FCC Final Rule Avoids Direct Ban on Chinese Optical Module Suppliers for AI Data Centers

The U.S. Federal Communications Commission (FCC) has finalized its equipment authorization rules, effective September 11. The new restrictions are narrow in scope: equipment using "logic hardware components" made by companies on the FCC's Covered List may be denied authorization. The FCC did not adopt a broader proposal that would have banned components from all companies owned or controlled by foreign adversaries.

Chinese optical module makers, including Zhongji Innolight, Eoptolink, Dongshan Precision, and Tianfu Communication, were not directly named in the restrictions. This contrasts with earlier market concerns following a Reuters report on August 4 that the Trump administration was drafting new limits on Chinese data center equipment, particularly optical modules.

The relatively limited scope reflects the deep reliance of U.S. AI data center construction on Chinese optical modules. Counterpoint estimates that Zhongji Innolight accounts for about 27% of global data center optical module revenue, while Chinese companies together contribute nearly two-thirds of global shipments and about 60% of datacom optical module revenue. The advantage is even more pronounced in high-speed products such as 800G and 1.6T modules used in AI clusters. Reuters reported in July that about 62% of Zhongji Innolight's revenue in Q1 2026 came from the U.S., with key customers including Meta and Nvidia.

Western suppliers such as Coherent and Lumentum have advanced photonics technology, but they are unlikely to fully absorb the capacity gap left by Chinese makers within 12 to 24 months. Two large network equipment vendors warned that abruptly cutting off Chinese optical modules could severely delay U.S. AI data center projects. Rebuilding a complete optical module manufacturing ecosystem in the U.S. could take two to three years, and a full supply chain overhaul five to ten years.

Industry observers view the FCC rule as a delay rather than a disappearance of risk. Zhongji Innolight was previously added to the U.S. Defense Department's 1260H list of Chinese military companies. Washington still has other tools to pressure the optical module supply chain. But the immediate reality is that cutting off Chinese optical modules could first disrupt the rapid expansion of U.S. AI computing capacity.