Driven by 5G, the telecom optical module market has rebounded and is expected to reach US$4.6 billion in 2023, with a CAGR of 11.5% in 2019-23.According to LightCounting data, the slowdown in global 4G construction has led to a decline in the demand for telecom optical modules, which fell by 11.7%/3.3% in 2017/18. With the 5G construction industry returning to growth, it is expected to be US$3 billion in 2019, YoY +14%, As the scale of construction expands, it is expected to reach US$4.6 billion in 2023, with a 4-year CAGR of 11.5%.We predict that the domestic telecom optical module market will reach 15.8 billion yuan in 2021, with a CAGR of 15.3% in 2019-21.According to LightCounting's forecast, the domestic telecommunications optical module market in 2019 is $1.7 billion.We estimate that driven by 5G, the domestic telecom optical module market will reach 2.27 billion US dollars (about 15.8 billion yuan) in 2021, with a 3-year CAGR of 15.3% and 5G products accounting for 43.6%.Among them, the mid-to-low-end 25G fronthaul optical modules are expected to account for 76.2%, and the shipments are expected to reach 17.66 million in 2021, with a market size of 5.26 billion yuan.Overseas leaders have accelerated their integration, with CR5 approaching 50%, while gradually divesting their assembly business to pursue profit stability.Finisar, Lumentum and Avago, the world's leading optical communication manufacturers, have gradually expanded their product lines and customer groups through mergers and acquisitions in recent years.The CR5 of the optical device industry increased from 40.7% in 2016 to 45.9% in 2018, and we expect it to reach about 50% in 2019.In addition, due to the large fluctuations in the price of optical modules, leading manufacturers have gradually divested their assembly business, hoping to pursue profit stability by controlling optical chips.Driven by 5G, the telecom optical module industry is likely to stop falling and rebound, and the CAGR is expected to reach 11.5% in 2019-23.In 2019, the overall optical module market size reached about 6.7 billion US dollars, of which telecom products accounted for 44.9%, and data communication products (used in data centers and enterprise networks) accounted for 50.2%.Previously, due to the late stage of global 4G construction, telecom optical modules declined, down 11.7%/3.3% in 2017/18; 5G construction-driven industry is expected to return to growth, and is expected to be US$3 billion in 2019, YoY +14%, 2023 On track to reach $4.6 billion, with a 4-year CAGR of 11.5%.The number and specifications of optical modules depend on the application scenario, and both are improved in the 5G period.From the access network to the backbone network, the number of optical modules is gradually reduced, and the specifications are gradually improved.In the 5G period, the access side has changed from two-stage to three-stage, and the number of fronthaul optical modules has increased; in addition, the increase in transmission rate due to the increase in 5G data volume will also bring about an improvement in product specifications at all levels.5G construction will drive the rapid growth of demand for telecom optical modules. We predict that the domestic telecom optical module market will reach 15.8 billion yuan in 2021, with a CAGR of 15.3% in 2019-21, of which 5G products will reach 6.9 billion yuan.The co-construction and sharing of Unicom Telecom will not affect the consumption of fronthaul optical modules. According to our previous forecast on the scale and pace of 5G construction in China, we expect that 5G construction will bring a total market space of 28.4 billion yuan. Reached 21.9 billion yuan, accounting for 77.1%; in 2021, the domestic telecommunications optical module market scale reached a peak of 15.8 billion yuan, with a CAGR of 15.3% in 2019-21, including 6.9 billion yuan for 5G products and 5.3 billion yuan for 25G optical modules for 5G.The main structure of the optical module is TOSA+ROSA.The main function of the optical module is to realize the mutual conversion of optical signals and electrical signals. It can be divided into a receiving end and a transmitting end. The transmitting end converts the electrical signal into an optical signal. It is composed of a corresponding driving circuit, and the core is a laser; the receiving end converts the optical signal into an electrical signal, which is composed of ROSA (receiver optical sub-assembly, light receiving sub-module) and an amplifier circuit, and the core is a photodetector.The cost of TOSA+ROSA accounts for about 50%. At present, high-end chips are mainly in the hands of American and Japanese manufacturers.Through the dismantling of the cost of the optical module, the optical components account for 79% of the cost, and among the optical components, TOSA and ROSA account for a total of 63%, that is, 50% of the total cost.From a global perspective, domestic companies mainly have competitive advantages in the mid-to-low-end market segments such as passive devices (not involving photoelectric signal conversion) and low-speed optical chips, but high-end optical chips are still mainly controlled by American and Japanese manufacturers, including American Finisar, Lumentum, Neophotonics and Japan's Sumitomo, Fujitsu.1.2. The construction of 5G will drive the demand for optical modules for domestic