TSMC's Hsu: Silicon Photonics to Achieve Over 50% Market Penetration by 2027; CPO Mass Production Begins Second Half of 2024

Hsu Kuo-Chin, Vice President of Advanced Packaging Technology Development at TSMC (2330-TW) (TSM-US), spoke at the SEMI Forum today (31st), stating that silicon photonics is gradually becoming the mainstream technology for high-end optical communications, with market penetration expected to exceed 50% by 2027. Meanwhile, with ongoing industry validation maturing, CPO (Co-Packaged Optics) will begin mass production in the second half of this year, solidifying the trend of AI data centers transitioning from electrical to optical infrastructure.

Hsu emphasized that AI is no longer just a software issue but a tangible hardware design challenge. As AI model sizes rapidly expand, network bandwidth and transmission capacity are being pushed to the physical limits of existing architectures. Today’s AI computing units are no longer individual servers but entire data centers, with the network acting as the nervous system—critical to the effective scaling of AI compute power.

From a market demand perspective, Hsu noted that global optical transceiver module sales are expected to grow approximately 25% in 2025 compared to 2024, with a further projected 50% growth in 2026. High-end, high-speed optical communication products are seeing even stronger growth, with the market expected to expand by about 60% in 2025—driven almost entirely by AI scale-up demand.

He further predicted that as AI scale-up continues, the next wave of large-scale growth will emerge around 2028, simultaneously driving demand for high-speed optical interconnects. Fiber optics and optical interconnects are transitioning from traditional transmission solutions to becoming indispensable long-term infrastructure for AI data centers.

In this context, the importance of Silicon Photonics is rapidly increasing. Hsu pointed out that silicon photonics has become a key technological platform for high-end optical communications, with market penetration expected to exceed 50% by 2027. As product specifications continue to evolve, the value of silicon photonics chips within the overall optical communication system will also continue to rise.

Hsu also noted that Taiwan’s existing foundry ecosystem already possesses the capability for large-scale, high-volume manufacturing of Optical Engines. As silicon photonics wafer fabrication matures further, the industry’s next phase will shift from Pluggable Optics toward Packaged Optics and eventually toward CPO.

He explained that the industry has spent several years validating the feasibility of CPO. In the past, concerns about cost, reliability, repairability, and light source integration created market skepticism. However, these barriers are now being progressively overcome through real-world data and market validation, indicating that CPO is moving from the concept and technical verification phase into commercialization and mass production.

Hsu further stated that major semiconductor companies have recently announced that their CPO products will enter mass production in the second half of 2024, signaling that the semiconductor industry’s investment in next-generation optical interconnect architectures is accelerating. This marks a shift in the CPO industry from questioning “whether it can be done” to focusing on “how to achieve large-scale mass production.”

However, Hsu emphasized that CPO is not a technology that can be achieved solely through foundry processes or a single optical component. Beyond silicon photonics and optical engines, the entire supply chain includes laser light sources, optical fibers, fiber connectors, photodetectors, packaging, optical coupling, and testing. Therefore, the next phase of industrial competition will shift from single-chip technology to the integration capability of a complete ecosystem.

This is also a key purpose behind the establishment of the Taiwan Silicon Photonics Industry Alliance. Hsu stated that Taiwan’s true advantage lies not just in wafer fabrication or specific optical components, but in its rare global-level integration capability. The alliance will serve as a bridge between design and manufacturing, local supply chains and global major players, and electronic computing and optical technologies.

Hsu believes that the current bottlenecks in the silicon photonics supply chain also represent new opportunities for Taiwan’s industry. By further integrating wafer foundries, silicon photonics, lasers, optical fibers, connectors, packaging, and testing, Taiwan has the potential to capture higher system integration value during the architectural shift of AI data centers from electrical to optical, positioning itself as a key hub in the global AI optical interconnect supply chain.