Following a report that the U.S. Federal Communications Commission (FCC) may ban Chinese optical modules, Zhongji Innolight Co.,Ltd. (300308.SZ) shares opened sharply lower on August 5, closing at 947.74 yuan per share. The next day, the stock traded flat, slightly rising to close at 955 yuan per share. The company has since responded to the rumor, stating that after verification, the FCC has not yet issued any such ban.

The company has been dealing with more than just this one negative rumor. Persistent market chatter about "severely disappointing second-quarter earnings" and "significant price drops for 1.6T optical modules" continues to influence market sentiment. At the same time, the substantial stock sales by the company's controlling family at high prices have also drawn widespread attention.

Behind the company's strong financial performance, there are underlying concerns. These include a rising concentration of major clients and a heavy reliance on a single market for revenue. A longer-term uncertainty comes from the accelerating adoption of technologies like Co-Packaged Optics (CPO). Whether the company can secure a key position in the next technology upgrade cycle is a major point of focus for the market.

Numerous Market Rumors Precede a Significant Pullback from Highs

As a leading company in the optical module sector, Zhongji Innolight benefited from the explosive growth driven by AI computing demand. Over the past year, its stock price climbed steadily, reaching an all-time high of 1,416.88 yuan per share on June 22 of this year, a more than tenfold increase. However, in the second half of the year, the stock has experienced a volatile correction, closing at 955 yuan per share as of August 6, representing a decline of over 30% from its peak.

On one hand, the controlling family and executives of Zhongji Innolight have conducted multiple stock sales as the price climbed, a move that has continuously attracted market attention. On July 30, the date of the company's H-share listing, it released an announcement regarding changes in its equity. The announcement stated that due to the H-share listing, the exercise of stock options, and secondary market sales, the combined shareholding of its controlling shareholder, Zhongji Holding, and its concerted parties, Wang Weixiu and Wang Xiaodong, had changed by more than 1% of the total shares. It is important to note that Wang Weixiu is the core founder and actual controller of Zhongji Innolight, and his son, Wang Xiaodong, serves as the company's director and executive vice president.

The announcement detailed that Zhongji Holding and Wang Xiaodong reduced their holdings by a total of 6.209 million shares, with both transactions completed earlier. Zhongji Holding sold 5.5 million shares between November 2025 and January 2026. Wang Xiaodong sold 708,600 shares between August and November 2025. Together, they cashed out a total of 3.163 billion yuan. In addition to these sales, between July and September 2025, seven concerted parties controlled by the company's chairman, Liu Sheng, including Suzhou Yixingfu and Suzhou Yunchangjin, collectively sold 4.6341 million shares, netting approximately 1.213 billion yuan. According to incomplete statistics, since the start of 2025, the aforementioned shareholders have cashed out a total of over 4.3 billion yuan.

On the other hand, negative rumors have persisted, and the company has issued clarifications multiple times over the past month. On July 5, the company responded on its investor interaction platform to rumors about a blockade on optical material flare films and the replacement of the optical module business by Corning's glass bridge technology. On July 12, Zhongji Innolight held an investor conference call to clarify rumors about disappointing second-quarter performance and intentional stock price suppression. On the evening of July 28, the company held another conference call to address market rumors about "significant price drops for 1.6T optical modules."

On August 4, a report emerged that the U.S. Federal Communications Commission (FCC) was drafting a ban to prohibit the import of new types of Chinese data center components, including optical modules. In response, Zhongji Innolight stated on August 5 that after verification, the FCC has not yet issued any such ban. When asked about the potential impact of a ban, a company representative declined to comment, as the ban has not been enacted.

Rising Customer Concentration and Over Half of Revenue from a Single Market

Public information shows that Zhongji Innolight’s main business is the R&D, production, and sales of high-end optical communication transceiver modules. Its products serve domestic and international clients in areas such as cloud computing data centers, data communications, 5G wireless networks, telecom transmission, and fixed-line access. In recent years, benefiting from the continuous penetration of AI models and applications, demand for optical modules has been released, and the company's performance has risen accordingly.

