Microsoft presses to halt expected Chinese transceiver ban

Microsoft has been pressing the Trump administration to halt an expected U.S. ban on new Chinese optical transceivers used in AI data centers, Reuters reported, citing people familiar with the situation. China holds about two-thirds of the global market for those parts, according to Counterpoint Research as cited by Reuters; Microsoft declined to comment, and the Federal Communications Commission, which Reuters says is working on the ban, has not published a rule.

What transceivers do

Optical transceivers are the parts that move data over fiber-optic cables inside a data center, linking servers, routers and switches. Reuters described them as allowing data to travel “at the speed of light within data centers,” and said some facilities need millions of them. Without those links, racks of accelerators cannot talk to each other at the scale AI training and inference clusters require.

That is the risk industry lobbyists are highlighting. John Miller, general counsel of the Information Technology Industry Council, told Reuters a ban “really threatens to arguably grind (the data center rollout) to a halt.” He said many cloud companies have already bought the AI chips for that build-out: “Those chips, without optical transceivers literally could just sit there waiting around un-utilized until you actually have the transceivers to essentially connect them together.” That is Miller’s account, reported by Reuters, not a comment from Microsoft.

Why Microsoft is in the room

Reuters reported that Microsoft has 35 data centers under construction in the United States and another 134 planned, according to Cleanview, a market-intelligence firm that tracks data-center development. Those figures are Cleanview’s, as cited by Reuters; we did not independently confirm them.

Microsoft was one of a handful of firms that met officials from the White House Office of Science and Technology Policy and the National Security Council in September to flag supply-chain challenges a ban would present, two of Reuters’ sources said. Reuters said Microsoft is part of a wider group of companies and trade groups arguing that a ban could further slow the U.S. data-center rollout. The White House, the FCC and the Chinese embassy in Washington did not immediately respond to Reuters’ requests for comment.

Codema’s Hardware & Infra coverage of chips, servers and the data-center build-out follows the physical side of that rollout. Our Policy & Safety coverage of AI regulation and export rules follows the control regimes around it, including our explainer on the H200 China export rule, a different U.S. restriction that governs shipping advanced AI chips to China rather than importing Chinese optical parts.

How concentrated the supply is

China accounts for about two-thirds of the global optical-transceiver market, according to Counterpoint Research, as cited by Reuters. Reuters said Chinese firms such as Eoptolink and Zhongji Innolight, which it reported has been added to the Pentagon’s list of Chinese military-backed companies, dominate global supply and count American hyperscalers among their customers. U.S.-based Coherent and Lumentum make competing products but “lack the scale to replace Chinese vendors,” Reuters reported, citing a report by the Foundation for American Innovation.

Reuters first reported in August that the Trump administration wanted to ban U.S. imports of new models of Chinese optical transceivers, citing concerns they could be used to steal data, install malware or disrupt service at U.S. data centers. ITI sent a letter to the FCC on August 13 asking the agency to “refrain from adding optical transceivers” to a trade blacklist, Reuters said.

What to watch

• Whether the FCC publishes a rule. Reuters says the commission is working on the ban. It has not addressed the optical-transceiver issue publicly, and no final rule has been issued.
• The scope of any threshold. Morgan Stanley said in an October client note, as reported by Reuters, that the administration was considering barring Chinese optical transceivers capable of handling 3.2 terabits of data per second, a class whose production is not expected to ramp up until 2028, with widespread installation expected in 2029. Two of Reuters’ sources said that 3.2 terabit-per-second threshold is under consideration. That is not a published FCC specification.
• A narrower legislative track. Reuters reported that a bipartisan group of U.S. lawmakers introduced legislation in September to bar the federal government from putting Chinese-made optical transceivers in sensitive government systems. That is a different, narrower target than an import ban on new models for commercial data centers.