Number one market share, 100 million in revenue: Optical chip unicorn Xizhi Technology heads to Hong Kong to file for listing with "Ice and Fire"

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(Source: NetEase Tech)

The rapid rise of AI large models has changed the development logic of many industries.

Optical chips are among the most typical examples. Recently, NVIDIA spent billions of dollars, announcing investments of $2 billion each in photonic technology giants Lumentum and Coherent, and secured long-term procurement commitments and future capacity rights worth billions of dollars in advance.

Under the push of industry giants, capital markets’ enthusiasm for optical technology has become almost feverish. Take Yuanjie Technology as an example: although its 2025 revenue is only around 600 million yuan, it has already firmly entered the “thousand-yuan stock” club, with a P/E ratio (TTM) reaching an astonishing 473 times on April 2.

It is precisely amid this nearly boiling industry boom that domestic optical chip unicorns are launching their sprint into the capital markets.

Recently, Shanghai Xizhi Technology Co., Ltd. (hereinafter “Xizhi Technology”) submitted its IPO prospectus to the Hong Kong Stock Exchange.

Xizhi Technology mainly provides optical interconnect and optical computing solutions.

As China’s independent scale-up optical interconnect solution provider, Xizhi Technology ranks first in the domestic market based on 2025 revenue, capturing an overwhelming 88.3% market share, backed by major investment institutions like Tencent, Baidu, and others.

For this IPO, Xizhi Technology plans to use the raised funds to continue expanding its optical interconnect hardware and solutions, and to boost cutting-edge fields such as optical computing products.

However, peeling back the glamorous halo of industry giants and “market share leader,” Xizhi Technology’s performance remains relatively modest: its full-year revenue in 2025 is only 106 million yuan, while its net loss reaches as high as 1.34B yuan.

Moreover, nearly 80% of its revenue comes from its top five clients.

As the light of computing power shines into reality, the big test of Xizhi Technology’s commercialization has just begun.

Accumulation and Industry Explosion

For many years, the spotlight in the computing power world has been on microelectronic chips.

Microelectronic chips transmit signals using electrical current as the information carrier, but as chip manufacturing processes continue to shrink, issues like heat generation and power consumption have become bottlenecks restricting their development.

In comparison, optical chips can convert signals using higher-frequency light waves as information carriers, offering advantages such as lower transmission loss and shorter latency, which have attracted market attention.

However, the application scenarios of optical chips were once mainly concentrated in consumer electronics sensors (VCSE), communication (EML), and other fields, with limited market space.

At that time, investors also held some reservations about optical chips.

“Looking globally, there are no companies making optical chips like integrated circuits’ giants. Lumentum, the leader, had revenue of only about $1.5 billion in fiscal 2019. For startups, achieving a broad presence across high-power, communications, and sensing—like Lumentum—is extremely difficult. Of course, Lumentum’s growth was gradual through acquisitions. This highlights the awkwardness of optical chip investments: the technology barrier is very high, and the market size is relatively limited,” said Fang Hong, partner at Delian Capital, in 2020.

But the arrival of AI has changed the development trajectory of the optical chip industry chain.

AI large models demand exponential computing power globally, amplifying the shortcomings of traditional chips in handling large-scale parallel computing, such as high power consumption and latency, creating opportunities for the optical chip industry chain.

Against this backdrop, companies like Xizhi Technology and others in the optical chip industry chain have seen explosive growth.

By 2025, Xizhi Technology’s revenue will reach 106 million yuan, a year-on-year increase of over 70%.

From the product perspective, the main driver of this revenue surge is Scale-up, mainly deployed in AI infrastructure (especially data centers) to build high-performance “super nodes.”

Super nodes refer to large, tightly interconnected clusters composed of dozens to hundreds of GPUs, configured as a single computing unit, specifically for training and inference of large models and other cutting-edge AI tasks.

According to Xizhi Technology, because these AI tasks require thousands of devices to synchronize communication when processing massive data, Scale-up products effectively break through the physical limits of traditional electrical interconnects in transmission distance, bandwidth, and power consumption through optical interconnect technology.

In 2025, Scale-up revenue will be 76 million yuan, a year-on-year increase of over 60%.

Despite impressive revenue performance, Xizhi Technology’s growth in the new optical chip track still faces challenges.

On one hand, its growth rate is not particularly fast within the industry. For example, Yuanjie Technology, also in the optical chip industry chain, achieved a 138.5% YoY increase in revenue in 2025 and is now preparing for dual listing in Hong Kong and A-shares.

On the other hand, as product volume increases, Xizhi Technology’s gross profit margin has actually declined. In 2025, the gross margin of optical interconnect products, including Scale-up, was 35.1%, down 14 percentage points year-on-year.

Xizhi Technology explained that the main reasons are increased costs due to higher product integration, testing and validation, and outsourced processing.

Compared to previous-generation products, Scale-up EPS not only requires the same optical interconnect modules but also must undergo testing and validation using proprietary software developed by Xizhi Technology related to super-node solutions before delivery, adding more cost pressure.

Relying on Major Clients

Currently, Xizhi Technology’s clients mainly include research institutions, internet companies, GPU and server manufacturers, system integrators, and infrastructure builders and operators.

As commercialization progresses, the number of clients has increased, with 11, 10, and 22 new clients added in 2023, 2024, and 2025 respectively.

But behind this growth is a very high client concentration.

From 2023 to 2025, the top five clients’ total revenue accounted for about 80% of Xizhi Technology’s total.

Objectively, reliance on major clients is not unique to Xizhi Technology.

Looking at the industry, global optical technology leader Lumentum also faces similar issues, with revenue heavily dependent on a few clients like NVIDIA.

However, this strong client stickiness and high concentration pose significant business risks.

If leading clients reduce procurement due to strategic adjustments or project cycle completion, Xizhi Technology’s revenue could face direct volatility.

Over-reliance on major clients can also lead to disadvantages in price negotiations, further squeezing already pressured gross margins. For example, in 2025, the gross margin for the top five clients’ products was only 23.4%, down 13 percentage points year-on-year.

Under the dual pressures of declining gross margins and high costs, Xizhi Technology’s cumulative net loss from 2023 to 2025 has approached 2.5 billion yuan.

The huge losses cast a shadow, and the IPO timetable has become a sword hanging over Xizhi Technology.

From 2018 to 2025, Xizhi Technology completed multiple rounds of pre-IPO financing from Series A to Series C4, and signed investment agreements with redemption clauses.

To advance its Hong Kong listing, Xizhi Technology and investors revised the investment agreement in September 2025, agreeing to temporarily suspend the redemption clauses.

But this is only a “time-limited exemption.”

According to the agreement, if Xizhi Technology fails to obtain approval for listing within 24 months from the date of submitting its application to the HKEX, the previously suspended redemption and related arrangements will automatically resume and be retroactively effective.

By the end of 2025, the amount of financial instruments issued to investors by Xizhi Technology had reached 4.92B yuan.

With no way out, this Hong Kong IPO is destined to be a race against time.