According to a research report released by CITIC SEC (60030), Scale-up is opening up a new incremental pool for passive components. Passive devices are transitioning from low-value accessories in the pluggable era to core BOM items that affect system insertion loss and maintainability. FAU, as a key link in optical engine coupling, stands out with prominent elasticity in both volume and price. Domestic manufacturers with high-precision large-scale manufacturing capabilities and certification barriers from top-tier customers are expected to be the first to realize earnings elasticity. The main points of the Citic Securities Company Limited (600030) report are as follows:

Copper Interconnects Approaching Physical Limits, NPO/CPO Driving Major Inflation in Passive Components

Copper interconnects are approaching physical boundaries at the 400G/lane era. Optical interconnects are gradually penetrating from Scale-out scenarios to Scale-up scenarios. NVIDIA's Rubin Ultra NVL576 is expected to adopt a hybrid architecture of "in-rack copper plus cross-rack optics," marking the transition of Scale-up optical interconnects from concept to implementation. Pluggable solutions struggle to support rack-level high-channel full interconnection. EnPro (NPO)/CPO will handle the massive bandwidth for inter-rack interconnection, and NPO, as a pragmatic transitional solution, is expected to ramp up first. NPO/CPO share optical engines, external light sources, and passive components such as FAU (Fiber Array Unit), MPO/MMC (fiber connectors), and Shuffle (fiber flexible boards). Passive usage scales synchronously with the number of engines, and the importance of passive components in the overall system is gradually increasing. For passive component manufacturers, the Scale-out pluggable upgrade trend continues, while Scale-up ushers in entirely new incremental density upgrades, and their earnings elasticity is promising. According to Frost & Sullivan forecasts (cited from the Hong Kong IPO prospectus of AIDT), the total market size of fiber connectors, fiber array units, and fiber flexible boards in CPO alone will exceed 100 billion yuan by 2030.

FAU Elasticity Stands Out in This Round of Passive Inflation: Usage Rigidly Matched with Optical Engines, High-Spec Premiums Driving Value Leap

In terms of usage, the Scale-up level injects new incremental volume into the FAU market. On the switch chip side, FAU forms a 1:1 rigid ratio with optical engines, while the ELS side simultaneously drives demand for polarization-maintaining MT-FA. At the Scale-out level, it also benefits from the high growth in optical module shipments and the density upgrades of NPO/CPO. In terms of price increases, in the NPO/CPO era, FAU channel counts are jumping from 8/12/16 cores to 32/36/64 cores and beyond. Higher channel counts increase fiber routing and grinding difficulty, polarization-maintaining FAU adds process and testing steps, fiber length and variety upgrades, and pluggable FAU raises design and process thresholds. These four high-spec premiums significantly boost the value per FAU unit. Domestic passive manufacturers participate in the midstream FAU manufacturing through foundry or collaboration models. The current core bottleneck in the industry lies in channel consistency and yield ramp-up under high channel counts, with overall capacity being tight. North American leading cabling and optical communication manufacturers have long certification cycles and stringent reliability requirements. Passive manufacturers that are bound to core customers and have large-scale, high-precision product delivery capabilities are expected to benefit deeply from this round of industrial upgrading.

Risk Factors

AI development falling short of expectations; cloud厂商 capital expenditure falling short of expectations; Scale-up optical penetration falling short of expectations; NPO/CPO commercialization progress falling short of expectations; yield ramp-up falling short of expectations; technology path switching risks; intensified competition and price decline risks; geopolitical and supply chain disruption risks.