As Jensen Huang, Nvidia CEO, pointed to optical communications as an essential technology for future artificial intelligence (AI) infrastructure, Korea's optical communications corporations are landing large orders one after another.
As AI data centers increase, demand for data center consolidation (DCI) has surged, and supply shortages at major U.S. optical communications corporations are leading to orders for domestic corporations.
Experts say that because it takes a long period of reliability verification to add a new optical communications parts supplier to the supply chain, the rise in domestic corporations' order backlogs will gain full momentum starting in 2027.
Kim Jeong-chan, a researcher at Korea Investment & Securities Co., said, "DCI Chonbang demand has outstripped the production capacity of global Tier-1 optical component makers," and noted, "As a result, volumes that Tier-1 makers cannot absorb are being allocated to Tier-2 makers, and domestic makers are benefiting."
DCI is a communications network that consolidates data centers with data centers. As AI data centers are being built on a large scale, the data exchanged between data centers is soaring, and demand is also increasing for optical cables and optical communications components that can transmit data at high speed.
U.S. optical communications corporations are facing severe supply shortages because they cannot handle the surge in orders. Ciena projected that next year's sales will grow more than 30% and said it could raise its outlook further if it secures additional production volume. It also signed a long-term supply agreement (LTA) with a key component supplier to secure production volume through 2029. Lumentum is also said to be booked with orders through 2028.
Optical fiber is also in continued short supply. It takes 18 to 24 months to expand preform production facilities, the materials and supplies for optical fiber, making it difficult to immediately increase supply even when demand surges. Fujikura decided to raise DCI cable prices by 30% and invest 300 billion yen to triple its production capacity. Corning on the 8th signed a contract with Verizon Communications Inc. to supply optical fiber through 2032.
Such supply shortages are leading to an expansion of orders for domestic optical communications corporations. RF Materials(327260) is steadily increasing shipments of pump laser packages supplied to Lumentum, and LiComm in June won two contracts for optical amplifiers from 1finity, a subsidiary of Fujitsu. The order backlog jumped from 6.5 billion won to 14.7 billion won.
Taihan Fiberoptics(010170) is also expanding orders not only for general-purpose optical cables but for high-density optical cables targeting U.S. big tech. In February it won orders worth 5.6 billion won and in June 35.5 billion won for 864-core ultra–high-core-count optical cables in succession, pushing the order backlog up to 114 billion won. RAONTECH(418420) also won 1.5 billion won for spatial light modulator (SLM) backplanes for optical communications.
Researcher Kim projected that the benefits for domestic optical communications stocks could be prolonged. Kim said, "These orders are not about selecting new vendors but about expanding volumes within existing supply relationships," and explained, "Because vendor certification for optical components requires a significant period of reliability verification, demand for verified makers will be strong."
The decoupling from China by U.S. big tech is also a positive factor. Kim said, "As the likelihood of the FCC regulating China-made optical transceivers has recently grown, component makers are focusing on diversifying supply chains, and the value of non-China alternatives is coming to the fore."
Korea Investment & Securities Co. projected that earnings improvements for domestic optical communications corporations will gain full momentum in 2027. RF Materials' 2027 revenue from Lumentum is expected to reach 64.1 billion won, up 100.3% from this year. The target price was set at 61,000 won.