$48B Market for Photonic Integrated Circuit Based Transceivers by 2036

Modern AI and high-performance computing workloads require tremendous amounts of information to be transmitted at enormous speeds between chips, servers, and racks. Traditionally, this has been done with copper wiring over longer distances, but the current generation of architectures has been pushing the physical limits of what copper can achieve, and the industry has been facing a so-called 'interconnect bottleneck'. Photonic integrated circuits (PICs) are an emerging class of integrated circuit that seek to break this bottleneck. IDTechEx's newly-released research "Silicon Photonics and Photonic Integrated Circuits 2026-2036" tracks the growth of the PIC-based optical transceiver market, and forecasts that by 2036, sales of optical transceivers across all speeds will reach $48 billion.

 

Photonic Integrated Circuits (PICs) are optoelectrical systems that allow for the processing of electrical and optical signals on a single chip, combining the inherent benefits of photons with the enormous economies of scale of the semiconductor industry. The holy grail is a monolithic silicon chip that generates, processes, modulates, and detects light all on a silicon chip. However, silicon is an indirect bandgap semiconductor, meaning a pure silicon laser is impossible to build. This simple physical constraint has motivated the development of an entire industry of photonics with various material platforms, integration techniques, and designs. "Silicon Photonics and Photonic Integrated Circuits 2026-2036" by IDTechEx seeks to provide clarity and insights into this rapidly evolving industry.

 

 

Data rates for optical transceivers have been doubling every few years, going from 100G through to 200, 400, 800, and as of 2026 1.6T systems. This doubling of data rate has also been accelerating, and IDTechEx expects that 3.2T systems will begin small-scale sampling and production around 2027 before reaching commercial ramp-up around 2028. This doubling of data rate has been made possible with PIC technology, and the enormous capital expenditures associated with the AI buildout, of which networking receives a significant slice.

 

Late 2025 into early 2026 saw a flurry of deals, with Marvell acquiring Celestial AI and NVIDIA investing $2 billion in Coherent and Lumentum each, a marked sign of the investor appetite for the optical component industry. The new report from IDTechEx seeks to break down the technologies and market positioning of key players in this rapidly evolving landscape, as well as assessing overall market growth drivers.

 

 

As data rates climb, eventually even the short copper trace between the optical engine and the ASIC (application specific integrated circuit) begins to limit performance. The key solution is to shift the optics much closer to the ASIC, packaging optical engine on the same substrate. To enable this, the photonics industry has developed a range of silicon photonic modulators and ultra high-powered lasers designed to meet the challenging thermal demands of integrating a laser with a heat-generating ASIC. "Silicon Photonics and Photonic Integrated Circuits 2026-2036" dives into the leading solutions, such as the TSMC COUPE platform and the race to commercialize CPO ready UHP (ultra-high powered) lasers.

 

 

The photonic revolution in datacom is spurring the development of an entirely new ecosystem. For optical transceivers, this shift has been driven by an insatiable demand for volume and lower margins. Chinese players, such as Eoptolink, adopt a strategy of buying components (such as lasers) from leading global suppliers and integrating and packaging the transceivers at very low margin but enormous volume.

 

By contrast, American companies like Lumentum and Coherent are much more vertically integrated, controlling the supply chain from Indium Phosphide (InP) epitaxy to final product assembly. However, all of these companies have identified Southeast Asia as a key manufacturing hub, with Chinese players seeking to avoid potential American tariffs and US players seeking lower manufacturing costs. IDTechEx's report contains extensive supply chain analysis, from raw materials all the way through to finished devices.

 

 

 

 

According to IDTechEx, the photonic integrated circuit and silicon photonics market for optical transceivers in datacom will reach $48 billion by 2036, with a robust compound annual growth rate (CAGR) of 21.9%. "Silicon Photonics and Photonic Integrated Circuits 2026-2036" breaks down the transceiver market by data rate (e.g. 800G vs 1.6T), but also by material platform. Along with silicon photonics and InP there are a plethora of emerging high-performance materials transitioning from research to commercialization, and IDTechEx forecasts the adoption pathways of thin-film lithium niobate (TFLN) and barium titanate (BTO).

 

For more information on this report, including downloadable sample pages, please visit www.IDTechEx.com/PIC, or for the full portfolio of research available from IDTechEx, seewww.IDTechEx.com.