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The optical communications industrial chain sees widespread positive earnings forecasts for H1. Among 24 A-share listed optical communications firms that have released projections, 18 expect improved performance, accounting for over 70%. The upturn resonates across the full supply chain, ranging from upstream optical chips and mid-stream optical modules to downstream optical components. Leading enterprises report multiple-fold surges in net profit.
InnoLight signals mass production progress for NPO: During an investor call, the company confirmed that Near-Packaged Optics (NPO) will commence commercial volume shipments in H2 2027. Material supply will witness phased improvement in the second half of the year. Core components such as CW light sources will be secured via long-term supply agreements and equity investments with suppliers.
The Philadelphia Semiconductor Index notched its fifth consecutive trading day of sharp declines. The SOX has tumbled more than 25% cumulatively from its June 22 peak. On July 29, it fell another 5.33% to 10,483 points. Memory and optical communications continued to lead the losses. The Nasdaq 100 entered a technical correction, while the semiconductor equipment ETF attracted net subscriptions of over 500 million units against the market trend.
Jiuzhou Yigui plans to invest RMB 630 million in a laser stealth dicing project for silicon photonic chips. The facility will process 8/12-inch silicon photonic chips and start production in Q1 2027, targeting optical module manufacturers as downstream clients. Supporting infrastructure for the silicon photonics industry is accelerating.
Suzhou Tianmai expands into the general semiconductor equipment sector. It proposes acquiring a 51% stake in Zhongleng Technology to extend its thermal management industrial chain to high-low temperature intelligent equipment for the broad semiconductor industry.
In-depth Analysis
Optical Communication & Optical Chips：The most critical signal today comes from H1 earnings forecasts across the optical communications chain. As of July 29, 18 out of 24 A-share listed optical communications firms have issued positive profit projections, accounting for over 70%. The full industrial chain – upstream optical chips and optical fiber/cables, midstream high-speed optical modules, and downstream optical components – is seeing synchronized earnings growth, with leading players recording multiple-fold increases in net profit.
Zhongji Innolight disclosed key information during the July 28 investor call: Near-Packaged Optics (NPO) is expected to commence commercial volume shipments in H2 2027; supply of optical chips, electrical chips, PCBs and other materials will see phased improvement in the second half, driving notable shipment growth. The company is securing supplier capacity via long-term agreements, prepayments and equity investments.
Suzhou Jingxi, a subsidiary of Jiuzhou Yigui, plans to invest RMB 630 million in a laser stealth dicing project for silicon photonic chips supporting 8/12-inch wafers, with production scheduled for Q1 2027. Semight Instruments expects its H1 net profit to surge 802%-926%, with Q2 profit rising 228%-287% quarter-on-quarter, reflecting continuously booming demand for high-speed optical communications test equipment.
Although the optical communications sector is undergoing a short-term pullback alongside the broader market, industrial prosperity and earnings delivery remain at historically high levels.
Advanced Packaging：No major new updates today. The impact of ASE’s July 1 announcement of packaging price hikes of more than 20% for CoWoS and FoCoS is still unfolding, with an estimated 10% supply-demand gap in advanced packaging. The news that GlobalFoundries secured a USD 300 million grant from the U.S. Department of Commerce to advance silicon photonics and advanced packaging R&D was covered in yesterday’s briefing.
SiC & Third-Generation Semiconductors：No major new updates today. Previously reported developments include: Dynanonic secured bulk orders for SiC substrate polishing slurry (reported June 25); BASIC Semiconductor finalized a RMB 193.3 million EPC contract for its SiC module packaging production line (reported July 28).
Memory & Computing Chips：United Microelectronics Corporation (UMC) posted a 374.7% YoY jump in Q2 net profit to TWD 42.26 billion. It raised capital expenditure guidance to USD 2 billion (+25%), 90% of which will be allocated to 12-inch wafer capacity. AI orders are spilling over from GPUs to peripheral chips built on mature process nodes – a trend carrying important implications for the mature foundry supply chain.
On U.S. markets, memory stocks extended their rout on July 29. The Roundhill Memory ETF slumped more than 6%, Micron fell roughly 10%, Kioxia ADR lost over 9%, and Sandisk declined more than 7%. Leading memory names have retreated 50%-60% from their year-to-date highs. However, TrendForce forecasts Q3 contract prices to rise 13%-18% QoQ for DRAM and 10%-15% for NAND, pointing to a notable divergence between fundamentals and share prices.
Semiconductor Equipment & Materials：A magnitude 7.1 earthquake hit Kumamoto, Japan, forcing full suspension of operations at Sony’s CIS factory, two Renesas facilities, two Tokyo Electron sites and two Mitsubishi Electric plants, with restart timelines yet to be confirmed. While the earthquake news was covered yesterday, its impact is expanding: Ebara Corporation and Mitsubishi Chemical’s Kyushu facilities have also halted production successively. Risks of short-term disruptions to the global CIS and power semiconductor supply chains warrant continuous tracking.
Policy & Macro Environment：The Federal Reserve kept interest rates unchanged at 3.5%-3.75% on July 29, marking the fifth consecutive pause. The Philadelphia Semiconductor Index tumbled another 5.33% on July 29, falling for five straight sessions to 10,483 points. The SOX has corrected more than 25% cumulatively from its June 22 all-time peak, and the Nasdaq 100 has fallen 11% from its June high, entering a technical correction zone.
Capital flows show divergence. The E-Fund Semiconductor Equipment ETF (159558) attracted net subscriptions exceeding 500 million units on July 29 against the market trend, indicating selective bargain hunting amid the pullback. In the A-share market, ChangXin Technology bucked the trend and rose over 12%, with full-day trading volume nearing RMB 45 billion. By contrast, Tongfu Microelectronics and Unisplendour hit the 10% downside limit, and GigaDevice fell more than 6%, revealing sharp segmentation within the semiconductor sector.
Daily Investment Tips
1. Optical Communications Enters the Earnings Verification Phase: Widespread positive H1 earnings forecasts confirm robust prosperity across the optical communications chain, yet sector stock prices have corrected sharply from highs. Zhongji Innolight offered explicit guidance of improved material supply and substantial shipment growth in the second half. If actual Q3 shipment figures meet expectations, valuations may see room for recovery. Notably, the optical communications sector exhibits strong correlation with the SOX. Timing of sentiment stabilization in U.S. stocks serves as a critical variable.
2. The Notable Divergence Between Memory Fundamentals and Share Prices Warrants Vigilance: Memory contract prices are set to rise 10%-18% quarter-on-quarter in Q3, and the consensus view that the supply-demand gap will persist through 2028 remains unchanged. Nevertheless, leading memory stocks have retreated 50%-60% from their year-to-date peaks. Nomura previously argued that market fears over "computing power oversupply" may be overblown. How this divergence resolves — whether via a share price rebound or downward revisions to fundamental forecasts — will be a core focus in the coming weeks.
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