Passive components, such as isolators, account for approximately 11% of the total bill of materials (BOM) cost for optical modules. With the explosive growth in demand for high-speed optical modules—such as 800G and 1.6T variants—the market demand for optical isolators, which serve as critical supporting components, has surged. Currently, total industry demand exceeds existing supply capacity by more than twofold, plunging the entire supply chain into a severe crisis characterized by shortages and supply disruptions.
This supply crunch stems from a combination of factors: leading overseas companies have successively scaled back production capacity and ceased external commercial supply. Compounding this, the implementation of regulations governing rare-earth raw materials has led to a sharp contraction in the production capacity of high-end Faraday rotators—a core substrate for isolators—widening the supply-demand gap to between 30% and 50%. This persistent imbalance has driven a steady rise in prices across the entire supply chain; the costs of both optical isolator products and their key upstream raw materials have been raised repeatedly, a trend expected to continue in the short term.
The production processes for high-end magneto-optical crystals and rotators are complex, and the timeline for rebuilding production lines is lengthy, creating significant uncertainty regarding the resumption of production by overseas manufacturers. Meanwhile, the accelerating pace of technological iteration in high-speed optical modules has further exacerbated the component shortage.
However, this crisis has also spawned new development opportunities, marking the arrival of a "golden window" for domestic substitution in the optical isolator sector. Domestic players are rising rapidly, becoming a key pillar in supporting the stable operation of the global optical communications supply chain.
