Microsoft has been pressing the Trump administration to halt plans to bar imports of new models of Chinese optical transceivers, the parts that move data over fiber inside AI data centers, three people familiar with the situation told Reuters on 10 November. Microsoft declined to comment. The Federal Communications Commission is working on the ban, Reuters reported, and has not addressed the issue publicly.
The supply at stake is mostly Chinese. Counterpoint Research estimates Chinese makers hold about 60% of global datacom transceiver revenue. That is about 2.6 times the roughly 23% held by Coherent and Lumentum, the two US makers Reuters names, by our arithmetic. Innolight alone, at about 27%, is larger than both combined.
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The key insight:Microsoft has been pressing the Trump administration to halt an expected FCC ban on new models of Chinese optical transceivers, Reuters reported, citing three people familiar; by Counterpoint’s estimates, Chinese makers hold about 60% of datacom transceiver revenue, about 2.6 times Coherent and Lumentum combined, by our arithmetic.
Microsoft is one of a group of companies and trade groups making the case “that such a ban could irreparably damage the US edge over China in the AI race by further slowing the data center rollout”, the sources said. It was one of a handful of firms that met officials from the White House Office of Science and Technology Policy and the National Security Council in September to flag the supply chain challenges, two of the sources said.
Reuters first reported the plan in August. The concern, it wrote, “is that they could be used by Beijing to steal data, install malware or disrupt service at US data centers”. The White House, the FCC and the Chinese embassy in Washington did not immediately respond to Reuters.
Microsoft has 35 data centers under construction in the US and another 134 planned, according to Cleanview, a tracker Reuters cites. That is 169 sites, by our arithmetic.
John Miller, general counsel of the Information Technology Industry Council (ITI), a tech lobbying group, told Reuters: “It really threatens to arguably grind (the data center rollout) to a halt”. Many cloud companies have already bought the AI chips, he said, and “Those chips, without optical transceivers literally could just sit there waiting around un-utilized until you actually have the transceivers to essentially connect them together”.
Share of global datacom optical transceiver revenue by supplier, Counterpoint Research estimates (approximate). Chinese makers hold about 60%, about 2.6 times the roughly 23% of US makers Coherent and Lumentum combined, by our arithmetic.
What Is on the FCC Record
There is no published FCC proposal on optical transceivers. The mechanism in play is the FCC’s Covered List, the list of equipment the agency treats as a national security risk. In March its Public Safety and Homeland Security Bureau added routers produced in foreign countries to that list by public notice, FCC 26-50 records.
ITI put its case in writing after an 11 August meeting with the bureau. In an ex parte letter filed on 13 August in WC Docket No. 18-89 and ET Docket No. 21-232, ITI urged the FCC to “Refrain from adding optical transceivers to the Covered List, particularly through an addition that would encompass all foreign-produced optical transceivers”. If the Commission acts, ITI encouraged “a narrow approach focused on production by entities already included on the Covered List”.
In July, the FCC’s Third Further Notice of Proposed Rulemaking in ET Docket No. 21-232 asked whether suppliers should disclose where key parts are made: “Should we instead just list out several critical components, such as modular transmitters and IoT modules, semiconductors, and optical transceivers?” That question is about disclosure, not a ban. In the same docket, the China Chamber of Commerce for Import and Export of Machinery and Electronic Products filed reply comments that summarised the Coalition for a Prosperous America as urging the FCC to “enumerate optical transceivers among the critical components subject to disclosure”.
We found no Microsoft filing on optical transceivers when we searched the FCC’s public comment database on 10 November. What Reuters describes are meetings with White House officials, not a filing.
The Supply Math
Counterpoint’s estimates put Innolight first with about 27% of datacom transceiver revenue, Coherent second at about 17% and Eoptolink third, with Lumentum at about 6%. Chinese makers, including Innolight, Eoptolink, Accelink and Source Photonics, supply nearly two-thirds of units and about 60% of revenue, Counterpoint says. Reuters cites the same Counterpoint page for its two-thirds figure.
By our arithmetic, Coherent and Lumentum together hold about 23%, so Chinese makers’ share is about 2.6 times theirs, and Innolight alone is 4 points ahead of the pair. Coherent and Lumentum “lack the scale to replace Chinese vendors”, Reuters reports, citing the Foundation for American Innovation. Our pieces on Coherent’s capex and Lumentum’s order book track their build-out.
The supply chain runs both ways, Counterpoint says. Chinese module makers buy signal processors from Broadcom and Marvell and lasers from Lumentum, Coherent and Mitsubishi Electric. They rely on overseas buyers, mainly US hyperscalers, “for 90%+ of their high-value 800G and 1.6T module revenue”, by Counterpoint’s estimate. Innolight is on the Pentagon’s list of Chinese military-backed companies, Reuters notes.
