Deep|AAOI: Optical Module Industry Returns to the US

Lumentum and Coherent Echo the Same Narrative

Overview of the Optical Module Industry

Key Insights

• Market Leaders: Mainstream optical module manufacturers like Innolight, Eoptolink, and Finisar are expected to maintain dominant market positions in 2025. Eoptolink, in particular, is projected to achieve a notable increase in market share compared to 2024.

• Technology Challenges: The 200G EML optical chip is anticipated to become a critical bottleneck for 1.6T optical module shipments in the upcoming year. However, silicon photonics is expected to see accelerated adoption during the 1.6T transition period.

• Chinese Manufacturers: Companies such as Source Photonics and Cambridge Industries Group have yet to directly supply 800G/1.6T high-speed optical modules to major CSPs. In 2025, Cambridge is expected to deliver 600,000–800,000 units of 400G and 800G optical modules to Cisco. Currently, Source Photonics' primary customers for 800G modules are Juniper and FS.COM, but it has not yet secured a position in Microsoft's supply chain.

• AAOI (Applied Optoelectronics Inc.): AAOI is estimated to ship nearly 2 million units of 400G optical modules in 2025, with allocations of 500,000 to Microsoft, 800,000 to Oracle, and 500,000 to AWS. Additionally, it is expected to ship 300,000–400,000 units of 800G modules, with 200,000 going to Oracle and 100,000–200,000 to Microsoft. AAOI's optical module revenue is projected to reach $700 million in 2025.

Industry Landscape of Optical Modules

The optical module industry is expected to maintain a competitive and dynamic landscape through 2025. Leading players such as Innolight, Eoptolink, and Finisar are poised to retain dominant market positions, with Eoptolink projected to achieve a notable increase in market share compared to 2024.

Key Challenges and Trends

• 200G EML Optical Chip Bottleneck: The 200G EML optical chip is anticipated to be the primary bottleneck for 1.6T optical module shipments in 2025.

• Silicon Photonics Growth: Silicon photonics is expected to see accelerated adoption during the 1.6T era, enhancing its penetration across various applications.

• Chinese Manufacturers: Companies like Cambridge Industries Group and Source Photonics have yet to supply 800G and 1.6T high-speed optical modules to major cloud service providers (CSPs). Cambridge is set to deliver a significant volume of 400G and 800G modules to Cisco in 2025, while Source Photonics’ primary clients for 800G modules remain Juniper and FS.COM. Source Photonics has not yet entered Microsoft’s supply chain.

Supply Chain Reshoring and Regional Dynamics

The trend toward supply chain reshoring to the US is becoming more pronounced, benefiting North American suppliers like AAOI (Applied Optoelectronics Inc.). This shift is expected to enhance the market share of American companies in the medium term.

Current Industry Status

• Innolight Technology: Innolight leads the industry, but supply shortages have constrained its ability to meet demand. Despite its strong R&D capabilities and production capacity, these limitations have led to order spillover, creating growth opportunities for competitors.

Evolution of Switch Technologies

• NVIDIA and Broadcom: NVIDIA’s IB series switches are expected to undergo CPO solution testing in 2025, with Broadcom initiating small-batch CPO switch promotions the same year and scaling up production in 2026.

• Market Elasticity of CPO Switches: Short-term adoption of CPO switches is projected to be limited, with market volume increasing only marginally (tens of thousands of units) by 2027.

• Future Adoption Drivers: Widespread adoption of CPO switches will likely depend on the development of higher-bandwidth technologies, such as 3.2T or 6.4T modules. Customers may favor LPO technology due to its lower power consumption and more open supply chain, while traditional optical modules remain competitive for their maturity and performance advantages.

Shipment Volume of Optical Modules

• 800G Optical Modules: Shipment volumes for 800G modules are forecasted to range between 18 million and 20 million units in 2025, with approximately 18.5 million units projected under current estimates. Silicon photonics is expected to account for about 25% of shipments (~3.6 million units).

• 1.6T Optical Modules: Shipments of 1.6T modules are estimated to reach 4 million units, though shortages of VCSEL chips are expected to ease, the availability of EML optical chips remains a key limiting factor. For 1.6T modules to become mainstream, shipments must reach 2.2 million units to balance with EML chip supply.

• CPO Module Growth: A moderate increase in CPO shipments is anticipated in 2025 as the technology gains traction.

Table1：Demand of Optical Module

In summary, the optical module industry is navigating challenges related to supply chain dynamics, chip shortages, and technological transitions, but the adoption of advanced solutions like silicon photonics and LPO is poised to drive growth and innovation.

Expectations for AAOI in 2025

AAOI is well-positioned to capitalize on capacity constraints faced by Innolight. With increasing demand for 400G and emerging 1.6T optical modules, part of the market is likely to shift toward AAOI. By 2026, AAOI's production capacity for 1.6T modules is projected to reach the levels of its 400G capacity in 2023, signaling substantial growth opportunities.

Market Dynamics and Pricing:

• 400G Optical Modules: Average prices vary by customer, with Oracle paying $220–$250 per unit, AWS at approximately $250, and Microsoft at less than $200.

• 800G Optical Modules: Prices range from $500–$600 per unit.

• 100G Optical Modules: Priced around $100, primarily fulfilling specific requirements for Microsoft.

Projected Shipment Volumes (2025):