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With a large number of vendors crowding into the FA track, is AI bringing a bubble or a dividend?

2024-03-18    Carol

Sora's stunning debut has undoubtedly become a powerful witness to the high-speed iterative upgrading of AI big models, which not only pushes the soaring demand for arithmetic power, but also leads a new round of innovation in high-speed optical network systems. Since the beginning of the year, the demand for optical transceiver modules, high-density optical connections and other key components in the optical communication industry chain has surged, with increasingly tight delivery schedules. According to the feedback from the recent visit of Fiber Optics Online to member companies, 400G, 800G high-speed optical modules in the high-speed development, but also led to the growth of orders for the upstream and downstream of the industry chain of optoelectronic chips, devices, materials and other links. Among them, multi-channel micro-connectivity devices such as MT inserts and FA as the core are particularly prominent, and have become an important direction for the transformation of many current passive component manufacturers.


FA (Fiber Array) fiber optic arrays, widely used in planar optical waveguide, array waveguide gratings, active/passive array fiber optic devices, microelectromechanical systems and multi-channel optical modules and other fields. In optical modules, FA is more specifically manifested as MT-FA components. According to the latest statistics from Fiber Optics Online, the number of manufacturers involved in the manufacturing of FA products has exceeded 80. Since the fourth quarter of 2023, the number of new manufacturers has reached more than 30 in just less than half a year. The invisible hand of the market quietly drives the decisions and actions of both supply and demand under the combined effect of multiple mechanisms such as price, supply and demand, and competition.


In the face of such a large number of manufacturers flocking to the market, we can not help but recall the wave of 2020 to divide the market. At that time, the trend of 5G had just risen, and various enterprises had rushed to build WDM production lines in an attempt to get a share of the 5G wave division market. However, the results were not satisfactory. Some enterprises have just completed the commissioning of equipment, and then suffered a market landslide, with sales plummeting and prices plummeting. So, will the FA market repeat the mistakes of the wave division market? These manufacturers who flocked to the market, will usher in a rich dividend, or an illusory bubble? Next, we will analyze the current situation and development trend of FA products from multiple dimensions, such as investment in production lines, price trends, customer demand and market trends.


Transformation of application, price reversal - the new pattern of FA market. In the past, FA occupies an important position in planar light waveguide splitter (PLC Splitter), and its main function is to reduce the loss of light waveguide devices and optical coupling alignment. FA applied to PLC is mostly 14, 18 specifications, the technical threshold is relatively low, so the selling price is usually maintained in the range of 1 ~ 1.3 yuan / pcs, the gross profit margin is less than 10%. However, thanks to the indispensability of PLC splitter in FTTX networking, its market demand is huge, reaching tens of millions every year. Unlike FAs in PLC splitters, FAs in multi-channel optical modules, or MT-FA microconnectors to be precise, have more stringent quality requirements. These assemblies require ground end face angles as precise as 42.5° / 41°, a much smaller tolerance range, and a much more demanding appearance. The most commonly used 12-core MT corresponding to 8-channel (4-receiver, 4-transmitter) FAs are generally priced at more than $30, which is relatively high, with a gross margin of up to 30%, and the market demand continues to grow. However, its production cycle and cost investment also increased accordingly.


Since this year, the price of FA products has declined significantly. According to a senior FA engineer, the price of conventional FA for optical splitter from the initial several dollars down to more than a point, while the price of MT-FA components compared to the first half of last year also fell by about 20%. This trend is mainly attributed to the increasing number of vendors into the FA market, the price war has become their main means of competition. Especially in the fourth quarter of each year, the optical communication product market ushered in a small peak, and the tide of price reductions was also more violent. The annual Optical Expo has also been reduced to an important occasion for price comparison.


Nevertheless, 90-degree FA and other special specifications are still hard to find, these products are usually used for silicon optical, lithium niobate and other module coupling, the fiber core of the bending resistance has very high requirements. Currently, there are only a few manufacturers worldwide that can produce such products, and domestic FA manufacturers are also actively researching and developing, and it is expected that new products will be launched in the second half of the year.


In terms of FA production line construction, we consulted several FA product line directors. They said that if domestic equipment is used, the equipment investment is roughly between 300,000-600,000 yuan, depending on the process of each family. The main equipment includes grinding machine, ultrasonic cleaning machine, heat dialing machine, etc.. If imported equipment, such as grinding machines, is used, the investment requirement will be at least 700,000 dollars. In addition, if we want to provide MT-FA components for end customers, we also need to build MPO production lines, and the overall investment will be doubled. For matching the high requirements of large customers, such as equipping pitch tester and high/low temperature cycling box for reliability testing, the investment will be further increased.


In terms of manpower, it takes a certain amount of time and cost to train skilled FA production line operators. According to FA engineers, the most difficult processes take at least a week to master, while simple processes can be mastered in two or three days. However, it can take up to a month to achieve proficiency and operate independently for the more difficult processes. Overall, the time cost of training line workers is within acceptable limits.


From a market perspective, MT-FA's main customers are large optical module manufacturers. These customers have strict selection criteria for suppliers and a high market entry threshold. Therefore, it is difficult for new entrants to directly penetrate into the end customers, and they are more likely to fight for market share through price reduction strategies.


For the competitive landscape and future development of the FA market, Tang Rui, market analyst of Chord Production Research, believes that: with the rapid development of AI and data center markets, multi-channel optical modules have become the mainstream solution, and MT-FA is used to connect the internal optical lens and external optical interfaces, which is indispensable to realize the parallel transmission of multi-channel light. However, the end customers of high-speed optical modules are usually AI server vendors, as well as major Internet vendors, with high quality, scale, and market access thresholds.MT-FA components are also used in several large-scale optical module vendors, and earlier in the design of the module, the required materials have been finalized, making it difficult to switch. More manufacturers to enter the FA market, there is no lack of OEM business from the secondary market.AI artificial intelligence on the demand for optical communications industry, the current view is that can be very optimistic, the current demand for 400G/800G optical modules has doubled from last year nearly 2 times the growth is expected to 2025 is expected to break through the demand for 2 million only / month. If the mistake of repeating the wavelength division, then the secondary market suppliers may need to consider the sustainability of their orders, after all, FA only accounted for less than 1% of the cost of high-speed optical modules, therefore, the optical module large customers are not just low prices will be able to cut into the market, but the low prices of new entrants can disrupt the market.


A passive market director said that their company's current FA demand is hot, and optimistic about the future market outlook. He believes that the current FA market is different from the WDM market in 2020. At that time, the 5G market demand was mainly concentrated in the domestic, by the policy-oriented influence; and now the AI-driven product market is dominated by the European and American markets, and the demand is expanding globally. Therefore, he believes that this is an incremental market, and in addition to a few head optical module manufacturers with whom they cooperate, other module vendors have also begun to place bulk orders.


In summary, despite the price competition and technical challenges in the FA market, its market demand will continue to grow with the rapid development of the AI and data center markets. For vendors, improving product quality, reducing costs and expanding market share will be key. At the same time, it is also necessary to pay attention to market dynamics and changes in customer demand in order to meet the challenges and opportunities of the market in the future.