New Production Capacity of Optical Modules

Global optical module production is rapidly expanding, with major investments exceeding $1 billion per company to meet surging AI data center demand.

Key Capacity Expansions

Source Photonics, a subsidiary of Dongshan Precision, is investing USD 1.2 billion to expand optical chip and module production in Changzhou, China, and other locations. The expansion targets high-end optical chips and high-speed modules for 800G and 1.6T AI server interconnects, while strengthening vertically integrated capabilities from chip R&D to module assembly. Existing facilities in Taiwan, Chengdu, and Jintan, along with a new plant in Thailand, form a multi-region manufacturing network to support global demand . Coherent is expanding its six-inch indium phosphide (InP) semiconductor facility in Sherman, Texas, doubling manufacturing space and quadrupling wafer production capacity. This expansion is supported by $50 million in U.S. Department of Commerce funding and a $2 billion strategic investment from NVIDIA to secure photonic interconnect supply for AI infrastructure . Nokia is increasing its photonic chip testing and packaging capacity in Allentown, Pennsylvania, aiming for a tenfold increase by Q3 2026. JX Advanced Metals plans to invest up to 120 billion yen over four years to boost InP substrate capacity by 7–10 times, while Tower Semiconductor targets a fivefold increase in silicon photonics wafer output by the end of 2026 . STMicroelectronics will quadruple 300mm silicon photonics capacity at its Crolles, France facility by 2027, supporting 800G and 1.6T optical transceivers for top cloud providers .

Market Drivers

The expansion is driven by AI data center growth, with shipments of 800G and higher transceivers expected to rise from 24 million units in 2025 to nearly 63 million in 2026, a 2.6-fold increase. Shortages of critical components like electro-absorption modulated lasers (EMLs) have intensified the need for new capacity, as fewer than five companies globally produce them at commercial scale .

Geographic Trends

Southeast Asia is emerging as a key destination for optical module production, with Chinese manufacturers establishing facilities in Vietnam, Malaysia, and Thailand to meet overseas AI infrastructure demand and provide local services .

Summary

The optical module industry is undergoing a global capacity race, with investments from Source Photonics, Coherent, Nokia, and others exceeding $1–2 billion per project. These expansions focus on high-speed modules, co-packaged optics, and silicon photonics, addressing AI-driven demand and mitigating component shortages through multi-region production networks .