Kenanga Research said Tuesday that the global data communication (datacom) market boom will spur Malaysia’s technology space.
The research house said in a note that according to Lightcounting, the Datacom market is expected to grow at a 20 percent+ compound annual growth rate (CAGR), from $17 billion in 2025 to $46 billion in 2030, with 800G and above driving the growth at a 40 percent CAGR during the same period.
The dominant driver for this growth is artificial intelligence (AI) networking, pushing hyperscale data centers to scale compute and interconnect for both training and inference.
“We view these figures as useful signposts for breadth, but the more actionable investor framing is where profit pools are monetizing today (communications optics, lasers and sensing), versus where value is building for the next cycle (platformization and manufacturability in integrated photonics),” it said.
Assuming a 10 percent Outsourced Semiconductor Assembly and Test (OSAT) share of the datacom market forecast by Lightcounting, the opportunity for Malaysia’s tech space is projected to grow from $1.7 billion in 2025 to $4.6 billion in 2030, representing a CAGR of 22 percent.
It is noted that for Malaysia, photonics is becoming more “OSAT-like,” with value increasingly tied to high-precision assembly, reliability qualification, and test throughput, rather than component performance alone.
If more of the optical module ecosystem continues to outsource assembly and test in stages, Malaysia’s OSATs could participate in incremental capacity and capability build-out, particularly where customers prioritize quality systems, yield discipline, traceability and reliability screening.
“The key factors to monitor are whether photonics packaging flows become repeatable enough to outsource at scale (vs. remaining bespoke/high-touch) and whether module owners are willing to qualify SEA partners for higher complexity steps (fiber attach/alignment, advanced packaging and optical test),” said Kenanga.
For automation, the research house opined that players are directionally leveraged to the industry’s pain points that are increasingly automation-able—micro alignment, vision/automated optical inspection (AOI), handling/logistics around burn-in and test integration — supporting a constructive medium-term setup for integrators that can deliver end-to-end cells (such as motion + vision + handling + test + traceability).
“Finally, the artificial intelligence (AI) networking theme is supportive for Malaysia’s broader AI infrastructure adjacency and we expect value capture to skew towards bottlenecks (packaging/test/automation) unless specific customers migrate higher-value scope into Malaysia,” said Kenanga.
Within the optical value chain, it noted Malaysia’s involvement is primarily in contract manufacturing, particularly the final assembly and box build of optical transceivers.
It added the extended lifespan of pluggable optics is expected to benefit local players in the electronics manufacturing services (EMS) space.
For example, NATIONGATE (NATGATE), which serves a U.S.-based vertically-integrated optics customer, is actively working on qualifications with two major U.S. optical component suppliers, positioning itself to capture this growing demand.
“We observed strong ramp-up and demand from vendors, as seen in the high volume of tester orders received,
“Additionally, at least three vendors serving a U.S.-based vertically-integrated optics company from China have moved operations to Malaysia, likely to take advantage of the ongoing shift out of China,” said the research house.
It is noted that manufacturability and the shift in investment focus naturally shifts the “profit pool debate” towards manufacturability.
As integrated photonics and packaging-led architectures progress, recurring chokepoints are fiber attach and alignment precision (coupling efficiency and yield sensitivity), thermal management, reliability qualification, and optical test methodologies and throughput (often time-consuming and a line-rate limiter).
For Kenanga, the investment opportunity therefore widens beyond traditional optical component suppliers to the enabling ecosystem: advanced packaging processes and equipment, passive/active alignment solutions, automated optical test, high-precision assembly, and design-for-test methodologies — areas where improvements directly translate into better yields, faster ramps and more predictable unit economics.
“Separately, sensing and wearables (including smart-glasses-related modules) remain a parallel theme, reinforcing that photonics demand is broadening beyond communications, but we still see AI networking optics as the nearer-term driver of material capex and volume scaling,” it said.
Meanwhile, from a supply-chain footprint perspective, Kenanga highlighted “China+1” appears real but selective, with incremental rebalancing into Southeast Asia (notably Thailand and Malaysia) rather than wholesale relocation.
“In practice, we continue to see a consistent pattern where selected sub-assemblies migrate first, followed by integration/support ecosystems (instrument distributors, service/maintenance and reliability screening capability), while upstream displacement moves more slowly given ecosystem sluggishness and qualification burdens,
“This matters because it implies that near-term winners are likely those closest to the manufacturing bottlenecks—test, reliability, precision assembly and automation — rather than commoditized assembly alone,” said Kenanga.