telecommunications, which is expected to reach RMB 15.8 billion in 2021. In 2019, the domestic telecom-side optical module market will reach US$ 1.7 billion.According to LightCounting's data, after the peak period of 4G construction in 2014-16 and China Mobile's FTTH construction, the market size of the domestic telecom side optical module declined by 29% in 2017.In 2018, with the 4G expansion and construction of the optical module market, LightCounting predicts that the domestic telecom-side optical module market will reach 1.7 billion US dollars in 2019.From 2019 to 28, China Mobile will build 1.9 million 5G base stations, and China Unicom and China Telecom will build 2.35 million 5G base stations. Co-construction and sharing will not affect the number of optical modules.If a 5G network with the same coverage as the current 4G is built in ten years, we estimate that China Mobile will need to build 1.9 million base stations.For China Unicom and China Telecom, using the 3.5GHz frequency band, we estimate that a total of 2.35 million 5G base stations will need to be built.For China Mobile's 160MHz spectrum bandwidth, if fiber direct connection is used, one macro base station corresponds to 12 optical modules, and if Open-WDM is used, it corresponds to 24 optical modules.For China Unicom and Telecom, since the two share the 200MHz spectrum, the number of optical modules required is doubled compared to 100MHz, and one macro station corresponds to 12 optical modules, so the co-construction and sharing will not reduce the number of optical modules.At its peak in 2021, the market size of optical modules required for 5G in China is expected to reach 6.9 billion yuan, with 25G optical modules accounting for 76.2%.According to the network architecture of the "White Paper on 5G Technology Development", the ratio of CU (central unit, centralized unit) to DU and macro base station is 1:6:48.One of the DU and CU connection requires 4 optical modules, which are 50G/100G.200G/400G optical modules are required to connect the CU to the aggregation layer and the core network.According to the predicted number of macro base stations and single base station usage, we estimate that the overall optical module demand (2019-28) brought by domestic 5G construction will be 28.4 billion yuan, of which 25G optical modules account for 77.1%; it is expected to reach its peak in 2021 6.9 billion yuan, with a CAGR of 132.6% in 2019-21; of which the demand for 25G optical modules is 17.66 million, with a scale of 5.26 billion yuan, accounting for 76.2%.Driven by 5G, the domestic telecom optical module market will reach 15.8 billion yuan in 2021, with a CAGR of 15.3% in 2019-21.Combined with the data of LightCounting, we assume that the domestic fixed network and backbone network optical module market size in 2021 will be 1.28 billion US dollars, then the domestic telecom optical module market size in 2021 will be 2.27 billion US dollars, or 15.8 billion yuan, CAGR in 2019-21 15.3%.FP lasers are mostly used for FTTx, DFBs are mostly used for wireless sides and data centers, EMLs are mostly used for backbone network and data center interconnection, and VCSELs are mostly used in data centers.TOSA converts electrical signals into optical signals, and is mainly composed of LD (laser diode), welded pipe body, ceramic ferrule, ceramic sleeve, adapter, etc.Among them, the lasers are mainly FP (Fabry-Perot) laser, DFB (distributed feedback laser, distributed feedback laser), EML (electro-absorption modulated laser, electro-absorption modulated laser) and VCSEL (vertical-cavity surface-emitting laser, Vertical cavity surface emitting laser), the material used is InP or AlGaAs/GaAs; LD packages generally use TO-CAN (transmitter outliner can) package, butterfly package, COB package, BOX package and Flip Clip package.The EML laser contains an electro-absorption modulator, which loads an electrical signal on the modulator based on the Franz-Keldysh effect (ie, the change in the absorption spectrum of the crystal caused by the application of an electric field) or QCSE (Quantum-confined Stark effect). Change the light absorption size to realize the modulation of the optical signal. Using this modulation method, the wavelength drift (chirp) is small, the linear working area is large, the signal transmission quality is high, and the maximum transmission rate is high, but the price is relatively expensive.ROSA can be divided into two types: APD and PIN according to the type of photodetector.ROSA converts optical signals into electrical signals, and is mainly composed of PD (photodiode), plastic package adapter, metal adapter, closed casing, etc.Among them, PD is mainly divided into PIN (phase-shift switching diode) and APD (avalanche photodiode, avalanche photodiode).Among them, the PIN photodiode absorbs light and generates a photocurrent through the I-type region between the P-type and N-type semiconductors, and has the characteristics of large linear operating area, low noise, and low power consumption; while APD uses avalanche on the basis of PIN. The multiplier effect amplifies the received photocurrent and improves the detection sensitivity, but at the same time, it also introduces larger noise, reduces the signal quality, and increases the bit error rate.The packages of optical modules mainly include: SFP/SFP+ package, XFP package, QSFP+/QSFP28 package, CFP