New infrastructure has boosted the multi-billion-dollar 5G optical module market, and the high-end sector urgently needs to increase the domestic production rate

2020 is a big year for 5G capital expenditure. Benefiting from the new infrastructure policy, the optical module industry has gradually expanded. According to the forecast of market research organization LightCounting, the global optical module market size is expected to reach US$8.464 billion in 2020, a year-on-year increase of 28.34%. Benefiting from the construction of 5G networks and the recovery of market demand in the data center, the optical module industry has ushered in a highlight moment and brought valuable development opportunities to domestic optical module companies.

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New infrastructure drives the field of optical modules

The so-called optical module is an optical transceiver module, which is composed of optoelectronic devices, functional circuits and optical interfaces. Its function is photoelectric conversion and it is mainly used in the construction of communication infrastructure such as data centers and 5G.

With the opening of 5G commercialization last year, the optical module market began to pick up and is expected to explode in 2020.

On the one hand, 5G construction drives the demand for optical modules. Under the theme of new infrastructure, the pace of 5G base station construction is accelerating. Based on the base price of 200,000 yuan per base station, the two purchases by the three major operators are a 100 billion yuan investment. Optical modules account for about 4.6% of 5G capital expenditures. Such a large sum will obviously boost the 5G industry chain including optical modules. According to forecasts, the total demand for 5G optical modules will be 2-4 times that of 4G, and the demand for 5G fronthaul optical modules in 2020 will reach tens of millions.

On the other hand, the construction of big data centers will also drive the demand for optical modules. The sudden outbreak of the epidemic has boosted industries such as cloud office, cloud gaming, and cloud education, and has also made the construction of big data centers very popular.

Domestic manufacturers gradually lead the optical module market

It is understood that 20 years ago, optical communication devices were monopolized by American and Japanese companies. After China joined the WTO, driven by globalization, as American and Japanese suppliers transferred their production lines to China, the optical module industry began to develop in China. From this moment on, China's optical device industry entered a stage of rapid growth.

In 2010, the sales of Chinese optical module suppliers exceeded US$500 million, and the sales surged to US$3 billion in 2018. Now in 2020, they are beginning to lead the global optical module market. According to a research report released by LightCounting, Chinese optical module suppliers will dominate the global market in 2020, with a market share of more than 50%.

At the same time, the strength of domestic manufacturers in optical module products is also growing and developing. Many companies and start-ups with distinctive characteristics have emerged in the fields of optical chips, lasers, and receivers. At present, the main domestic optical module listed companies include Zhongji Xuchuan, Accelink Technology, Xinyi Sheng, and Huagong Technology. The unlisted ones include Hisense Broadband.

Among them, in the field of access network optical modules, Hisense Broadband has ranked first in the world for nine consecutive years, occupying more than 30% of the market share.

Urgent need to break through the high-end market and enhance the right to speak

Although the domestic optical module industry has entered a period of explosive growth, domestic companies still have to deal with some bottlenecks and common industry problems.

It is reported that the technology of high-end optoelectronic chips is currently mainly concentrated in the hands of American and Japanese manufacturers. In addition, the domestic independent manufacturing capacity of optical chips is seriously insufficient, which restricts the progress of tape-out, and the shortcomings of the entire semiconductor industry chain need to be filled.

It should be pointed out that although Chinese manufacturers have cost advantages that overseas companies cannot match, the profit margins of optical modules are shrinking. The current optical module industry has become a red ocean. In recent years, American and Japanese companies have begun to conduct frequent mergers and acquisitions, including the merger of Avago and Broadcom, the acquisition of the third-ranked Oclaro by Lumentum, and the acquisition of active giant Finisar by II-VI, the leader in passive chips. After the merger, the upstream chip advantages of foreign companies are more concentrated and the product layout is wider. They have improved their competitiveness in different ways, and their voice is expected to be further enhanced.

For domestic optical device manufacturers, while focusing on the more core field of optical chips, more companies are needed to work together to improve the industrial chain in order to achieve leapfrog development.