Written by: Rita

Reuters reported on August 4 that the Trump administration and the FCC are drafting plans to ban the import of Chinese data center components into the United States, specifically naming optical modules. Goldman Sachs responded to three key investor questions in a report on August 10: why leading Chinese optical module companies continue to win customer favor, whether capacity and cost efficiency constitute a moat, and whether overseas capacity planning can hedge against risks. Goldman Sachs determined that rapid technological iterations, strong AI demand, tight raw material supply, and high R&D requirements for multiple SKU varieties make customers increasingly reliant on existing leading suppliers in the current environment and unlikely to easily switch to new vendors. Goldman Sachs gave a buy rating to leading Chinese optical module companies, such as New Orient and Robotek, while also giving a buy rating to FOCI, LandMark, and VPEC (all listed on the Taiwan Stock Exchange), believing that these companies possess hard-to-replicate competitive advantages in technology, capacity, and customer synergy.

Rapid technological iterations, leading manufacturers' R&D advantages continue to expand

The architecture of AI servers is still rapidly evolving, with optical module rates transitioning from 400G to 800G to 1.6T, packaging forms evolving from pluggable to LPO to NPO to CPO, materials shifting from EML to silicon photonics to lithium niobate, and fiber types transforming from single-mode to multi-mode. The variety of SKUs is vast and continuously expanding, with each new specification requiring manufacturers to have rapid response and R&D capabilities.

Goldman Sachs believes that this rapidly evolving technological environment will only increase customer dependence on existing leading manufacturers. New suppliers will need more time to prove product stability and must re-coordinate with chip suppliers, system integrators, and other component manufacturers to meet quality and design specifications. Historically, Chinese leading manufacturers have successfully launched the world's first 400G (2018), 800G (2020), and 1.6T (2023) optical modules, and this leading position continues to expand with the ongoing upgrade of AI.

Capacity and cost create barriers, making it difficult for small and medium-sized manufacturers to catch up in the short term

Seven of the top ten optical module suppliers globally are headquartered in China, with market share expected to further expand in 2025 compared to 2024. In addition to R&D capabilities, leading manufacturers also stand out in their commitments to capacity, automated production, and manufacturing efficiency. Their self-developed production lines and specialized equipment enable them to achieve rapid product deployment at competitive prices.

Goldman Sachs pointed out that upgrading product specifications to 1.6T and above not only increases design complexity but also manufacturing difficulty. The size of optical modules has not increased, yet they must fit more fibers and lasers in the same space to achieve higher speeds, significantly increasing coupling and heat dissipation challenges. Small and medium-sized manufacturers will require more time to reach the same manufacturing efficiency levels in this rapidly evolving technological environment.

Overseas capacity planning is underway, and Southeast Asian factories are already in mass production

Macroeconomic uncertainty is not new. From geopolitical tensions in 2019, pandemics from 2020 to 2022, to tariff increases in 2025, the technology supply chain has been reducing risks through geographically dispersed production in recent years. Leading manufacturers are not only expanding capacity in Southeast Asia (which can already produce high-end products such as 1.6T) but are also planning in other countries to further diversify their manufacturing bases.

New Orient's phase one in Thailand is fully operational, and phase two is being expanded in 2026. Goldman Sachs believes that the early planning of overseas capacity provides leading manufacturers with a buffer, which does not contradict Citibank's report stating that "overseas capacity is still insufficient to fill the gap." It is insufficient to cover all demand in the short term, but the long-term trend of diversification has already been established.

Goldman Sachs concludes that while concerns about the U.S. ban are understandable, the moat of leading Chinese optical module manufacturers is much deeper than the short-term impact of tariffs. Accumulation in technology R&D, efficiency of automated production lines, deep collaboration with customers, and advanced overseas capacity collectively create competitive barriers that cannot be easily replicated in the short term. AI-driven demand for optical modules continues to accelerate, and the trend of share expansion among leading manufacturers will not be reversed by the draft ban that has not yet been implemented.

Disclaimer

This article is an organization and interpretation of a third-party brokerage research report (Goldman Sachs, August 10, 2026) by Trend Research, integrating publicly available market information. The ratings, target prices, profit forecasts, and related assessments quoted in the text are solely the viewpoints of the analysts at that brokerage and do not represent the views of Trend Research, nor do they constitute any investment advice.

The market has risks, and decisions should be independent. This article should not be used as the basis for trading any securities.