package, etc.SFP (Small form-factor pluggable) is a small form-factor pluggable package that supports LC fiber connection with a maximum rate of 4Gbps. SFP+ has an improved rate based on SFP, with a maximum rate of 10Gbps.XFP (10GB small form-factor pluggable) refers to a 10GE small form-factor pluggable optical module, which is larger in size than SFP+.QSFP+ (Quad small form-factor pluggable) refers to a four-channel small form-factor pluggable optical module with a communication rate of 40Gbps and a larger size than SFP+; QSFP28 has the same package size as QSFP+ and supports a rate of 100Gbps.CFP (Centum form-factor pluggable) is a new optical module standard based on dense wavelength division multiplexing. It supports two major applications of data communication and telecommunication transmission at the same time, and the rate can reach 100Gbps.2.2. Telecom network: From the access network to the backbone network, the number of optical modules required is gradually reduced, and the rate is gradually increased. The telecom network is mainly divided into access network, metropolitan area network and backbone network, with different rates and transmission distances.Among them, the access network (Access Network) is a transport network that has nothing to do with services and applications. It mainly completes cross-connection, multiplexing and transmission functions, and connects enterprises, individual users, and data centers to the network, including fixed-line access and wireless Access; Metropolitan Area Network (Metropolitan Area Network) is mainly an information and communication infrastructure in an urban area, mainly using optical fiber as the transmission medium, and is the intermediate link between the access network and the backbone network; the backbone network is used to connect multiple Regional and regional high-speed internet.In terms of transmission distance, the transmission distance of the access network is generally less than 100km, the transmission distance of the metropolitan area network is generally 100-800km, and the transmission distance of the backbone network is generally 800-2000km.Fixed network access generally uses PON, which consumes a lot of optical modules.PON (Passive Optical Network, Passive Optical Network) refers to an optical network built with passive equipment, in which passive equipment refers to electronic equipment that does not require additional power supply, and does not involve signal conversion and amplification; Active equipment, passive equipment has low failure rate, high reliability, generally long service life, and low maintenance cost.PON network is mainly composed of optical line terminal OLT (Optical Line Terminal), optical distribution network ODN (Optical Distribution Network) and optical network unit/terminal ONU/ONT (Optical Network Unit/Optical Network Terminal).Among them, OLT mainly aggregates the signals of various services at the central office and transmits them down to the end users (downlink) in a certain format. On the other hand, the signals from the end users are sent to different service networks according to service types. (upward).ODN mainly completes the uplink and downlink transmission of signals, mainly using optical splitters.ONU/ONT is a device on the user side. The ONT is directly applied to the end user, which is suitable for FTTH scenarios. The ONU still has a certain distance directly from the user, and can be connected to the end user through network cables, optical fibers, etc., suitable for FTTB, FTTO, etc. Scenes.The connection requirements between OLT, ODN and ONU/ONT equipment are large, the number of terminal equipment is large, and the amount of optical modules is large.One device of OLT and ONU consumes hundreds of optical modules, and the rate is generally 1.5Gb/s.Due to the characteristics of the network, PON optical modules are often in a one-to-many mode, and the modules are not used in pairs.Taking Huawei's OLT platform MA5800-X17 as an example, there are 17 service slot boards in total, and each service slot board supports 16 PON ports, so a single device supports a total of 272 PON ports.Since PON is generally used in small areas, the transmission distance is short, generally within 20km, and the transmission rate is generally 1.5Gb/s. In addition, the uplink wavelength is 1310nm, and the downlink wavelength is 1490nm.At present, the main transmission protocols used by operators are EPON and GPON, and their packaging forms include SFF, SFP/SFP+.In the access network on the wireless side, the optical module is mainly used to connect the RRU and the BBU, and connect the BBU to the metropolitan area network. The access rate in the 4G period is mostly 10Gb/s.The high-speed CPRI protocol (Common Public Radio Interface) is used between the 4G BBU (baseband unit) and the RRU (remote radio unit), which is generally a point-to-point dual-fiber direct connection, and the transmission distance is also Usually within 200m; 4G BBU access MAN rate is mainly 10Gb/s, the packages are mostly SFPSFP+ and QSFP28, and the transmission distance is 10km/40km.The indoor base station often adopts a networking mode in which multiple RRUs are cascaded and share a CPRI interface. The current typical configuration is that 2-3 levels of RRUs are cascaded to achieve frequency coverage.The metropolitan area network plays the role of linking