[News] Microsoft Reportedly Urges U.S. to Drop Proposed Chinese Optical Transceiver Ban Amid AI Supply Concerns

The growing demand for AI data centers is putting greater focus on the global optical communications supply chain, while potential U.S. import restrictions raise concerns over supply disruptions. According to Reuters, citing sources, Microsoft and other technology companies and industry groups are urging the Trump administration to abandon plans to restrict imports of Chinese optical transceivers, which enable high-speed data transmission within data centers.

As Reuters notes, Microsoft was reportedly among several companies that met with officials from the White House Office of Science and Technology Policy and the National Security Council in September to raise concerns about potential supply chain disruptions. The company argues that the proposed ban could undermine the U.S. lead in AI by slowing data center construction. Meanwhile, the Trump administration is considering restrictions on newer Chinese optical transceivers over concerns that Beijing could use them to steal data, install malware, or disrupt U.S. data center operations, the report adds.

China’s Optical Module Dominance Complicates Potential U.S. Import Curbs

China holds a significant share of global optical module manufacturing capacity. According to TrendForce, Chinese suppliers are expected to account for approximately 56% of global contract manufacturing capacity in 2026, with Innolight, Eoptolink, and Cambridge Industries Group collectively representing around 46%.

TrendForce further notes that AI data center supply chains remain heavily dependent on China’s optical module manufacturing, packaging, and testing capabilities. Broad U.S. restrictions could therefore increase costs and extend lead times, as expanding alternative capacity, completing customer qualification, and transitioning to new suppliers would be difficult to accomplish simultaneously in the short term.

U.S. manufacturers may also struggle to fill the gap. Reuters, citing a report by the Foundation for American Innovation, notes that Coherent and Lumentum offer competing optical transceiver technologies but lack the production scale to fully replace Chinese suppliers.

The Trump administration is also reportedly considering a narrower ban targeting Chinese 3.2Tbps optical transceivers, which are expected to enter mass production in 2028 and see wider adoption in 2029, according to Reuters, citing Morgan Stanley. The approach could give U.S. suppliers more time to expand capacity while limiting near-term disruptions.

Another possible exemption would allow Chinese-made transceivers into the U.S. if American companies account for at least 65% of their bill-of-materials value, according to Economic Daily News, citing Morgan Stanley. Such a provision could benefit U.S. suppliers of digital signal processors (DSPs) and laser components while retaining some assembly operations in China.

Read more

• China Accounts for 56% of Global Optical Module Manufacturing; Short-Term Supply Chain Decoupling Unlikely Under Potential U.S. Restrictions, Says TrendForce
• Integrated Optical-Electrical Testing Platforms Become Key to CPO Mass Production, Reshaping the Test Equipment Supply Chain, Says TrendForce

(Photo credit: Microsoft)