently, the global optical communication device leader Lumentum stated that under the high demand for data centers, the existing capacity of the company is in short supply, and it is expected that by the end of 2028, the capacity will be fully sold out. The high-speed optical modules are driving the growth of testing instrument demand. The leading global electronic measurement instrument company Keysight Technologies achieved a 26Q1 revenue/net profit/order year-on-year growth of +23%/+19%/+30%, with AI infrastructure and the iteration and upgrading of optical modules. In recent years, domestic testing instrument manufacturers have been continuously promoting the development of high-end instruments and solutions, as well as enhancing their business matrix through external mergers and acquisitions. They are expected to fully benefit from the incremental market space brought by AI and the opportunities for domestic production. AI computing power accelerates the iteration and commercialization of optical modules Optical modules are key components of optical communication systems, and their performance directly determines the efficiency and stability of communication transmission, making them an important part of the AI network construction. Currently, AI large model technology is iterating rapidly, AI application scenarios are continuously expanding, and the demand for computing power is surging, with domestic and foreign CSP companies gradually increasing capital expenditure. The demand for AI computing power is driving data center expansion, with larger AI clusters requiring more optical modules for a single GPU. To reduce computing costs and improve efficiency, some cloud companies have started to deploy ASIC chips on a large scale and independently design and build switch networks, pushing for a redesign of data center networks and an increased demand for high-speed connection solutions. The transmission rate of optical modules is facing higher requirements, as the iteration cycle of optical modules under the influence of AI has shortened from the previous 3-4 years to about 2 years. Currently, 800G optical modules have become the mainstream product in global data centers, and 1.6T optical modules have also entered the commercialization stage. According to Lightcounting's forecast, the global optical transceiver market size is expected to reach $22.8 billion by 2026 and grow to $41.4 billion by 2030, with a compound annual growth rate of 25-30%; meanwhile, starting from 2026, 800G and 1.6T optical modules will experience rapid commercialization, with a total market size expected to reach $14.6 billion, accounting for approximately 64% of the overall optical module market, while 3.2T optical modules are expected to gradually rise from 2028. Rapid development of high-speed optical modules catalyzes incremental market space for testing instruments In recent years, with the rapid development of downstream industries such as semiconductors, communications, and new energy, the global electronic measurement instrument market size has been steadily increasing. According to Frost & Sullivan data, the global electronic measurement instrument market size was $12.93 billion in 2024, and is expected to further increase to $18.38 billion in 2029. AI hardware testing scenarios include high-speed connectors, high-speed cables and optical modules, high-speed storage, GPU-related high-speed interfaces and bus testing, etc. In the field of optical modules, typical testing processes include optical transmitter/device testing and optical receiver/device testing, involving various testing instruments such as sampling oscilloscopes, clock recovery units, error analyzers, wavelength meters, and network testers. The commercialization of 800G/1.6T and other high-speed rate optical modules will drive the iteration and upgrading of testing instruments towards high-speed rate and large bandwidth directions, leading to a quick increase in the value of electronic measurement instruments. Frost & Sullivan predicts that with the continuous growth of downstream optical module market demand and the upgrading of CKH HOLDINGS optical communication testing technology, the global and Chinese optical communication testing instrument market size is expected to reach $20.2 billion and 65.9 billion yuan respectively by 2029, doubling from the size in 2024. Domestic electronic measuring instrument manufacturers embrace incremental market space and new opportunities for domestic production The global electronic measurement instrument market has long been dominated by overseas leaders such as Keysight, Tektronix, and Anritsu. The general electronic measurement instrument industry in China started relatively late and still has certain gaps in products such as high bandwidth and high-frequency. In recent years, domestic electronic measurement instrument manufacturers have vigorously promoted the development of self-developed products, continuously achieved breakthroughs in high-end strategic layouts, rapidly increased sales of high-end new products, continuously improved product matrices, and increased the market share of domestic brands from 8.4% in 2020 to 16.8% in 2024. The domestic replacement of electronic measuring instruments continues to advance, with the competitiveness of domestic brand products constantly improving. Domestic electronic measuring instrument manufacturers are expected to fully benefit from the incremental market space brought by the commercialization of high-speed optical modules. 1) Liansun Instruments: The company's products cover electronic measuring instruments and semiconductor test equipment, making it one of the few manufacturers in the industry that cover the testing needs of core components such as modules, chips, wafers, etc., in the optical communication industry chain. It is also the second company globally to introduce the most advanced 1.6T optical module core testing equipment in the industry, having achieved batch supply of core testing equipment for 400G/800G/1.6T optical modules and serving mainstream customers in the global optical communication industry chain. 2) Rigol Technologies: The company has launched a series of self-developed core technology platform products and achieved high growth in sales revenue, becoming the only domestic manufacturer to commercialize ASIC digital oscilloscopes. The company has a good base of domestic large clients in the optical module industry, with a year-on-year increase in sales revenue from core customers in optical communications by 70% in 25 years. 3) Siglent Technologies: The company's products cover digital oscilloscopes, signal generators, spectrum analyzers, vector network analyzers, providing a comprehensive solution for communication testing. 4) Shenzhen Everbest Machinery Industry: Intends to acquire 100% equity of Shenzhen Galante, which specializes in automated testing solutions for optical communication modules and chips. 5) Uni-Trend Technology: Intends to acquire 51% equity of Zhejiang Xince Communications, whose products include optical power meters, optical time domain reflectometers, widely used in fiber optic communication network construction and maintenance, and electromagnetic environment safety monitoring. Risk Warning Risks of policy changes, risks of technological iterations falling short of expectations; risks of lower-than-expected downstream capital expenditures, risks of new product progress falling short of expectations, risks of intensified market competition, etc.