China Merchants Securities: CPO/NPO industrialization promotes a clear trend in the value expansion of passive optical devices such as FAU

The Zhitong Finance App learned that China Merchants Securities released a research report saying that leading FAU manufacturers are not only benefiting from the rise in FAU demand driven by optical module emissions, but are also expected to significantly benefit from the explosion in high-channel FAU demand brought about by CPO/NPO industrialization. FAU has achieved a sharp rise in volume and price following the release of high-speed optical modules. Frost & Sullivan estimates that by 2030, the market size of the CPO supporting FAU alone will reach 3 billion US dollars, which is more than ten times the size of the current FAU market for optical modules. As CPO/NPO industrialization progresses, there is a clear trend in the value expansion of passive optical devices such as FAU.

The main views of China Merchants Securities are as follows:

FAU is a key passive internal optical device for optical modules or light engines

In high-density optical interconnection solutions such as CPO/NPO, FAU shows an iterative trend of high channels, high density, and customization. Some also have functions or features such as detachability, polarization protection, and vertical coupling, and manufacturing barriers and value have increased significantly. Leading FAU manufacturers are not only benefiting from the rise in FAU demand driven by optical module emissions, but are also expected to significantly benefit from the explosion in demand for high-channel FAU brought about by the industrialization of CPO/NPO.

FAU is a passive internal optical device at the core of optical modules. In recent years, the market size has increased along with the volume of high-speed optical modules

FAU is a passive optical device connecting an active optical device inside an optical module/optical engine to an external circuit. It often appears in the form of an MT-FA. Its manufacturing accuracy reaches sub-micron level, which directly affects the coupling efficiency and final signal quality of active products. As the transmission rate and number of transmission channels of optical modules/optical engines increase, the number of FAU channels and the requirements for performance indicators such as accuracy, loss, and consistency also increase simultaneously. In recent years, FAU has followed the release of high-speed optical modules and achieved a sharp rise in volume and price.

High-density interconnection solutions such as CPO/NPO have greatly increased the number of FAU channels and technical specifications, which will provide FAU with considerable market space

Take the 3.2 TCPO optical engine as an example. The supporting single FAU has 36 channels (32 channel single-mode fiber+4 channel polarized fiber), and the manufacturing difficulty and value far exceeds the FAU composed of two 8-channel FAs in the 800G/1.6T optical module. The FAU structure has also been upgraded. In order to pursue higher density, FAU iterates from a one-dimensional structure to a two-dimensional structure and supports vertical coupling; in order to pursue better maintainability and lower mass production costs, FAU evolved to detachable and passive alignment. As the penetration rate of scale-up optical connectivity begins to increase, CPO/NPO will catalyze an explosion in demand for high-channel FAU. Global Information estimates that the global optical module FAU market will be about US$227 million in 2025. Frost & Sullivan estimates that by 2030, the market size of the CPO supporting FAU alone will reach 3 billion US dollars, which is more than ten times the size of the current optical module FAU market.

Chinese FAU manufacturers have a deep understanding and accumulation of the process of passive optical devices. Leading manufacturers already have good card positions. High-channel FAU products are expected to drive the performance of related manufacturers to explode

Along with the advancement of AI computing power construction at home and abroad, domestic FAU and other passive optical device manufacturers have formed outstanding competitive barriers in large-scale manufacturing, understanding of underlying technology, and yield control. Among them, some leading FAU manufacturers have good downstream customer cards, and have made positive progress in CPO/NPO high-channel FAU production capacity preparation and product verification. It is expected to meet the large-scale needs of downstream Corning, Coherent and other solution manufacturers, NPO light engine manufacturers, and even terminal manufacturers such as Nvidia, Broadcom, and CSP.

Risk warning: Risk of penetration rate falling short of expectations, risk of technology route evolution and product iteration risk, risk of core customer certification and supply share falling short of expectations, risk of increased market competition and falling product prices, risk of raw material price fluctuation, international trade friction and exchange rate fluctuation risk.