---
endpoint: analytics
pattern: Technology
status: done
latency_ms: 161329
conversation_id: b4dc9b99-44a4-4f01-aa49-9eda7bb0ab8a
citations: 5
created: 2026-05-31 18:50:23Z
---

# What is Zhongji Innolight’s core business franchise and the key components of its operating model?

# Zhongji Innolight (300308 CH) — Core Business Franchise & Operating Model

## 1. Core Business Franchise

Zhongji Innolight is a Shenzhen-listed (300308 CH) Chinese **optical transceiver / optical module** vendor, positioned as a global tier-1 supplier into hyperscale AI data centers and, secondarily, telecom carrier networks. The franchise is highly concentrated by product line:

**Revenue mix (CLSA model)** [4]

| Segment | 2022 | 2023 | 2024 | 2025CL | 2026CL |
| --- | --- | --- | --- | --- | --- |
| **Optical transceivers** | 98% | 95% | 96% | 97% | 97% |
| Optical components | 2% | 2% | 1% | 1% | 1% |
| Automotive optoelectronics | n.a. | 3% | 3% | 3% | 3% |

**Within optical transceivers — speed mix (CLSA)** [4]

| Speed | 2022 | 2023 | 2024 | 2025CL | 2026CL | 2027CL |
| --- | --- | --- | --- | --- | --- | --- |
| 10G/25G/40G | 7% | 4% | 2% | 1% | 1% | 1% |
| 100G | 23% | 9% | 2% | 2% | 1% | 1% |
| 200G | 25% | 10% | 2% | 1% | 1% | 1% |
| 400G | 36% | 37% | 28% | 12% | 9% | 6% |
| **800G** | 6% | 36% | **59%** | **62%** | 45% | 42% |
| **1.6T and above** | 0% | 0% | 2% | 19% | **40%** | **45%** |

Key implications:
- The franchise is effectively a **pure-play optical transceiver** business, with optical components and automotive optoelectronics as residual lines [4].
- The business has rapidly migrated up the speed curve. Legacy 100G/200G have all but vanished from the mix; **800G is the current cash cow** (~59% of 2024 sales) and **1.6T is the next leg**, expected to scale from 2% in 2024 to ~40–45% by 2026–27 as hyperscalers transition AI training networks [4].
- Segment gross margins are highest at the leading edge — 800G GM ~36%, 1.6T GM ~38% in 2024 — vs ~5% on legacy 10G/25G/40G [4].

## 2. End-Market and Customer Franchise

- **Primary demand vector: AI data center capex.** Management has repeatedly framed Innolight's order book as a direct function of large AI customers' capex on training/inference infrastructure: *"Large downstream clients invest heavily in data center capital, there is a strong demand for high-end optical modules. The demand for 800G/400G this year has significantly increased compared to the same period last year"* [9].
- **Customer base: existing US CSP hyperscalers plus newer entrants in computational infrastructure.** Demand "primarily stem[s] from our existing client base, which includes major CSP vendors as well as newly entering clients in the field of computing power infrastructure" [8]. CLSA characterises the wallet as US AI hyperscalers supplemented by ramping **domestic Chinese hyperscalers** adopting 400G now and "commence adopting 800G transceivers from 4Q25" [2].
- **Unit-demand anchor**: Innolight has maintained guidance of **15–20mn 800G units globally for 2025** and expects 1.6T to begin volume shipments from 2Q25 with hyperscalers transitioning Ethernet networks to 1.6T from 2026 [1][2].
- **Tail exposure**: telecom (5G, PON, 10G access) and DCI coherent modules remain secondary verticals tied to operator capex and FTTH build-out, but they are no longer the swing factor for the P&L.

## 3. Operating Model — Key Components

### 3a. Two-engine manufacturing footprint (China + Thailand)
- The company runs a dual-base production model. The Thailand factory was started in 2019 and has been built out to **>70,000 sqm**, capable of producing 400G and high-end 800G modules; overseas customers have audited and approved it for quality and capacity [6].
- The Thailand base is the **tariff-shock-absorber**: *"currently there was no tariff on exports of transceivers from its Thailand factory to US. To mitigate tariff impact, company is increasing capacity of Thailand base to meet US clients demand"* [3]. In 2024, June shipments showed China-origin volumes to overseas declining month-on-month while Thailand-origin shipments grew, dominated by 800G/400G [10]. CLSA models flat gross margin at ~33.9% through 2025–27 partly because Thailand yields are improving and overseas factory GPM is "basically on par" with China [10].

### 3b. Vertical-integration push via silicon photonics (SiPh)
- Operating leverage is being built by **in-housing the photonic chip**. Management has begun mass-shipping selected 400G/800G SiPh modules and sent 800G/1.6T SiPh samples to additional customers; SiPh share is expected to keep rising [7].
- The economic logic: *"silicon photovoltaic [photonics] modules have a competitive advantage in gross profit margin compared to traditional photovoltaic modules. This is primarily due to the reduction in the number of active and passive components, leading to lower Bill of Materials (BOM) costs. Additionally, the self-developed silicon photonic chips increase the in-house production rate, which is conducive to enhancing the gross profit margin"* [8].
- Operating implication: SiPh is both a **margin hedge** against annual ASP declines on mature 800G product and a **supply-chain hedge** against the third-party 100G EML (electro-absorption-modulated laser) shortage that dragged 1Q25 results — Innolight is explicitly using SiPh penetration to offset EML scarcity until 100G EML capacity expands in 2Q–3Q25 [2][5].