the previous and the next, and is more sensitive to the cost. The direct connection of Ethernet or CWDM can be used to reduce the cost.The types of MAN services are complex, and they need to carry traditional voice services, Internet services, and various emerging services in the future.In addition, due to the increase in business complexity and user demand, the metropolitan area network needs sufficient flexibility, scalability, and rapid response capabilities to adapt to changes in demand.At the same time, due to the rapid growth of the service bandwidth and the number of users, it has also caused huge bandwidth pressure and service management pressure to the metropolitan area network. The metropolitan area network needs to be expanded and upgraded in a timely manner.In addition, compared with the backbone network, since the connection distance required by the metropolitan area network is shorter and more sensitive to cost, it is currently possible to transmit through Ethernet direct connection or CWDM (Coarse wavelength-division multiplexing, coarse wavelength division multiplexing) and other transmissions. Technology reduces costs.The MAN aggregation layer mostly uses 40GE/100GE optical modules, and the usage is linked to the data traffic.At present, China Mobile's metropolitan area network adopts the PTN structure. The PTN networking structure takes Huawei's PTN 7900-32 and PTN960 as examples. The PTN 7900-32 is used for the aggregation layer of the metropolitan area network and supports a maximum switching capacity of 12.8Tbps. 32 processing boards, each board has 1-4 optical module interfaces, the optical modules used are mostly CFP/CFP2 and QSFP28 packages, the rate is 40GE/100GE, the transmission distance is 10km/40km/80km, the number of optical modules Depends on data flow.The metropolitan area network of China Unicom and China Telecom adopts the IP RAN structure, and its optical module specifications and usage are similar to those of PTN equipment.The backbone network mainly adopts OTN technology that supports high-speed, large-capacity and long-distance transmission. Most of the optical modules used are WDM/DWDM optical modules (ie, color light modules), and the rate is mostly 100G, but the overall number is small.OTN (Optical Transport Network) technology is actually an all-optical network based on WDM (Wavelength Division Multiplexing), which pushes the transport network to the stage of a true multi-wavelength optical network.OTN can provide huge transmission capacity, completely transparent end-to-end wavelength/sub-wavelength connections, carrier-class protection, and strengthen sub-wavelength aggregation and grooming capabilities.The particle size of OTN configuration, multiplexing, and crossover is significantly larger than that of previous generation network technologies, which greatly improves the transmission efficiency and adaptability of high-bandwidth data services.In addition, OTN can maximize the use of existing equipment resources, and can provide flexible business protection functions based on the electrical layer and the optical layer.Operators have been deploying OTN networks since 2010, and most of the OTN equipment currently purchased use WDM/DWDM 100G optical modules.Taking Huawei OptiX OSN 8800 as an example, a single device of this series has a maximum of 64 service card slots, and each service board has 2-8 optical module ports. Most of the DWDM optical modules are used, and the packages are eSFP, XFP and SFP+ three modes.In the 5G period, the wireless network will increase the mid-transmission link, and the specifications and quantity of optical modules will increase simultaneously.In the 5G period, the wireless access side will undergo major changes. The original RRU and BBU part of the physical layer processing functions are moved up and the antennas are merged into AAU (active antenna units, active antennas), so as to further reduce the length of the feeder, thus Reduce signal loss.The non-real-time part of the original BBU is divided and redefined as CU (centralized unit), which is responsible for processing non-real-time protocols and services; the remaining physical layer functions and real-time functions of the BBU are redefined as DU (distributed unit).Therefore, the network structure changes from the previous two-segment connection to three-segment connection, and the number of required optical modules increases accordingly.In addition, according to the technical solution given by the IMT-2020 (5G) promotion group, the optical module requirements are as follows: 10G/25G/100Gb/s gray light or Nx25G/50Gb/s WDM color light is used on the wireless access side; The convergence layer adopts 100G/200Gb/s gray light or Nx100Gb/s WDM color light; the core layer and backbone network of the metropolitan area network adopts 200G/400Gb/s gray light or Nx100G/200G/400Gb/s WDM color light.The specifications of optical modules are improved compared to the previous 4G network (10Gb/s on the access side, 40Gb/s on the aggregation layer, and 100Gb/s on the core network and backbone network).Among the four technical solutions for 5G fronthaul, the active/passive WDM and SPN solutions consume twice the number of optical modules as the direct fiber connection.The technical solutions of 5G fronthaul include: optical fiber direct connection, passive WDM, active WDM/OTN, sliced ​​packet