Shenwan Hongyuan Group: Optical communication is moving from optoelectronic separation to integration. The focus is on the highest possible technological barriers and the potential increase in value-added ratio.

Shenwan Hongyuan Group released a research report stating that by 2027, the global demand for AI chips in the field of AI communication will reach over 155 million units for 400G and above optical modules/optical engines, with the corresponding total addressable market (TAM) exceeding $70 billion. The main directions for optical chip technology are EML to silicon photonics, increased interconnection speed, and CPO/NPO. The key points of Shenwan Hongyuan Group are as follows: Industry growth: High increase in shipments of AI computing chips, clear trend of increasing interconnection density per chip. Optical interconnection and intra-cabinet optical interconnection are becoming long-term development directions. It is expected that by 2027, the global demand for AI chips in the field of AI communication for 400G and above optical modules/optical engines will exceed 155 million units, with the corresponding TAM exceeding $70 billion. Technological evolution: EML to silicon photonics, increased interconnection speed, CPO/NPO. 1) Transition of EML to silicon photonics: Essentially an integration of optical chips, the modulation part flows to silicon photonics integrated circuit (PIC) design and manufacturing, while the light source part remains as a continuous-wave (CW) light source with increased power and price, high-precision optoelectronic packaging/coupling/testing + silicon photonics design/optical module manufacturers will gain increased value. 2) Increase in single-channel interconnection speed: Requirements for DSP/SerDes performance, analog chip linearity, light source power, optical device performance, etc. will become more stringent, leading to an increase in value; 3) CPO/NPO solutions: Essentially an integration of electrical chips and optical chips to reduce insertion loss and shorten transmission distance. Due to factors such as ease of maintenance, ecological compatibility, interconnection distance, and heat management power consumption, pluggable and various "xPO" solutions will coexist in the long term. Pluggable optical modules will still maintain a high proportion, and the value of the optical module segment will remain; companies focusing on evolving into the next generation of electrical chip dominants and silicon photonics chip dominants in the "xPO" solutions will gain higher value in optical integration. Focus on the highest technological barriers and potential for increasing value share. 1) High barriers, possessing switch chips/DSP/SerDes, Broadcom and Marvell are likely to become dominant in the optical interconnection chain: Although independent DSPs are cancelled or downgraded in CPO/NPO, the value of SerDes IP will continue to increase, giving Broadcom and Marvell the opportunity to evolve into dominants in the CPO interconnection field; 2) Analog chips: with clear increase in quantity, requirements for performance such as linearity will become more stringent due to the trend of increased interconnection speed and CPO/NPO, leading to an increase in value, including TIA, Driver, etc.; 3) Silicon photonics design and manufacturing platform: integration of optical chips has been improved, some optical components will be merged into silicon photonics, and heterogeneous integration schemes will still serve as integration bases, adding value segments, including TSMC, Huahong, Tower, etc.; 4) Optical chips: transitioning from primarily EML to a combination of EML and silicon photonics, the silicon photonics solution will move the modulation part of the traditional EML (light source + modulator) to the new silicon photonics PIC, while the light source part such as CW lasers will increase in value and quantity with the increasing interconnection speed and number of channels. Key targets 1) Comprehensive AI optoelectronic interconnection giant based on DSP/switch chip/SerDes IP: Marvell, Broadcom; 2) Integrated optical chip platform: Lumentum, Coherent; 3) Silicon photonics foundry: Tower; 4) Analog chips: Semtech, MACOM. Risks: Uncertainty in the macro environment; insufficient demand due to AI development falling short of expectations; uncertainty in capacity deployment; uncertainty in the evolution of cutting-edge technologies.