Citigroup: U.S. Proposed Ban on Chinese Optical Modules Unlikely to Be Implemented in the Short Term; Innolight and Dongshan Precision Face the Largest Exposure

Deep Tide TechFlow reports, according to Tide Research, Citigroup's August 9 research note pointed out that the FCC's proposed ban on Chinese optical modules entering the U.S. market, as reported by Reuters, remains at the proposal stage, and optical modules have not been included in any effective bans. Chinese optical module suppliers account for 60% to 70% of the high-speed optical module market for U.S. hyperscale manufacturers, and non-Chinese suppliers are unable to fill the gap in the short term, making the likelihood of the ban being implemented low. Although FCC Order 26-50 establishes restricted lists for manufacturers and origins, optical modules are only mentioned as examples in the material list disclosure and are not classified as restricted products. Citigroup believes that restrictions based on origin are more likely to be implemented than those based on manufacturers, but the probability of implementation in the near term is very low. Innolight and Dongshan Precision have the largest exposure in terms of U.S. optical module exports and would face higher risks if the ban were implemented; Tianfu Communication, as a passive component supplier, is relatively insulated. Citigroup has issued a "Buy" rating for Innolight, Dongshan Precision, and Tianfu Communication, with target prices of RMB 701, RMB 350, and RMB 419, respectively.