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

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The market's perception of "price increases" is changing. Recent price hikes in products such as storage have increased the pressure on downstream AI data center CAPEX, prompting us to consider: If limited to a single product—whether storage, fiber optics, or components—a price increase that signals supply-demand tension is the most straightforward reason to buy. However, in the context of the entire CAPEX system, a sharp price increase poses challenges to demand and will ultimately be balanced through capacity expansion. This process makes the market's perception of price increases more complex. From a growth perspective, we prefer innovation and iteration that reduces unit costs or adds functionality, rather than simple cyclical price hikes. In comparison, the previously underestimated logic of "price hikes" in optics is more diverse, healthier, and sustainable, as it achieves unit cost reductions and profit expansion for manufacturers through product iteration and technological advancement.

[How to understand “price hike concerns”? — Price increases erode demand]

In the past, the market tended toward the linear thinking of "buy whoever raises prices," equating price hikes directly with positive trends while overlooking the overall consideration of the industry chain ecosystem.

Now, the market increasingly realizes that it’s not only about "how much prices have risen," but also about "why they rose" and "who bears the cost." Using price hikes in cyclical products driven by supply-demand relationships as an example, the logic is "scarcity increases value," requiring more money to buy the same thing, passively raising unit costs. Such price hikes squeeze the capital expenditures of downstream customers, eroding their procurement budgets, and ultimately easily suppressing terminal demand, creating concerns of "price hikes → suppressed demand."

[The form of price increases in optics: Product iteration and technological innovation]

The market previously worried that optical modules of the same model couldn't increase prices, so the logic was weaker than price hike products. Yet, we believe that in the current development of computing power technology, the growth logic of optics will be revalued by the market:

➢ First level: Price increases driven by product iteration—the clearest and most sustainable logic. Traditional cyclical products raise prices by selling the same thing at higher prices, while optical modules are typical technology-driven products. Their price hikes are achieved by offering stronger performance and gaining higher average selling prices. Each new generation of products enjoys a high premium due to technological barriers during its initial launch, which drives the overall price system higher, providing more structural support than mere capacity shortages.

➢ Second level: Technological paradigm upgrades, reshaping architectures and expanding the “total market.” As the importance of scale-up continues to rise, "optics in racks" is opening unprecedented incremental space for optical communications. Innovative architectures such as NPO (Near Packaging Optics) and CPO (Co-Packaged Optics) are creating brand new, high-value demand for optical communications vendors. The resulting price hikes are not simply about raising prices, but come from expansion of the overall optical communications market and reassessment of value.

[Why is the price hike logic of optics more "healthy"?]

The logic behind price hikes in optical communications is more "virtuous." The essential difference is: Each new generation product is priced higher than the previous one, but the cost per unit of bandwidth drops significantly, as witnessed from 400G to 1.6T. The price increases in optical modules are achieved through product upgrades and technological iteration, allowing customers to pay higher single prices for exponentially increased transmission bandwidth and improved power performance. When calculated per unit of transmitted data, the costs are actually steadily decreasing. This "higher unit price, lower unit cost" model is the hallmark of technology-driven growth products.

Such price hikes do not squeeze the downstream ecosystem but are conducive to the coordinated development of the entire industry chain. Customers pay premiums for higher performance, resulting in improved communication efficiency across computing clusters, and the unit cost for computing interconnects is effectively diluted. Price increases for optical modules essentially "expand the total market"—they create incremental value, allowing both upstream and downstream to benefit together and forming a positive-cycle industrial ecosystem with more long-term, growth-oriented value.

Source: Guosheng Securities

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