Zhengwen to Mass Produce 1.6T Optical Modules in Q4, Seizing Order Shifts Amid Geopolitical and Security Trends

Networking equipment manufacturer Zhengwen (4906-TW) announced its active expansion into the high-end optical communications and AI data center markets. Low-speed optical modules and data center networking equipment are already being shipped sequentially, while high-end 800G and 1.6T optical modules are scheduled to begin shipments in the fourth quarter of this year. Amid growing geopolitical tensions and heightened data security concerns, Zhengwen, as a Taiwanese manufacturer, is well-positioned to capture order shifts from global clients.

Zhengwen reported second-quarter revenue of NT$3.613 billion, a 16% increase quarter-on-quarter. Operating gross profit reached NT$439 million, up 36% from the previous quarter, with gross margin improving to 12.2%. However, due to strategic transformation and pressure from rising raw material costs, the company recorded an operating loss of NT$116 million and a net loss of NT$31 million, resulting in a loss per share of NT$0.10. This marks a significant improvement compared to the first quarter’s loss per share of NT$0.32.

For the first half of 2023, cumulative revenue reached NT$6.725 billion, with operating gross profit of NT$761 million and a gross margin of 11.3%. The first-half net loss was NT$163 million, with a loss per share of NT$0.42.

Zhengwen attributed the year-on-year revenue decline in the first half to its ongoing business model transition. Orders previously fulfilled indirectly through equipment vendors have gradually decreased, while the development cycle for direct supply to operators has been longer, resulting in a temporary gap between old and new orders. As the transition to direct supply nears completion, the year-on-year revenue decline has gradually narrowed, indicating a bottoming out and stabilization. The company expects a potential return to profitability for the full year.

On the cost side, Zhengwen noted that its gross margin remains under short-term pressure due to the new high-speed optical module production lines not yet reaching mass production scale, coupled with rising prices of certain raw materials driven by AI demand. In response, the company is actively accelerating the mass production timeline for new products and negotiating with customers to gradually pass on cost increases to product pricing. These cost-pass-through effects have already materialized in the second quarter, with gross margin improving from 10.4% in Q1 to 12.2% in Q2.