Analysts told Fierce that if the US authorities ban the import of Chinese made data center optical modules, it will create a huge supply bottleneck for cloud service providers and further push up the already high prices of AI infrastructure.
Dell’Oro Group Vice President Jimmy Yu told Fierce: “The timing for restricting the supply of data center components is very bad.” Yu pointed out that the industry is deep in the AI super cycle and is already dealing with shortages of various key components. “As far as I know, the supply of optical modules is currently tight. Therefore, any interruption in the supply chain will lead to a significant increase in the price of optical modules in the entire industry, not limited to large-scale enterprises. “
Prohibition background
Optical modules are key components of data center networks, transmitting and receiving signals through fiber optic cables to transmit data. According to Counterpoint Research, Chinese optical module manufacturers currently account for about two-thirds of the global optical module supply and 60% of global revenue.
Reuters reported that the White House and the Federal Communications Commission are considering a measure to ban the import of Chinese made optical modules. According to sources from Reuters, officials aim to introduce the ban this year. This move is consistent with the FCC’s recent ban on foreign communication equipment produced by specific manufacturers deemed a national security threat. The FCC clearly restricted consumer grade Wi Fi routers in March this year and has long targeted mobile network equipment from Chinese manufacturers Huawei and ZTE.
In an order passed last month, the FCC sought to expand the scope of its so-called “covered entities” list, aimed at prohibiting any “logical hardware components” produced by companies on the list. The command states: “If the committee prohibits authorization of certain devices produced by entities covered by the list, the committee should also prohibit authorization of any device containing logical hardware components produced by entities covered by the list, whether the device is authorized through supplier compliance statements or certification methods.” Optical modules are listed as examples of such components.
It is currently unclear whether the order and its proposal are related to the ban reported by Reuters.
The timing of the ban is bad
The Counterpoint Research team pointed out that the ban will cause “major operational bottlenecks in the short to medium term” for US cloud companies such as Amazon, Alphabet (Google), Microsoft, and Meta. Yu stated that Zhongji Xuchuang, Coherent, and Xinyisheng are leaders in the optical module market, with Zhongji Xuchuang and Xinyisheng being Chinese suppliers. However, Counterpoint stated that Coherent and another Western supplier Lumentum “currently lack the clean room capacity, automated packaging infrastructure, and yield scale required to absorb the production capacity of Zhongji Xuchuang and Xinyisheng within a time frame of 12 to 24 months. ”
This means supply shortages and delays, which may lead to delays in the production of AI data center clusters and increase costs for companies already facing an inflated bill of materials. For example, Amazon has recently raised its 2026 capital expenditure forecast by $20 billion due to price increases caused by a shortage in the memory market.
Counterpoint concludes that “the global AI ecosystem still heavily relies on Chinese optical module suppliers for large-scale execution. Although policy initiatives aim to isolate critical AI supply chains, sudden regulatory shifts may create hardware bottlenecks, thereby slowing down the deployment plans of the world’s largest cloud operator. “
