---
endpoint: analytics
pattern: Technology
status: done
latency_ms: 191166
conversation_id: 24c6631b-5791-4986-8172-b3130d12cb91
citations: 12
created: 2026-05-31 21:52:08Z
---

# What are the key risks to Zhongji Innolight’s growth trajectory?

# Key Risks to Zhongji Innolight's (300308 CH) Growth Trajectory

Zhongji Innolight is the global market-share leader in high-speed optical transceivers (400G/800G/1.6T) supplying North American hyperscalers for AI data-center build-outs. CLSA rates the stock Outperform but in April 2025 cut FY25/26 net profit by 14%/13% and lowered the target PE from 18x to 13x — the de-rating itself signals where the principal risks lie [2]. The risk set below combines CLSA's published risk language with management's own commentary in disclosed investor-relations records.

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## 1. Co-Packaged Optics (CPO) — the Single Biggest Structural Threat

CPO integrates the optics directly onto the switch ASIC package, which would **displace pluggable transceivers**, Innolight's core product. CLSA explicitly de-rated the stock for this risk:

- The target PE was cut to **13x 26CL EPS, well below the five-year average of 28x**, "to factor in slower AI Capex growth and co-packaged optics (CPO) risk" [3].
- The April 2025 thesis update reiterated: "increasing adoption of co-packaged optics (CPO) in the long run" was a key reason for cutting the multiple [2].
- CLSA's January 2025 ATC note acknowledged "market concerns on co-packaged optics (CPO) and tariffs are largely priced-in" — but that the concern is permanent rather than transient [8].

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## 2. US-China Tariffs — Concentrated North American Customer Base

Innolight's largest customers are US hyperscalers, so trade policy is a direct earnings risk.

- Optical transceivers shipped from China to the US carried a **27.5% combined tariff** (7.5% Section 301 + 20% fentanyl) as of April 2025 [5].
- **Mitigant**: shipments out of Innolight's Thailand factory currently face zero tariff, and management is "increasing capacity of Thailand base to meet US clients demand" [6][5].
- Management confirmed in the April 30, 2025 IR record that the "majority of the company's overseas orders in the second quarter will be manufactured and shipped from our Thailand facility, benefiting from a zero tariff rate" [11].
- But this depends on the Thailand tariff exemption holding; investors used Q&A sessions to ask whether costs would be passed down or absorbed [10]. A change in Thailand's treatment, or US trade action targeting Thai-origin transceivers, would eliminate the workaround.

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## 3. AI Capex Deceleration / Customer Demand Risk

CLSA's official Innolight risk list explicitly flags **"slower-than-expected AI adoption and 800G/400G demand"** as well as **"flat capex by communications services providers (CSPs)"** and **"flat capex growth from telecom operators"** which would also drag the 200G/100G legacy book [1]. The PE cut to 13x was anchored in "AI capex growth slowing down in 26CL" [2].

A secondary read-across: CLSA's TFC/peer note warned that **DeepSeek-style efficient models "may not require such a high-performance computing power infrastructure"**, which could weigh on 1.6T/800G ramp profiles industry-wide [7].

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## 4. Optical-Chip / EML Supply Bottlenecks

Innolight's growth depends on upstream chip availability:

- CLSA's earnings cut was directly attributed to "1.6T shipment delay and **800G shipment constrain due to continued chip shortage in 100G EML**" [2].
- Management noted EML shortage was expected to "gradually ease in 2Q-3Q25" via supplier capacity expansion and silicon-photonics substitution [4].
- The company itself flagged in mid-2024 IR records that "tension in core materials such as VCSEL optical chips and DSP" was expected to remain through 2025, requiring upstream capacity expansion [12].
- Among CLSA's explicit Innolight risks: "**delayed delivery caused by tight upstream supply**" [1].

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## 5. Competition, Customer Self-Supply, and Share Risk

- CLSA's risk paragraph cites "**fierce competition**" as a standing risk for the name [1].
- A specific watch item: in CLSA's coverage of peer Suzhou TFC, the firm flagged "Nvidia's declining self-supply ratio for optical transceivers (Mellanox's/Fabrinet's potential share lose to transceiver ODMs like Innolight and Finisar)" — meaning Innolight's recent share gains run partly on a customer's choice to outsource that could reverse if NVIDIA reverts to deeper vertical integration (e.g., via CPO).
- New entrants in Fabrinet's optical-engine supply chain in 2025 were also cited as adding industry-wide competitive intensity [1].

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## 6. Pricing / Gross-Margin Compression

Optical transceivers are subject to **annual price reductions on mature SKUs**. In its April 30, 2025 IR record, management acknowledged that "annual price reductions for mature products are a standard business practice. The cost of 800G products is continuously being optimized" — i.e., margin defense relies on continuous cost-out plus mix shift to higher-speed and silicon-photonics products [9]. If 800G price erosion outpaces cost reduction, or if silicon-photonics mix-shift lags, gross margin compresses.

