China Merchants Securities: Optical module testing benefits a sharp rise in volume and price+domestic penetration suggestions focus on equipment manufacturers with technical reserves+customer binding

The Zhitong Finance App learned that China Merchants Securities released a research report saying that the testing industry has ushered in new opportunities for “sharp rise in volume and price” due to innovation in upstream components of optical modules and increasing demand for upgrading and iteration on downstream applications. As the “core” quality inspector of optical module production lines, test equipment benefits: ① High-speed expansion of production by downstream optical module manufacturers + ② High-speed upgrading and iteration of optical modules from 800G to 1.6T and above, leading to a sharp rise in the volume and price of test equipment. It is recommended to focus on optical module test equipment manufacturers with technical reserves+customer binding.

The main views of China Merchants Securities are as follows:

Test equipment is the core “shovel seller” + “quality inspector” of optical modules

Optical module testing is a key step in ensuring the performance and quality of optical modules. It covers test items such as optical power, sensitivity, bit error rate, extinction ratio, eye map, etc. The core instruments include sampling oscilloscopes, error meters, etc. According to data from the Sihan Industrial Research Institute, the testing process accounts for 27% of the total production line equipment investment (about 500 million yuan per million 800G optical module production line equipment), and is a key part of the optical module production line.

Core components (chips) +customer certification+technology iteration to build core barriers

① Core components: Core components determine the test equipment limit. Currently, there are still no breakthroughs in domestic components. For example, high-speed chips (chips required for 110GHz or higher bandwidth oscilloscopes) are still dominated by a few overseas semiconductor companies, and domestic equipment manufacturers face the challenges of long procurement cycles, limited supply and high costs for high-end products; ② Customer certification: Test instruments belong to an industry with strong customer stickiness, and the customer certification cycle is 1-2 years; ③ Technology iteration: optical module speed transition forces rapid instrument updates, and the test threshold has been greatly raised, and extremely high technology has been proposed for test instrument suppliers Follow up on requests.

Market space: Demand for optical modules exploded, and test equipment welcomed a sharp rise in volume and price

The market size of optical module testing equipment depends on two variables — ① optical module shipments (volume): driven by AI computing power, market demand for optical modules explodes, leading manufacturers begin a production capacity expansion cycle; ② test equipment value (price): optical modules are upgraded from 400G to 800G, 1.6T and higher speeds, and signal complexity, error requirements, and synchronization accuracy requirements have increased accordingly, driving a significant increase in the value of test instruments. According to Frost & Sullivan, China's optical communication testing instrument market reached 3.3 billion yuan in 2024, and is expected to grow to 6.59 billion yuan in 2029, with a CAGR of 14.8% in 2024-2029.

Competition pattern: The global market is highly oligopolistic, and domestic investment is catching up at an accelerated pace

According to Frost & Sullivan, five companies, including Keysight, Anritsu, Tektronix, VIAVI, and EXFO, account for the main share. The overall market share of domestic companies is only about 16%, and there is plenty of room for increase in share. In 2024, Unicom Instruments ranked third in the world and number one in mainland China with a 9.9% share. Furthermore, domestic companies such as Huaxing Yuanchuang, Japan Federation, Huashengchang, Ulide, Puyuan Precision Electronics, and Dingyang Technology continue to break through, and the domestic penetration process is expected to accelerate.

Risk warning: Downstream optical module production expansion and technology iteration fall short of expectations, R&D progress falls short of expectations, and industry competition intensifies.