A recent report released by McKinsey, an internationally renowned research organization, pointed out that the supply chain bottleneck of optical transceivers (optical modules) may become a key obstacle to the expansion of network infrastructure in the era of artificial intelligence. The report said that before the end of the 2020s, transceiver shortages rather than GPU supply will become the main limiting factor for the deployment of 800Gbps and 1.6Tbps high-speed data center networks. The report "Optical Networking: Capturing the Next Wave of Value" predicts that by 2027, the production capacity of 800Gbps optical transceivers will be 40% to 60% lower than market demand; and by 2029, the supply gap of 1.6Tbps transceivers may also reach 30% to 40%.
1. The root cause of the shortage: Ultra-large-scale AI computing drives a surge in demand for lasers
The root cause of this "laser crisis" lies in the rapid demand for high-performance interconnects driven by ultra-large-scale computing driven by AI. McKinsey pointed out that by 2029, hyperscale enterprises will migrate about 87% of their back-end optical transceivers to 800Gbps and above, of which 1.6Tbps products will account for more than 40% of the demand share. At the same time, the front-end metropolitan optical network market is also rapidly upgrading, with more and more coherent zero-dispersion shift (ZR/ZR+) transceivers with high data rates being deployed. Currently, about half of the metropolitan network parts use 400Gbps ZR/ZR+ transceivers. As AI training and reasoning place higher requirements on low-latency interconnection, more and more hyperscale manufacturers and data center operators are beginning to deploy high-speed coherent transceivers and invest in high-speed fiber backbone networks to connect distributed data center clusters. McKinsey predicts that this will drive a rapid transformation of the market: by 2029, 800Gbps and above ZR/ZR+ transceivers will account for about 70% of the market share.
2.Reconstruction of the industrial chain: vertical integration of lasers and geopolitics drive market changes
Faced with the situation of insufficient supply of lasers, more and more original equipment manufacturers (OEMs) have begun to get involved in the upstream links and control the supply of core components through acquisitions or cooperation with laser wafer factories. At the same time, Chinese suppliers are also rapidly rising in the back-end pluggable optical module market, and their global market share has increased by about 20 percentage points between 2017 and 2023 to about 60%. In response to geopolitical risks and tariff pressures, the production and assembly of optical modules are also undergoing geographical transfer, with Southeast Asia and parts of Europe becoming new assembly centers. The technological development of network optics requires extensive ecosystem cooperation between OEMs, component suppliers and industry standardization organizations.
3.McKinsey calls for industry coordination to prevent bottlenecks from hindering AI development
In its report, McKinsey called for "rapid collaboration" among all parties in the network optics industry. Plug-in modules will continue to meet the needs driven by artificial intelligence because they provide competitive performance and total cost of ownership advantages. However, as energy efficiency and performance requirements increase, emerging technologies such as co-packaged optics (CPO) are accelerating to disrupt the market. Some forecasts indicate that CPO can reduce data center energy consumption by up to 30% while supporting bandwidths of 3.2 Tbps and beyond, enabling a broad range of next-generation optical products over the next decade. In addition, because integrated optics and electronics can generate temperatures that are difficult to dissipate with traditional cooling methods, CPO faces manufacturing hurdles-particularly in packaging and assembly-that must be overcome to ensure reliability, stable performance under fluctuating thermal conditions, robust connectivity, and compatibility of integrated components within the system. Developing industry standards for system-level integration of CPO is critical to improving CPO device yields and accelerating CPO adoption.