The company's revenue grew from 10.718 billion yuan in 2023 to 38.24 billion yuan in 2025. Net profit attributable to the parent company increased from 2.174 billion yuan to 10.797 billion yuan over the same period. In the first quarter of 2026, the company's performance steadily improved, with revenue and net profit attributable to the parent company reaching 19.496 billion yuan and 5.735 billion yuan, respectively.

Despite the strong growth, concerns remain. Behind the revenue increase, the risk of high customer concentration is notable. Revenue from the company's top five customers grew from 8.039 billion yuan in 2023 to 29.056 billion yuan in 2025, with their share of total revenue increasing from 75% to 76%. In the first quarter of 2026, revenue from the top five customers was 15.957 billion yuan, their share rising further to 81.9%.

It is worth noting that in its prospectus, Zhongji Innolight mentioned that its major customers typically do not sign long-term purchase commitments. They may adjust order volumes, modify product specifications, or delay project progress at any time due to changes in internal procurement strategies, business cycles, or market conditions. This means that if major customers reduce their procurement budgets or demand falls short of expectations, the company's performance could be significantly impacted.

Furthermore, the company's revenue is heavily dependent on the U.S. market. The prospectus shows that in 2025 and the first quarter of 2026, revenue from the U.S. market was 21.897 billion yuan and 12.032 billion yuan, respectively, accounting for 57.3% and 61.7% of total revenue. A single market contributes over half of the company's income. It is also noteworthy that as the business scale has expanded, Zhongji Innolight’s inventory levels have also risen, from 4.295 billion yuan in 2023 to 12.681 billion yuan in 2025. As of the end of the first quarter of 2026, the company's inventory had further increased to 15.672 billion yuan, a year-on-year growth of 100.45%, and accounted for 39.06% of current assets.

Accelerated CPO Development Raises Technology Replacement Concerns

The real long-term test comes from the uncertainty of technological iteration. As Co-Packaged Optics (CPO) technology matures, it is seen as an important direction for the next generation of data center optical interconnections. Whether this will impact Zhongji Innolight’s optical module business has become a key focus for the market. CPO technology shortens the distance between the switching chip and the optical engine, allowing electrical signals to transmit faster, thereby reducing power consumption, shrinking size, and improving efficiency. This performance advantage makes it a significant variable for the market to reassess the long-term value of the optical module industry.

Industry insiders generally believe that as optical engines and switching chips become more integrated, the future profit distribution in the industry chain may change. In its 2025 annual report, Zhongji Innolight assessed that while CPO is currently undergoing a transition from technological breakthroughs to early commercialization, the formation of industry standards will still take some time. However, the mature application of CPO might lead to major changes in the optical module industry chain ecosystem. JPMorgan believes that large-scale application of CPO is unlikely before 2027, and in the short term, traditional pluggable optical modules like 1.6T will remain the market mainstream.

Notably, the recent acceleration in the industrialization of CPO has once again raised investor concerns. Corning's introduction of a glass-based optical interconnect technology, which constructs optical waveguides to achieve high-precision coupling between PICs (Photonic Integrated Circuits) and optical fibers, is pushing traditional mechanical fiber alignment towards wafer-level optical waveguide coupling, potentially accelerating the rollout of CPO.

In response to investor concerns, Zhongji Innolight has repeatedly stated that it has investments in multiple technology paths, which are more complementary than substitutive. According to industry views, Corning's glass bridge technology represents more of a change in the pace of industrial evolution rather than a shift in the competitive landscape, and its short-term impact is relatively limited. For at least the next few years, CPO and pluggable optical modules are expected to coexist. The truly important question is whether Zhongji Innolight can maintain its key position in the industry chain during the next technological upgrade.