### 3c. Supply chain — single-point-of-failure risk in optical chips
- The most material upstream dependency is **100G EML lasers** for 400G/800G DSP-based modules. CLSA: *"1Q25 results dragged by continued EML shortage... continued component supply shortage in 100G electro-absorption-modulated laser (EML) and delay of 1.6T products"* [5].
- This drove the recent earnings cut and is a recurring constraint on Innolight's ability to convert demand into revenue — making upstream EML capacity expansion and SiPh substitution explicit operating priorities [2][5].

### 3d. Product-development pipeline — staying ahead of technology shifts
- The company runs an active R&D roadmap covering successive transceiver architectures: DSP-based pluggable (today's mainstream), **LPO** (linear-drive pluggable optics, low-power for short-reach), **LRO/HALO** (half-retimed transitional), **silicon photonics** (cost / margin lever), and ultimately **CPO** (co-packaged optics) as a longer-term threat/opportunity [2].
- The CLSA view is that CPO adoption is the principal multi-year overhang on Innolight's pluggable franchise — explicitly cited as a reason for de-rating the stock's PE multiple from 18x to 13x alongside slower AI capex growth in 2026 [1].

### 3e. Pricing model — annual ASP declines, mix offset
- The operating model accepts standard annual ASP reductions on mature modules and relies on **mix uplift to newer speed nodes** plus **cost engineering** (yield, material control, automation) to defend gross margin. From the 1H24 call: *"By strengthening material cost control, efforts to improve yield, increase production efficiency, and optimize product structure in various aspects, the company has adapted well to the new price"* [6].
- The result is a remarkably stable consolidated GM band (CLSA models 33.8%–33.9% through 2027) despite 800G's price declines, because 1.6T at ~38% GM is layered in as 800G de-rates [4].

### 3f. Capital allocation
- Capex was front-loaded in 2023–24 (Capex/sales: 15.9% in 2023, 12.0% in 2024) to build Thailand and high-end module capacity, then steps down sharply (6.0% in 2025CL, ~4.1% by 2027CL) as the footprint matures — driving a dramatic FCF inflection from Rmb298m in 2024 to Rmb2.74bn (2025CL) → Rmb7.05bn (2027CL), per CLSA's model. Balance sheet stays in net-cash position throughout (net debt/equity –19.3% to –35.1% by 2027CL).

### 3g. Ownership and control
- Largest holders are **Shandong Zhongji Investment Holdings Co Ltd (11.3%)** and HKSCC (10.1%), with free float ~70.2% — a relatively dispersed shareholder structure for an A-share name [3]. Suzhou Xuchuang is the principal operating subsidiary that contributes the bulk of consolidated net profit [9].

## 4. Synthesis — How the Pieces Fit

Zhongji Innolight's franchise can be summarised as **a high-speed optical transceiver platform riding the AI capex cycle, with three operating levers stacked on top of that demand**:

1. **Speed-curve migration** (800G → 1.6T → 3.2T) — protects revenue growth and headline margins as legacy nodes de-price.
2. **Geographic dual-sourcing (China + Thailand)** — neutralises US tariff exposure on the dominant overseas customer cohort and supports continued US hyperscaler share gains [3][6].
3. **Vertical integration into silicon photonic chips** — addresses both the GM erosion problem (BOM compression, in-house value capture) and the supply-chain bottleneck (substitutes around third-party EMLs) [7][8].

The principal franchise risks visible in the operating model are: (i) cyclicality of hyperscaler capex (which CLSA expects to slow in 2026, hence the EPS cut and PE de-rating) and (ii) the eventual technology displacement risk from CPO, which would shift value from module makers to ASIC/co-package integrators [1].

---
**Sources**
[1] Zhongji Innolight - O-PF (Tariff impact manageable) — CLSA (23 Apr 2025) — 607956627LinqAlpha.PDF
[2] Zhongji Innolight - O-PF (Tariff impact manageable) — CLSA (23 Apr 2025) — 607956627LinqAlpha.PDF
[3] Zhongji Innolight - O-PF (Tariff impact manageable) — CLSA (23 Apr 2025) — 607956627LinqAlpha.PDF
[4] Zhongji Innolight - O-PF (Tariff impact manageable) — CLSA (23 Apr 2025) — 607956627LinqAlpha.PDF — Annual earnings summary & segment mix
[5] Zhongji Innolight - O-PF (Tariff impact manageable) — CLSA (23 Apr 2025) — 607956627LinqAlpha.PDF — 1Q25 results commentary
[6] Zhongji Xuchuang IR Management Information, 14 Jul 2024 (Manticore earnings_call)
[7] Zhongji Xuchuang IR Management Information, 14 Jul 2024 (Manticore earnings_call)
[8] Zhongji Xuchuang IR Management Information, 29 Aug 2024 (Manticore earnings_call)
[9] Zhongji Xuchuang IR Management Information, 14 Jul 2024 (Manticore earnings_call) — 1H24 performance summary
[10] Zhongji Xuchuang IR Management Information, 21 Jul 2024 (Manticore earnings_call) — overseas factory shipment trend

## Citations

- [6] **300308 Zhongji Xuchuang Investor Relations Management Information 20240714** · external
- [7] **300308 Zhongji Xuchuang Investor Relations Management Information 20240714** · external
- [8] **Investor Relations Management Information for Intercorp Xuchuang on August 29, 2024.** · external
- [9] **300308 Zhongji Xuchuang Investor Relations Management Information 20240714** · external
- [10] **300308 Zhongji Xuchuang Investor Relations Management Information 20240721** · external