Update (10 Nov, Ars Technica): the fiber squeeze. The optics in this story ride on optical fiber, and Ars Technica reports that AI data centers are now competing with drone makers in Ukraine and Russia for the same limited supply, most of it from China. Ars cites market research firm TrendForce for an expected worldwide shortfall of 180 million kilometers of optical fiber in 2026, and says the shortage has raised the cost of fiber bought by both countries.
An R&D representative at Ukrainian drone maker BlueBird Tech told Ars that fiber prices rose “roughly six to ten times” between 2025 and 2026, with the worst prices and shortages around March, and that “the situation has stabilized to some extent” since. The representative said “China remains the main source” even when buying through intermediaries in other countries, and that “Data centers around the world consume large amounts of fiber”.
Ars also cites The Insider and Vedomosti for Russian purchases of more than 60 million kilometers of fiber in 2025, more than 10% of world output that year. The article names no individual fiber manufacturers and gives no lead times. It does not say whether the fiber squeeze reaches the transceiver makers covered above.
The Threshold Under Discussion
Morgan Stanley said in an October client note that the administration was considering barring Chinese transceivers capable of handling 3.2 terabits per second, according to Reuters. Production of those is not expected to ramp up until 2028, with widespread installation expected in 2029, the note said, as Reuters reported it. Two of Reuters’ sources said the 3.2 terabit threshold is under consideration.
As we read the record, ITI’s 13 August letter puts the industry case against a transceiver ban in writing in the FCC dockets; Microsoft’s case, as Reuters describes it, was made in meetings with White House officials, and we found no Microsoft filing on it.
As we read the supply math, Innolight alone, at about 27% by Counterpoint’s estimate, is 4 points larger than Coherent and Lumentum combined, by our arithmetic.
John Miller, ITI general counsel, to Reuters
“It really threatens to arguably grind (the data center rollout) to a halt”
Three Implications
FOR DATA CENTER BUILDERSMicrosoft has 35 US data centers under construction and 134 planned, per Cleanview as cited by Reuters: 169 sites, by our arithmetic.
FOR THE FCC RECORD ITI asked the FCC to keep optical transceivers off the Covered List; no FCC proposal on transceivers is public, Reuters reported.
FOR SUPPLIERS Counterpoint estimates Chinese makers supply nearly two-thirds of units; Reuters reports US makers Coherent and Lumentum lack the scale to replace them, citing the Foundation for American Innovation.
The framework argues: “It’s a fundamental constraint on the speed of AI transformation, and it’s creating geopolitical leverage that operates independently of who has the best models.”
As we read it, optical transceivers are that kind of constraint: by Counterpoint’s estimates, about 60% of the revenue sits with Chinese makers, while those makers buy signal processors and lasers from US and Japanese suppliers. The framework predates this report and does not discuss transceivers.
What Is Not Established
The FCC has not published a proposal, a threshold or a timetable for optical transceivers. Microsoft’s position is as described by people familiar with it; the company declined to comment. The market shares are Counterpoint estimates, not company filings. The Reuters report carries no comment from Innolight or Eoptolink. Our earlier coverage of Applied Optoelectronics and Nvidia’s optical-engine capacity covers other US and Taiwan supply.
This Week In The AI Supercycle
The Great Convergence of Capital, Power, and Geopolitics
This week’s issue: for two years the AI build-out was priced as a supply story, and last week as a credit story. This week it was priced as a permission story, and the answer arrived as a cost, not a ban.
Microsoft is pressing the White House against an expected FCC ban on new Chinese optical transceiver models, according to Reuters, while ITI has asked the FCC on the record to keep transceivers off the Covered List. By Counterpoint’s estimates, Chinese makers hold about 60% of the revenue, about 2.6 times Coherent and Lumentum combined, by our arithmetic. No FCC proposal is public yet.
A note on sourcing. Microsoft’s position and the September meetings are from Reuters’ report of 10 November 2026, which cites three people familiar with the situation; Microsoft declined to comment to Reuters. Docket quotations are from ITI’s 13 August ex parte letter, the FCC’s order FCC 26-50 and CCCME’s reply comments in ET Docket No. 21-232. Market shares are Counterpoint Research estimates. Totals and ratios are our arithmetic. Microsoft was not contacted for this piece.
Gennaro Cuofano is a CRO and tech executive who has worked in AI since late 2015, starting with bringing NLP, natural-language generation, voice and chatbot products to the marketing industry. His background is in law and finance: he holds a Master's degree in Law and an International MBA with an emphasis on corporate finance (LUISS Business School and the University of San Diego, 2012), and worked as a financial analyst at a real-estate investment firm in San Diego and as an assistant controller. His work focuses on business model strategy, business engineering and, more broadly, structural analysis: how companies make money, read from their own filings. He created FourWeekMBA and leads research there and at The Business Engineer, his newsletter on AI and business strategy, with over 95,000 subscribers and more than 1,000 published analyses. His writing has also appeared on Entrepreneur (for example, How to Digitize a Family Business in Europe) and HackerNoon. Find him on LinkedIn and Substack. See how we source.