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## 7. 1.6T Ramp-Timing Risk

Earnings cuts in April 2025 were driven in part by **1.6T shipment delays** tied to NVIDIA's GB200/GB300 rack delivery slippage [2]. Innolight's growth narrative for 2025-26 hinges on this ramp; any further delay at the GPU/rack level translates into the optical-transceiver TAM directly.

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## 8. Other Macro / Capital-Markets Overlays

- CLSA's risk language also flags **"downside risk of the high interest rate environment"** affecting CSP capex [1].
- Stock-level catalyst risk: the stock had declined for seven consecutive months into April 2025 [10], reflecting how sentiment-driven multiple compression compounds fundamental risks for a high-multiple AI name.

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## Summary Risk Map

| Risk Category | Why It Matters | Mitigant in Place |
|---|---|---|
| CPO disruption [3][2][8] | Long-run displacement of pluggable transceivers | None — structural; Innolight invests in silicon photonics to extend pluggable runway |
| US tariffs on China-built transceivers [5][10] | 27.5% tariff vs zero from Thailand | Thailand capacity ramp [6][11] |
| AI capex slowdown / DeepSeek efficiency [1][7] | Demand for 800G/1.6T compresses | Diversification into domestic Chinese AI demand [10] |
| EML / chip shortage [2][12] | Caps 800G/1.6T shipment near term | Supplier capacity expansion; SiPh substitution [4] |
| Customer self-supply / NVIDIA in-housing | Could reverse recent share gains | Multi-customer base; tech leadership |
| 800G price erosion [9] | Gross margin compression | Cost-out + SiPh mix shift |
| 1.6T ramp delay [2] | Hits FY25/26 estimates | Tied to GB200/300 schedule (exogenous) |

---

**Sources**
[1] China Technology (Acceleration in AI application) — CLSA (9 Feb 2025) — Investment risks paragraph for Zhongji Innolight Co., Ltd. 300308 CH — 607949941LinqAlpha.PDF
[2] Zhongji Innolight - O-PF (Tariff impact manageable) — CLSA (23 Apr 2025) — 607956627LinqAlpha.PDF
[3] Zhongji Innolight - O-PF (Tariff impact manageable), Valuation details — CLSA (23 Apr 2025) — 607956627LinqAlpha.PDF
[4] Zhongji Innolight - O-PF (Tariff impact manageable), 800G guidance & EML table — CLSA (23 Apr 2025) — 607956627LinqAlpha.PDF
[5] China Technology (iPhone exempt from tariff) — CLSA (13 Apr 2025) — 607955785LinqAlpha.PDF
[6] Zhongji Innolight - O-PF (Tariff impact manageable), Thailand capacity — CLSA (23 Apr 2025) — 607956627LinqAlpha.PDF
[7] China Technology (Acceleration in AI application), TFC/DeepSeek read-across — CLSA (9 Feb 2025) — 607949941LinqAlpha.PDF
[8] All Things China ATC Daily (CPO and tariffs largely priced-in) — CLSA (8 Jan 2025) — 607947723LinqAlpha.PDF
[9] Zhongji Innolight Investor Relations Management Information — earnings_call (30 Apr 2025) — 800G annual price-reduction commentary
[10] Zhongji Innolight Investor Relations Management Information — earnings_call (30 Apr 2025) — tariff/domestic AI strategy
[11] Zhongji Innolight Investor Relations Management Information — earnings_call (30 Apr 2025) — Thailand zero-tariff confirmation
[12] Zhongji Innolight Investor Relations Management Information — earnings_call (14 Jul 2024) — EML/VCSEL/DSP supply tightness

## Citations

- [1] **607949941LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/02/607949941LinqAlpha.PDF>
- [2] **607956627LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956627LinqAlpha.PDF>
- [3] **607956627LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956627LinqAlpha.PDF>
- [4] **607956627LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956627LinqAlpha.PDF>
- [5] **607955785LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607955785LinqAlpha.PDF>
- [6] **607956627LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/04/607956627LinqAlpha.PDF>
- [7] **607949941LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/02/607949941LinqAlpha.PDF>
- [8] **607947723LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/01/607947723LinqAlpha.PDF>
- [9] **Zhongji Xuchuang: Investor Relations Activity Record as of April 30, 2025** · external
- [10] **Zhongji Xuchuang: Investor Relations Activity Record as of April 30, 2025** · external
- [11] **Zhongji Xuchuang: Investor Relations Activity Record as of April 30, 2025** · external
- [12] **300308 Zhongji Xuchuang Investor Relations Management Information 20240714** · external

