Economic Observer reporter Zheng Chenye

On the afternoon of October 8th, Yuan Yonggang, Chairman of Dongshan Precision (002384. SZ), appeared at an investor exchange meeting.

On this day, which was the first trading day of A-shares after the National Day holiday, Dongshan Precision's stock price opened lower, then fell to the limit down and continued until the close, with a closing price of 150.66 yuan, hitting a new low in stock price since mid April.

On that day, the A-share optical communication sector fell sharply, with optical chip stocks leading the decline, and some individual stocks even closed at the limit down. Dongshan Precision focuses on electronic circuits (printed circuit boards) as its main business. After acquiring optical module and chip manufacturer Solsks Optoelectronics in 2025, it will enter the field of optical communication.

The stock price fluctuations in the optical communication sector are related to a research report released by Morgan Stanley, a US investment bank, on October 1st. According to the research report, the United States may impose restrictions on Chinese optical module manufacturers, most likely starting from 3.2T optical module products. Optical modules are divided into generations based on transmission rate, with 3.2T being the next generation product after 800G and 1.6T, which has not yet been mass-produced.

I haven't seen any clients worried, "Yuan Yonggang said at the investor exchange meeting mentioned above. He had met with clients in the United States the day before, and so far no client has made any relevant requests to Dongshan Precision regarding possible restrictions in the United States. In his view, Morgan Stanley's above-mentioned research report is "just a report issued by a research institution, not a policy report of the United States".

Research Report Impact

According to Morgan Stanley analyst Meta A According to the research report released by Marshall et al. on October 1st, the bank's strategist team recently met with a senior legal team in Washington, D.C. This team focuses on telecommunications, the Federal Communications Commission (FCC), and export control affairs, and has direct contact with both the White House and FCC. The two sides discussed measures taken by the US government to reduce its dependence on Chinese technology.

The FCC is the regulatory agency in the field of communication in the United States, and electronic devices sold or imported in the United States generally require obtaining its device authorization first. The above analysts believe that in the field of optical modules, the FCC's "Covered List" is more likely to become a recent restrictive measure. The controlled list includes communication equipment and services that are deemed to pose unacceptable risks to US national security, and devices listed on the list cannot obtain new authorizations.

According to the research report, based on policy discussions, restrictions on 3.2T optical module products may be implemented in stages, with actions possibly taking place as early as October of this year. The research report also mentioned that as long as 65% of the value in the Bill of Materials (BOM), which is a list of all components and materials used in a product, comes from American companies, Chinese made optical modules may still be allowed to be imported; If both DSP chips and laser chips use products from American companies, these two alone are already close to this proportion.DSP, also known as digital signal processing chip, is responsible for processing and correcting electrical signals during high-speed transmission; The laser chip is the light source of the optical module.

Morgan Stanley research report believes that in order to achieve the above 65% target, Chinese optical module manufacturers need to purchase a large number of lasers from American manufacturers. In this way, as long as Zhongji Xuchuang (300308. SZ) and Xinyisheng (300502. SZ) increase the American value content in their materials, they may not lose a significant share, but the space for switching to Chinese lasers will become smaller.

Under the influence of the above-mentioned research report, on October 8th, A-share optical chip manufacturers Yuanjie Technology (688498. SH) and Changguang Huaxin (688048. SH) both closed at the limit down price, with a decline of 20%; The Wande Guang chip concept index fell by 8.18%; The A-share prices of Zhongji Xuchuang and Xinyisheng fell by 3.15% and 2.70% respectively.

Dongshan Precision produces both optical modules and laser chips, which are mainly operated by its subsidiary Sols Optoelectronics. According to the announcement released by Dongshan Precision on June 4th, in the first quarter of 2026, Sols Optoelectronics contributed 52.92% of the company's consolidated profit.

Sols Optoelectronics' optical chips are designed and manufactured in-house, with high-speed EML chips as the core of the product. EML stands for Electro Absorption Modulation Laser, which can convert electrical signals into optical signals while emitting light. It is a commonly used laser chip in high-speed optical modules.

The cost of optical chips within our company is only about 1% to 2%, "Yuan Yonggang said at the aforementioned investor exchange meeting. Dongshan Precision's optical chips are self-produced, and according to internal cost accounting, their proportion in the cost of optical modules is very low; The main cost is DSP and other electronic components, many of which are products of American companies. In his opinion, it is not particularly difficult for the company's related products to account for 65% of the material value of American companies.

Yuan Yonggang also stated that 65% of the restriction indicators are strictly speaking a matter of origin, and customs cannot verify the US proportion of each material one by one; Dongshan Precision already has factories in the United States, and if the PCBA (assembly process of soldering chips and other components onto circuit boards) is produced in the United States, the origin of this optical module is basically defined as the United States.

Customer is out of stock

Yuan Yonggang's response in terms of cost and origin is aimed at the next-generation optical module products that have not yet been mass-produced. The customers he is currently in contact with are more anxious about delivery, as the optical modules have been out of stock.

Everything is currently stuck on TSMC's production capacity, "Yuan Yonggang said when asked about overseas cloud service providers' guidance for orders in 2028." The demand side is very strong, and to determine the demand for optical modules, it mainly depends on TSMC's production schedule for DSP and GPU. TSMC is a major global chip foundry, producing many of the DSP and GPU chips used in optical modules and AI computing clusters.

As for the locking situation of DSP and other materials, Yuan Yonggang said that Dongshan Precision is still acceptable overall. These materials may be prioritized for overseas cloud service providers, and cloud service providers will personally come forward to help major optical module suppliers place orders together; The orders that should be locked in 2027 have been basically secured by each company, and the top few manufacturers should not be particularly affected. It is difficult to say whether some small manufacturers can obtain the materials.

He also mentioned that if the United States already had a large production scale, "there may be considerable pressure for us," but now colleagues are all producing in Southeast Asia. According to a Morgan Stanley research report, the only large-scale optical module manufacturer in the United States, Applied Optoelectronics (AAOI), is expected to have a monthly production capacity of approximately 650000 units of 800G and 1.6T products by the end of 2026. The combined production capacity of Zhongji Xuchuang and Xinyisheng is more than 8 times that of AAOI.

Yuan Yonggang also stated that if the relevant rules are really introduced, it would be a good thing for the optical module (company), because the long-term policy risks that cannot be determined will be eliminated, and everyone can plan according to the rules.

From the perspective of product rhythm, he predicts that in 2026 and 2027, optical modules will still be dominated by 800G, and 1.6T products will begin to increase in quantity. By around 2028, most products will shift to 1.6T products, which should be able to maintain for a relatively long time.

Regarding the 3.2T optical module product, Yuan Yonggang stated that due to the lack of a prototype for the DSP and materials of the 3.2T product, no one knows how the 3.2T product will go in the future.

(Author Zheng Chenye)