The United States is considering a ban on imports of Chinese optical modules, but China remains unfazed, believing the U.S. will not follow through. Following rare earths, optical modules have emerged as a new front in the U.S.-China tech rivalry.
Optical modules are essential components that connect GPUs and servers at high speeds in AI data centers. Even with a large supply of AI semiconductors, a shortage of optical modules can hinder a data center's performance. In the AI industry, optical modules are becoming as critical as semiconductors.
China has already established a dominant presence in this market. According to industry sources, seven of the top ten global optical module manufacturers are Chinese, holding approximately 70% of the market share by shipment volume. Leading companies include Zhongji Xuchuang, Xinyi Technology, and Tianfu Communication, which are currently mass-producing high-speed optical modules with specifications of 800G and 1.6T to support the AI data center construction of major U.S. tech firms.
The competitiveness of Chinese companies is not solely due to lower prices. The optical module industry requires a complex supply chain that integrates materials, optical chips, packaging, assembly, and testing. China has built an industrial ecosystem that spans from securing indium raw materials to producing indium phosphide (InP) wafers, optical devices, and optical modules. With a mass production system in place, Chinese firms can also rapidly develop customized products. While U.S. companies possess advanced technology, Chinese firms have overwhelming advantages in production scale and supply chain.
Particularly noteworthy is indium phosphide, a key material for lasers and photodetectors used in high-speed optical communications. Most optical modules used in AI data centers, including those with 800G and 1.6T specifications, rely on indium phosphide-based optical devices. China is the world's largest producer and refiner of indium, giving it significant influence over the indium phosphide supply chain. This is a major concern for U.S. companies.
In fact, during a May visit to China by U.S. President Donald Trump, Jim Anderson, CEO of the U.S. optical communications company Coherent, was part of the economic delegation. Reports indicated that Coherent aimed to secure its indium phosphide supply chain by accompanying the president. Michael Hurlston, CEO of another U.S. optical communications firm, Lumentum, recently warned that a shortage of indium phosphide could become the biggest bottleneck for the AI industry, potentially causing a situation more severe than the memory semiconductor shortage.
Chinese industry insiders, fully aware of this situation, believe that the U.S. will ultimately be unable to implement a ban on Chinese optical modules. A research team from a Chinese securities firm stated, "The likelihood of such measures being realized is almost nonexistent."
In response to U.S. technology sanctions and high tariffs, China previously targeted the U.S. with rare earths, a resource crucial to the renewable energy, electric vehicle, and advanced weapon industries.
As the AI industry evolves, AI data centers have become pivotal to national competitiveness, and once again, China holds the key. Optical modules and indium phosphide are new strategic assets firmly in China's grasp.
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.