network (SPN), etc.Among them, the direct optical fiber connection method is the simplest and the lowest cost, but it cannot meet the management functions such as network protection and monitoring, so it cannot provide high reliability for uRLLC services, and consumes the most optical fiber resources; the passive WDM solution uses color light modules, which consume optical fiber resources. Fewer passive devices are easy to maintain, but still cannot realize network monitoring, protection, management and other functions; active WDM/OTN saves fiber resources, can realize OAM functions such as performance overhead and fault detection, and provides network protection, this technology is natural It has the characteristics of large bandwidth and low delay, but the disadvantage is that the cost of network construction is high; the SPN solution can also realize the OAM function and provide network protection. It has the characteristics of large bandwidth and low delay, and can meet the needs of different application scenarios through network slicing. The disadvantage is that the network construction cost is relatively high.Among them, the optical modules required for the active/passive WDM solution and the SPN solution are double that of the optical fiber direct connection solution.China Mobile proposed the Open-WDM/MWDM technical solution, and the number of fronthaul optical modules doubled compared with 4G.On September 3, 2019, China Mobile Li Han first announced China Mobile's 5G fronthaul Open-WDM/MWDM technical solution, which will use low-cost 25G CWDM optical modules in the fronthaul to realize a 12-wavelength system.Since the traditional BBU is only connected to 3 RRUs, only 3 pairs (6 in total) of optical modules are required.However, in the 5G period, a DU (distributed unit, distribution unit) may be connected to a site that needs to be connected to more than 30 stations. In addition, since China Mobile has a total of 160MHz bandwidth resources at 2.6GHz, each AAU (active antenna unit, active antenna) needs to be Two pairs (four) of optical modules, one CU may need to connect 180 pairs of optical modules, and 360 core fibers are required, which consumes a lot of fibers.Therefore, China Mobile has introduced WDM technology for the above scale concentration scenarios.Correspondingly, each base station corresponds to 24 25G optical modules, which is four times of the 4G period and doubled compared with the direct fiber connection solution, and each CU only needs one fiber.The demand for fronthaul optical modules accounts for the largest proportion, and the market space for 25G products is large.In terms of the number of connections, the number of fronthaul optical modules is the largest, and the demand is the highest in the 5G bearer network. At the same time, because the application scenario is usually outdoor, industrial-grade optical modules are required with a rate of 25Gb/s, and the normal operating temperature range is required to be large. -40 degrees to +85 degrees.The laser/detector combination scheme used depends on the transmission distance. For short transmission distances (100m/300m, often used when the distance between DU and AAU is close), multi-mode fiber can be used with a wavelength of 850nm, using laser/detector The type is VCSEL/PIN combination, while for medium and long distance transmission (10km/20km, the distance between DU and AAU is long), single-mode fiber is used, the wavelength is 1310nm/1550nm, and the laser/detector type is mostly DFB/PIN or EML/ PIN combination.Therefore, these types of optical modules are expected to be shipped in large quantities during the 5G scale construction period, and the market space is large.Most of the optical modules used for backhaul in the 5G access network are 50G/100Gb/s gray light or WDM colored light.Since the core functions of the backhaul network on the 5G access side mainly include requirements such as multi-level bearer network, flexible connection scheduling, hierarchical network slicing, 4G/5G hybrid bearer, and low-cost high-speed networking, it is also necessary to support L0~L3 layers. The main technical solutions include SPN, mobile bearer-oriented optimized OTN (M-OTN), IP RAN enhancement + optical layer, and the optical modules used are mainly 50G/100Gb/s gray light or WDM color light modules .Since optical modules are often used in computer rooms with good heat dissipation conditions in mid-transmission and back-transmission scenarios, commercial-grade optical modules can be used.At present, the transmission distance below 80km mainly uses 25Gb/s NRZ or 50/100/200/400/Gb/s PAM4 optical modules, and the long-distance transmission above 80km will mainly use coherent optical modules (single carrier 100/400Gb/s ).The yield rate of silicon photonics products is low, the transmission loss is large, and the cost advantage is not obvious.Due to the small size of InP and GaAs (group III-V materials) wafers, high material costs and high processing costs, industry insiders hope to replace InP and GaAs with silicon wafers with large size and mature processing technology.However, since silicon is an indirect band gap material, the probability of non-direct transition is extremely small, so the luminous efficiency of silicon is extremely low. If silicon photonics technology is used to make optical modules, the light source becomes a difficulty.At