Why is the price increase logic of Light more "healthy"?

The market’s understanding of “price increases” is shifting. Recent price rises in products such as storage have pushed up the pressure on downstream AI data centers’ CAPEX, prompting us to consider: if price increases were confined to a single product, whether storage, fiber optics, or components, then the supply-and-demand tightness represented by the price rise would be the most direct rationale for buying. But once placed within the entire CAPEX system, a significant price increase poses challenges to demand and will ultimately be balanced through capacity expansion—during which the market’s understanding of price increases becomes even more complex. From a growth perspective, we hope that innovation and iteration will lead to lower unit costs or increased functionality, rather than simply price hikes like those seen in cyclical products. By contrast, the “price increase” logic of light/optical components—previously undervalued by the market—has proved to be more diversified, healthier, and more sustainable, achieving unit cost reductions and expanded manufacturer profits through product iteration and technological progress.

【How to Understand “Concerns About Price Increases”? — Price Increases Swallow Demand】

In the past, the market was accustomed to a linear mindset of “buy whoever raises prices,” equating price increases with good news and ignoring a holistic consideration of the industry chain ecosystem.

Now, the market is gradually recognizing that it’s not only about “how much prices have risen,” but also about “why they rose” and “who will bear the cost.” Taking cyclical products with price increases driven by supply-and-demand as an example, the logic is “rarity makes it precious.” You have to spend more money to buy the same thing, and unit costs are passively pushed up. Such price increases squeeze downstream customers’ capital expenditures, consume their procurement budgets, and ultimately tend to suppress end demand, leading to the concern of “price increases → demand suppression.”

【The Forms of Optical “Price Increases”: Product Iteration and Technological Innovation】

Previously, the market was concerned that optical modules of the same model could not experience price increases, making the logic weaker than that of goods with clear price-hike characteristics. But we believe that, amid the current development of computing-power technologies, the market will re-emphasize the growth logic of optics:

➢ First: price increases driven by product iteration—the clearest and most sustainable logic. Traditional cyclical products with price increases sell the same thing at higher prices. Optical modules, however, are a typical technology-driven product. Their price-increase logic is to achieve higher average selling prices by delivering stronger performance. In the early stage after each new generation of products is launched, high premiums are earned due to technological barriers, which in turn lifts the overall price system—providing more structural support than simple price increases caused by supply constraints.

➢ Second: a technology paradigm upgrade that reshapes the architecture and expands the “total pie.” As the importance of scale-up continues to rise, “optics into the cabinet” is opening unprecedented incremental space for optical communications. Innovative architectures such as NPO (near-package optics) and CPO (co-packaged optics) create new high-value demand for optical communications vendors. As a result, the “price increases” seen in optical communications products are not simply price hikes; they come from the expansion of the overall optical communications market and a reassessment of value.

【Why the “Price Increase” Logic for Optics Is More “Healthy”】

The price-increase logic of optical communications is more “benign.” The core difference is that, while the price of each new generation of product rises compared with the previous generation, the cost per unit of speed falls significantly—true from 400G to 1.6T. Price increases in optical modules lower unit costs through product upgrades and technological iteration, enabling customers to gain multiple improvements in transmission bandwidth and better power-consumption performance at a higher unit price. When translated into the cost per unit of transmitted data, it is in fact steadily decreasing. This “unit price up, unit cost down” pattern is precisely the most typical feature of technology-driven growth products.

Such price increases do not squeeze the downstream ecosystem; they instead benefit coordinated development across the entire industrial chain. Customers pay a premium for higher performance, and in return, the overall communication efficiency of computing clusters improves, with unit interconnection costs effectively diluted. The essence of optical module price increases is to “grow the total pie”: by creating incremental value, they allow upstream and downstream to benefit together, forming a positive cycle in the industrial ecosystem and providing more long-term, growth-oriented value.

Source: Guosheng Securities

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