Guosheng Securities: "Scale-up" strategy is reshaping the landscape of the optical communication industry, continuing to be optimistic about the computing power sector.
Corning's impressive financial report and Amphenol's large-scale acquisition together highlight the accelerating transformation of the optical communication industry towards a Scale-up architecture. The demand for AI computing power is driving the comprehensive upgrading of the industry chain from chip-level optical interconnect to high-density optical fiber cabling.
Guosheng Securities released a research report stating that this week, the global optical communication industry welcomed two landmark events: Corning released Q2 financial report exceeding expectations with a 42% year-on-year increase in optical communication business; Anfeno announced the acquisition of Corning's CCS business for $10.5 billion, setting the largest M&A record in the company's history. These two events collectively point to a core trend - the "Scale-up" strategy driven by AI computing power demand is reshaping the optical communication industry landscape. The bank continues to bullish on the computing power sector, firmly recommending companies in the computing power industry chain such as the leading companies in the optical module industry Zhongji Innolight, Eoptolink Technology Inc., etc., while also suggesting paying attention to the "one big four small" optical device companies such as Suzhou TFC Optical Communication+Henan Shijia Photons Technology/T&S Communications/Bochuang Technology/Wuxi Taclink Optoelectronics Technology, and the domestic computing power industry chain, including the liquid cooling segment such as Shenzhen Envicool Technology, Guangdong Hec Technology Holding, etc.
Guosheng Securities' main points are as follows:
Corning's high growth in Q2 optical communication business, focusing on the "Scale-up" strategy
Corning released its Q2 financial report, with Q2 optical communication business revenue of 1.57 billion US dollars (42% year-on-year), and net profit of 247 million US dollars (73% year-on-year). Corning highlighted the "Scale-up" strategy in the financial report, expecting to bring an additional market space 2-3 times the existing 20 billion US dollar enterprise network business. To support this strategy, Corning is cooperating with partners such as Broadcom to advance CPO technology research and development to solve the optical-electrical conversion bottleneck within high-density nodes. Meanwhile, its Data Center Interconnect (DCI) solution has been adopted by three top customers in the industry, with an expected market size of 1 billion US dollars by the end of this decade.
Anfeno acquires Corning's CCS business, forming vertical competition with Corning
Anfeno will acquire Corning's Connectivity and Cable Solutions (CCS) business for $10.5 billion in cash, covering three major areas: data center fiber interconnection, broadband communication, and building connectivity. Anfeno had previously acquired Corning's wireless network and distributed antenna system (DAS) business, and this acquisition further strengthens its full-chain layout in the optical fiber interconnection field, forming a complete product chain from high-speed fiber connectors to data center wiring, creating vertical competition with Corning in the optical communication field. How Scale-up is reshaping the industry logic of optical communication
The evolution from Scale-out to Scale-up is essentially a transformation driven by AI computing architecture to pursue higher efficiency. Under the traditional Scale-out mode, computing power expansion is mainly achieved by increasing the number of server nodes, with technical requirements primarily focused on high-speed interconnection between nodes. The Scale-up mode emphasizes increasing the computing density of individual nodes, which poses new requirements for optical communication technology:
Core features: The Scale-out architecture mainly expands computing power by increasing the number of nodes, and interconnection between GPUs is mainly through connections between racks. The Scale-up architecture expands computing power by increasing the computing density of individual nodes, shortening the distance between GPU interconnections within the rack, but the connection density increases by orders of magnitude.
Technical requirements: In terms of performance requirements, the Scale-up architecture has stricter bandwidth and latency requirements. Scale-up networks need to support extremely high bandwidth GPU-to-GPU data transmission and fine-grained memory semantic communication. Power consumption and density issues become particularly prominent in the Scale-up architecture, driving optical communication technology towards higher energy efficiency and integration.
Reshaping the industry landscape: With the increasing bandwidth demand, electrical interconnection is gradually approaching physical limits, and chip-level optical interconnects (such as CPO) will become the inevitable choice. In the Scale-up architecture, a single node may contain several kilometers of interconnection lines, traditional copper cable interconnection faces the limits of power consumption and heat dissipation, pushing the shift of electro-optical conversion to shorter distances. In the Scale-up architecture, high-density GPU clusters are extremely sensitive to physical space, traditional plug-in modules cannot meet such density requirements, prompting the rapid development of technologies such as CPO. Impact on the industry chain: Benefiting various aspects of optical communication industry chain
Under the wave of Scale-up, various parts of the optical communication industry chain will show incremental benefits:
Upstream optical chip/components lead the way: The demand for high-density optical interconnection directly drives the demand for high-speed VCSEL/EML laser chips (200G/channel and above), silicon photonic engines, and optical connectors (such as MPO/MTP).
Structural opportunities for fiber optic cables emerge: Multi-mode fibers will experience super-industry growth due to Scale-up. Compared to single-mode fibers, multi-mode fibers have significant cost advantages in short-distance high-density scenarios, and the technological barriers bring higher gross margins. In addition, the demand for specialty fibers (such as bend-resistant, high-density ribbon fibers) in rack wiring scenarios will also increase.
Intensification of the Matthew Effect in equipment integration: Scale-up requires optical communication equipment manufacturers to have cross-domain technology integration capabilities. Leading companies are quickly filling gaps through acquisitions. The competition in equipment integration is shifting from single product performance to comprehensive stack solution capabilities, where manufacturers that can provide integrated solutions from optical chips, modules to wiring systems will have a greater premium space.
The impressive financial report of Corning and the large-scale acquisition of Anfeno all highlight that the optical communication industry is accelerating its transition to the Scale-up architecture. The demand for AI computing power is driving the comprehensive upgrade of the industry chain from chip-level optical interconnects to high-density fiber optic wiring. Leading companies are seizing strategic high grounds through technological breakthroughs and vertical integration.
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