present, it is mainly realized by combining III-V materials with silicon (ie, III/V-Si heterogeneous integrated system). However, due to the mismatch of their lattices, the two can only be combined by intermolecular van der Waals forces. The effect is weak, so the product yield is low. At present, large companies such as Intel and III-V labs mainly use this method.In addition, the transmission loss of silicon optical waveguides is relatively large. At present, the minimum loss in processing plants is 1dB/cm@1550nm, and the efficiency of silicon-based optical devices is low.And due to the two-photon absorption effect, when the input power exceeds a certain threshold, the transmission loss of the silicon optical waveguide increases significantly, so the silicon optical module is difficult to use for long-distance transmission.In addition, the coupling efficiency between the silicon optical waveguide and the optical fiber is low, and the loss is large.Under the influence of various factors, the cost advantage of silicon photonics modules is not obvious at present. The price of Intel 100G PSM4 QSFP28 silicon photonics modules is 3990 euros, while the price of Cisco's similar products is only 300 euros.And these problems mainly stem from the problems of the silicon material itself, which are difficult to solve.The optical module industry pattern will not undergo major changes due to silicon photonics technology.Considering the production cost and the characteristics of the material itself, we believe that silicon photonics is difficult to replace the existing III-V technology, especially in long-distance transmission, so the industry technology landscape will remain stable.At present, the companies mainly engaged in the research and development of silicon photonics modules are also semiconductor companies such as Intel, mainly because the existing CMOS processes of these companies are relatively mature and the cost is low, while the traditional optical device manufacturers are still cautious in their attitude towards silicon photonics.From a global perspective, the optical communication industry is in a period of accelerated integration.In recent years, the optical communication industry has shown a trend of accelerating integration. Industry leaders have enriched their product lines and expanded their business scope by acquiring leaders in subdivisions. For example, in March 2018, II-VI acquired CoAdna (WSS (Wavelength Selective Switch), a global Leader), strengthening the vertical integration capability of its own ROADM (Reconfigurable optical add-drop multiplexer, reconfigurable optical add-drop multiplexer, the core device is WSS unit) products.Leading enterprises choose to combine powerful forces to consolidate their position, and CR5 may increase to 50%.Examples include Lumentum's acquisition of Oclaro, and II-VI's acquisition of Finisar.Among them, according to the market share before the acquisition (2017) given by OVUM, Lumentum and Oclaro accounted for 7.5% and 6.5% of the world respectively, ranking second and third. Lumentum is the world's leading VCSEL supplier, and also provides Fiber lasers, optical modules and other products, while Oclaro has the world's leading production capacity of InP (indium phosphide) lasers and research and development capabilities of integrated optical circuits and coherent optical devices. The combination of the two will complement the product line and achieve strong alliances. further consolidate its position.The global market share of II-VI and Finisar accounted for 4.8% and 14.4% respectively, ranking sixth and first. The main products of II-VI are passive optical devices, while Finisar is the leader of active optical devices. The joint complementary effect is greater than that of Lumentum and Oclaro.According to the data provided by OVUM, considering the combined market share, we expect that the CR5 of the optical device industry will reach about 50% in 2019, an increase of 10pcs compared to 2016.The head company divested the assembly business and focused on the production of optical chips in order to stabilize profit margins.In recent years, in addition to the integration of production lines in the optical communication industry, the leading industries have divested the labor-intensive and capital-heavy optical module assembly business, including Avago's sale of the optical module assembly business to Hongteng Precision (and then back to Avago), Macom and Oclaro. Japan sells related business to Cambridge Technology.The price of new products (40G in 2014, 100G in 2017) has plunged after only one year of launch. Now, device manufacturers do not want the same thing to happen in 400G mass production.Because high-speed optical chips (25G) have high technical content and high thresholds, they are only in the hands of leading manufacturers, so they have strong bargaining power in the industry chain. They choose to retain the design and production capacity of optical chips and divest the assembly business. In the future Stabilize its own profit level by squeezing the profit of assembly.Optical chip manufacturers have the right to speak in the industry chain, and domestic manufacturers are expected to enter this field and improve profitability.According to the previous cost analysis, we can see that the optical chip accounts for 50% of the cost of the optical module, the