China Galaxy Securities: The limit price of collective procurement hits a record high, and the trend of diversification in demand is obvious.

China Galaxy Securities released a research report stating that the recent increase in the price of optical fiber cables is mainly driven by three major emerging demands: first, the interconnection demand brought about by the large-scale construction of AI data centers; second, the rapid increase in demand for special applications such as fiber optic drones; third, the export demand brought about by the continuous expansion of overseas infrastructure markets. These demands have scale and product structure evolution towards high-end and specialty, and the optical fiber industry may usher in a round of structural reform. China Galaxy Securities' main points are as follows: Event China Mobile Limited's centralized procurement project for special optical cable products for 2026 to 2027 released the bidding results, and from the winning bid prices, 7 out of 8 winning manufacturers bid according to the highest price limit. Centralized procurement price limit hits a new high, driven by emerging demand for price increases The centralized procurement products this time are special optical cable products, including special demand ordinary (fiber optic bundle) cables (including water-blocking cables, rodent-proof cables, flame-retardant buried cables, all media cables, all media self-supporting cables), special demand flat (fiber optic tape) cables (including flame-retardant non-skeleton flat cables), blown micro cables, photoelectric composite cables, and figure-eight self-supporting cables, totaling five types of products. The procurement of special optical cable products is approximately 79.4 thousand kilometers in length, equivalent to 3.131 million fiber kilometers. The project set a maximum bid limit price, with the highest bid limit price at a total of 251.2471 million RMB excluding taxes. From the winning bid prices, except for the first winner, the other 7 manufacturers bid according to the highest limit price, once again confirming the significant trend of price increases in optical fiber cables. From the demand side, the core of the optical fiber industry, DRIVE, has fundamentally changed In the past, industry growth mainly relied on 5G base station construction and large-scale FTTH deployment, essentially addressing the "connectivity or lack thereof". The three major operators dominated the centralized procurement market with strong bargaining power. However, since 2025, the global AI competition has spurred the construction of super-large computing clusters, the demand for high-bandwidth, low-loss optical fiber for data center interconnection has surged, driving the industry to formally shift from "operator infrastructure-driven" to "AI computing power-driven". At the same time, the application of fiber optic drones in specific complex electromagnetic environments has achieved scale deployment. Fiber optic drones use their anti-electromagnetic interference and high-bandwidth technology advantages to transmit high-definition real-time images back to the operating end, completing remote precision operations. This type of drone uses G.657.A2 special optical fiber, with each drone consuming 20-50 kilometers of fiber, and it is a disposable consumable, thereby creating a structural demand drive for special optical fiber market. In addition, industrial Internet of Things, vehicle-mounted optical fibers, and other emerging scenarios further open up diversified and high-end demand increment spaces. From the supply side, the core driver of this round of price increases is the bottleneck in optical fiber preform production capacity Preforms account for about 70% of the industry chain's profits, with high technical barriers, a production expansion cycle of up to 18-24 months, and limited production expansion after experiencing initial price wars and supply clearances, causing supply to lag behind demand growth. Currently, global preform production capacity is approaching full capacity, and under capacity constraints, manufacturers are increasingly tilting preform resources towards higher value-added special fibers such as G.657.A2 (used for drones) and G.654.E (used for AI data centers), squeezing the production capacity of ordinary G.652.D fibers, exacerbating structural shortages. The overseas market also faces the issue of long production expansion cycles for giants such as Corning and Sumitomo Electric, and the short-term supply gap is difficult to ease. In summary, in the future, prices of different types of optical fiber cables may continue to rise, and the profits brought about by price increases are expected to support the research and development of cutting-edge technologies such as hollow-core fibers, forming a virtuous cycle. Risk Warning: Risks of production expansion falling short of expectations; risks of changes in the international situation, etc.