Understanding Optical Transceiver Technology Evolution

On July 30, InnoLight officially listed on the Hong Kong Stock Exchange, marking one of the largest IPOs in the Hong Kong market for 2026. As a leader in the optical module industry, InnoLight specializes in the R&D and manufacturing of optical communication transceivers and components. With the increasing importance of communication networks in AI infrastructure, the optical module industry continues to grow at a high speed.

Today, we will discuss the optical module industry, examining its current development status and various technological evolution trends.

01 Current Status of the Optical Module Industry

Optical modules are the foundational hardware in modern fiber-optic communication and data center networks. Composed of transmitter and receiver ends, they serve as interface devices that convert electrical and optical signals between network equipment and fiber-optic links. The underlying physical performance of these modules directly determines the bandwidth ceiling, transmission latency limits, and overall energy consumption of the entire data network.

In AI computing clusters, communication between GPUs (Scale-out/Scale-up networks) relies on 800G/1.6T optical modules for high-speed, low-latency data transmission. Since 2024, 800G has become the primary rate for AI data centers; 1.6T began volume shipments in 2025. The NVIDIA Rubin platform (2026) will drive 200G/lane rates, further fueling demand for 1.6T and higher-speed modules. Optical modules now represent an increasing share of data center network costs, becoming a critical link in AI infrastructure.

According to LightCounting, the global data communication optical module market is projected to grow from $19 billion in 2025 to $47 billion by 2028, at a 3-year CAGR of 35%. In 2025, the 800G market grew rapidly from $4 billion in 2024 to $13 billion, contributing the majority of the market's growth. 1.6T modules are expected to see rapid adoption in 2026 following small-scale shipments in 2025. Combined, 800G/1.6T shipments may reach $22.5 billion in 2026, accounting for 87% of the total market, with this figure potentially rising to $32 billion by 2027.

In terms of global manufacturing, Chinese firms dominate the landscape. In 2024, seven of the top 10 global optical module manufacturers were Chinese (InnoLight, Huawei, Eoptolink, Accelink, Hisense Broadband, HG Genuine, Source Photonics). However, the geographical distribution of production capacity is undergoing structural changes.

Domestic leaders are accelerating their expansion into Southeast Asia: InnoLight's Thailand plant saw overseas revenue account for 90.58% in 2025; Eoptolink's Thailand Phase I plant began production in 2023, with Phase II starting in early 2025, and the company plans to continue scaling and building new facilities.

Overseas leaders are increasing local manufacturing investments: Coherent maintains bases in California, Texas, the UK, Switzerland, and Vietnam, with FY2025 capital expenditures of $441 million (+27.1% YoY) primarily for capacity expansion. Lumentum has facilities in North America, the UK, Japan, and Thailand, and is building a new InP line in Greensboro, North Carolina. The U.S. CHIPS Act provides approximately $52 billion in subsidies and tax incentives for domestic optical chip and module manufacturing.

Between 2024 and 2025, the combined capital expenditures of the top three global optical module leaders (InnoLight, Eoptolink, Coherent) remained stable at around $1 billion, but 2026 marks an acceleration point. InnoLight's Q1 2026 capital expenditure reached 1.929 billion yuan (+380% YoY), with annualized capacity projected to grow from 20 million units in 2024 to 38 million in 2026. Eoptolink's effective capacity is expected to reach 25-30 million units in 2026. Coherent's 6-inch InP line is expected to quadruple in two years. LightCounting previously predicted a 100% supply gap for 400G/800G in 2024, and this tight supply-demand balance persists. Despite aggressive expansion, delivery capability remains the core competitive factor.

02 Technological Evolution Trends

The rapid expansion of AI computing power is driving a massive increase in global data center traffic and interconnection demand, making traditional optical interconnect solutions increasingly inadequate for next-generation computing clusters. Optical modules are evolving across all dimensions, focusing on higher speeds, lower power consumption, cost optimization, and increased integration.

Transmission rates are increasing exponentially, with shorter iteration cycles—moving from 10G/25G to 100G/400G, then 800G, and now 1.6T products entering commercial use. LPO (Linear-drive Pluggable Optics) and CPO (Co-Packaged Optics) address power consumption issues, while Silicon Photonics uses CMOS processes to integrate optical components, reducing costs and improving performance.

1. Silicon Photonics (SiPh): The Core Platform Technology for the High-Speed Era

Silicon Photonics is a foundational platform technology for the entire optical interconnect field. It offers advantages in integration and cost, though the technology and supply chain are still maturing. Traditional modules rely on high-speed electrical silicon chips, optical components, and III-V semiconductor chips, essentially functioning as 'electrical interconnects.' As transistor sizes shrink, electrical interconnects face transmission bottlenecks, and Silicon Photonics offers a new approach. It is a next-generation technology based on silicon and silicon-based substrates (e.g., SiGe/Si, SOI) that utilizes existing CMOS processes for development and integration.

The core concept of Silicon Photonics is 'replacing electricity with light,' using laser beams instead of electronic signals to transmit data by integrating optical and electronic components onto a single microchip. LightCounting expects the market share of silicon photonics-based modules to grow from 24% in 2022 to 44% by 2028.

According to Yole Intelligence, the silicon-based photonic chip market reached $68 million in 2022 and is projected to grow at a 44% CAGR to over $600 million by 2028. The primary growth driver is 800G and higher-speed pluggable modules for high-speed data center interconnects and machine learning applications requiring higher throughput and lower latency.

2. LPO: Trading Standard Margin for Low Power in Short-Reach Scenarios

LPO (Linear-drive Pluggable Optics) is not a new form factor but an innovation in the circuit architecture of traditional pluggable modules. Its core logic is to 'retain pluggable advantages while removing redundant DSP chips.' It inherits the 'hot-swappable' nature of traditional modules while simplifying internal circuitry. Optimized for short-reach interconnects within and between data center racks, its goal is to achieve low power, low cost, and low latency.

3. NPO: A Near-Package Solution for Scale-up

NPO (Near-Package Optics) is a pragmatic transitional solution that balances performance with current industrial realities, sitting between traditional pluggable optics and CPO. The core idea is to place the optical engine (OE) adjacent to the packaged xPU chip on the same high-performance PCB, connecting to the GPU via extremely short, high-performance electrical links. The distance between the GPU and OE is typically within a few centimeters, ensuring channel loss ≤13dB. Compared to traditional modules, interconnect density is 2-3 times higher, serving as a bridge toward CPO.

The NPO market has entered a period of rapid growth, with large-scale commercialization beginning in 2026. According to DataIntelo, the global NPO market was valued at $3.8 billion in 2025 and is expected to grow at a CAGR of 19.3% from 2026 to 2034, reaching $18.6 billion by 2034.

4. CPO: A Final Direction for High Integration, but Not a Short-Term Total Replacement

CPO (Co-Packaged Optics) is a new optoelectronic integration technology where the network switching chip and optical module are assembled on the same socket. By packaging the switch chip and optical engine together, CPO shortens the distance between them, allowing for faster electrical signal transmission, reduced size, higher efficiency, and lower power consumption.

Yole predicts that by the 3.2T era in 2027, pluggable solutions will become very difficult, making On-Board Optics (OBO) and CPO mainstream. By the 6.4T era in 2030, CPO will become the dominant solution. Yole data shows that the CPO market generated approximately $38 million in 2022 and is expected to reach $2.6 billion by 2033, with a CAGR of 46% from 2022 to 2033.