electrical chip accounts for 14%, the passive optical device accounts for 30% of the cost, and the PCB and housing account for 7%.The technical threshold of optical chips is high, so the gross profit level is high, and the right to speak in the industry chain is mainly concentrated in this link.At present, the main suppliers of optical chips include: American manufacturers Avago, Oclaro (merged with Lumentum) and Finisar, and Japanese manufacturers Sumitomo and Fujitsu.Domestic manufacturers Guangxun Technology, Huagong Zhengyuan, and Hisense Broadband have achieved mass production of 10G and below optical chips, and some of them have been used in existing products.However, 25G optical chips cannot be mass-produced yet, but at present, some 25G optical chips have been sent for sample testing or small-scale mass production. With the increase in the proportion of localization, such manufacturers are expected to increase their voice, and their profitability is expected to gradually improve.The localization rate of electronic chips is relatively low, and the localization ratio is less than 2%, and domestic replacement has a long way to go.In addition, the electrical chips used in optical modules include MCU (microcontroller unit, micro control unit), DSP (digital signal processing, digital signal processing) and amplifiers are currently mainly provided by European and American manufacturers (Maxim, TI, ADI, Acacia, etc.).According to industry data, the overall MCU current share of domestic chips is only 2%. Since MCUs in optical modules belong to sub-industry applications, the market scale is small, the initial investment of manufacturers is relatively large, and few domestic manufacturers have entered this field. We estimate that the localization rate is lower than the overall level of the industry (2%).The overall optical module industry has experienced three periods of high growth in the past 10 years, and the industry is expected to return to growth in 2019.Looking back at the development of the global optical module industry in the past 10 years, the overall market grew rapidly in 2011, 2014 and 2016.Among them, the telecommunications and datacom markets both maintained rapid growth in 2014, due to the large-scale construction of China's 4G network and the upgrade of data centers to 40G; the telecommunications market was sluggish in 2016, and the datacom market grew at a higher rate, mainly due to product The massive demand brought by the upgrade to 100G.It is expected that in the second half of 2019, the data center will be gradually upgraded to 400G, and the construction of 5G network will be superimposed, and the overall optical module industry is expected to return to growth.Finisar (Finisar, now acquired by II-VI (II-VI Semiconductor)): A leader in the optical communication industry, vertical integration brings efficiency improvements Finisar was established in 1988 and is the world's largest manufacturer of optical communication devices. Its product line covers the datacom and telecommunications markets.The company's main products include: optical modules, optical amplifiers, lasers, photodetectors, passive optical devices, ROADMs, WSS (wavelength selective switches, wavelength selective switches) and other high-speed optical devices, and gradually enter the 3D sensing market.In addition, the company has vertically integrated production capacity, and has the design and production capacity from optical chips to optical modules, so the cost advantage of products is relatively obvious.In November 2018, II-VI proposed to acquire Finisar for US$3.2 billion. This proposal obtained an anti-monopoly license from the State Administration for Market Regulation of China on September 20, 2019. The company was delisted from Nasdaq on September 25.In the early stage, it mainly expanded its business scope through acquisitions and acquired optical active/passive device manufacturing capabilities.After Finisar went public, it coincided with the bursting of the Internet bubble in 2001, and a large number of optical communication/optical device manufacturers encountered difficulties in their operations. The company subsequently acquired frequent mergers and acquisitions, thereby successively acquiring the production capacity of PIN detectors and lasers (acquiring Genoa and Honeywell), and the production capacity of optical modules. (Ipoh factory in Malaysia), design and manufacturing capabilities of optical passive devices (Transwave and New Focus), and gradually enter the European market.In 2008, through the merger with Optium, the company surpassed JDSU to become the world's largest provider of optical components.At present, the company's factory in Ipoh, Malaysia mainly produces optical subsystems, the Wuxi factory in China mainly produces optical modules, the factory in Shanghai, China mainly produces optical passive components including ROADM, the factory in Waterloo, Australia mainly produces WSS, and the factory in Horsham, Pennsylvania, USA It mainly produces CATV and telecommunications products. The factory in Allen, Texas, USA produces VCSELs, and the factory in Fremont, California, USA produces long-wavelength FP and DFB lasers.Datacom market revenue accounts for nearly 80%, and the VCSEL business is developing rapidly.The data communication market (mainly used in large Internet data centers) is mostly high-speed optical modules (100G/200G/400G), which have high product value and certain technical thresholds. Passing downstream customer certification requires certain strength. Therefore, this subdivision The players in the field are mainly large-scale manufacturers, while the speed of optical modules for telecommunications is relatively low, the technical threshold is slightly lower, and the product price declines rapidly, and there are many small manufacturers participating.Therefore, the company tends to produce high value-added products, and nearly 80% of its revenue comes from the digital communication market.In addition, with the rise of 3D sensing applications, the company has gradually entered the market, and the VCSEL business will grow considerably in the future.Lumentum was spun off from JDSU's commercial optical products business and listed on the Nasdaq exchange in August 2015.Looking back on its history, the original company, JDSU, was formed by the merger of Uniphase and JDS Fitel.Among them, Uniphase was established in 1979 and went public in 1992. Uniphase was the first supplier of commercial lasers, and then began to enter the field of optical transmission.While JDS Fitel was established in 1981, it was the first to supply optical fiber network products. In 1999, JDS Fitel and Uniphase merged, and the two companies complemented each other in terms of technology, products and customer groups.The merged JDSU has successively acquired Agility (2005) and Picolight (2007), improving its capabilities in metropolitan area networks, long-distance transmission and data center enterprise networks.JDSU also has a full range of product production capabilities.In 2015, JDSU was split into Viavi Solution (network and service support and optical security and performance segments) and Lumentum (optical communications and optical business segments).With the acquisition of Oclaro in 2018, Lumentum has acquired advanced InP laser and integrated optical circuit production capabilities, and its product portfolio has been further improved.Before the merger, Lumentum had strong capabilities in GaAs-based VCSELs, while Oclaro focused more on InP lasers, and will have certain advantages in future 5G long-distance transmission, coherent transmission, and large-capacity transmission in data centers, so the acquisition of Oclaro will expand Lumentum Product layout in the optical communication industry.As 3D sensing penetration increases, VCSELs will be the main driver of the company's future performance.Since 2018, with the gradual popularization of 3D sensing technology in mobile phones, the VCSEL market is expected to usher in rapid development. According to YOLE's forecast, the VCSEL market size of mobile phones and consumer electronics is expected to grow from US$738 million in 2018 to US$738 million in 2024. 3.775 billion US dollars, CAGR 31.3% in 2018-24, the share of the overall VCSEL market increased from 74.9% to 89.6%.In addition, as the company gradually divests its assembly business, we expect that the gross profit margin of the optical module business is expected to be further stabilized, and the company's profitability is expected to gradually improve.Onner Technology was established in 2000. At first, it mainly produced passive optical devices, and then gradually extended to active devices. At present, its main products include optical isolators, WDM (wavelength division multiplexers), EDFA fiber amplifiers, variable Optical attenuators, optical modules, and passive components are among the top five in the world in terms of shipments in many fields, with economies of scale and high gross profit margins.In addition, the company is also developing in fiber lasers, LiDAR and machine vision.In 2019, the company completed the acquisition of 3SP and obtained InP and GaAs fabs, and the R&D and production capacity of optical chips is expected to be further improved.With the company's ability to extend upward, the company's profit level is expected to further improve.As the downstream of the optical module industry, ZTE is one of the four major equipment manufacturers in the world, with a global access network equipment share of about 11%. The company currently has 35 5G contracts.At present, the three major domestic operations have started the construction of 5G bearer networks. In December 2019, China Mobile started the centralized procurement of SPN equipment, and in January 2020, China Telecom started the centralized procurement of STN equipment."5G construction, bearer first" also indicates that China's 5G network construction is expected to accelerate.We believe that the company's market share in domestic operators' procurement is expected to gradually increase in the future, and the company will return to rapid growth with 5G. Investors are advised to pay attention.According to our estimates, 5G construction will boost the demand for optical modules. The market size of optical modules for China Telecom will increase from RMB 11.8 billion in 2019 to RMB 15.8 billion in 2021, with a CAGR of 15.3%, of which 69% of optical modules for 5G will be used. 100 million yuan, accounting for 43.7%.The 5G construction full cycle (2019-28) has a market space of 28.4 billion yuan for telecom optical modules; of which 25G fronthaul optical modules account for the highest proportion of 21.9 billion yuan, accounting for 77.1%.