Microsoft and Industry Groups Urge Trump Administration to Halt Proposed Ban on Chinese Optical Transceivers

Technology companies, led by Microsoft, are urging the Trump administration to halt plans that would bar imports of Chinese optical transceivers used in artificial intelligence data centres, according to sources familiar with the matter. The potential restrictions are being considered by the Federal Communications Commission (FCC) over concerns that these components could pose security risks, potentially allowing data theft, malware installation, or service disruptions.

Optical transceivers allow data to travel over fibre-optic cables at high speeds within data centres, connecting servers, routers, and switches. Market intelligence firm Cleanview notes that Microsoft currently has 35 data centres under construction in the United States, with another 134 planned. Along with other firms and trade groups, Microsoft met with officials from the White House Office of Science and Technology Policy and the National Security Council in September to highlight the supply chain challenges a ban would create.

John Miller, general counsel of the Information Technology Industry Council (ITI), stated that the restriction threatens to halt data centre deployments. Many cloud companies have already procured necessary AI chips, which would remain unutilised without optical transceivers to connect them. China currently accounts for two-thirds of the global market for these components, with domestic firms such as Eoptolink and Zhongji Innolight dominating supply. While US-based companies like Coherent and Lumentum produce competing technology, reports indicate they currently lack the scale to replace Chinese vendors.

The Information Technology Industry Council previously submitted a letter to the FCC on August 13, urging the telecom watchdog to exclude optical transceivers from trade blacklists to protect US AI leadership. Meanwhile, Morgan Stanley noted in an October client note that the administration is considering a threshold of barring Chinese optical transceivers capable of handling 3.2 terabits of data per second, with production for these models expected to ramp up by 2028. Such a threshold could potentially provide domestic companies time to expand production.

While the FCC has not addressed the optical transceiver issue publicly, legislative pressure continues to mount. In September, a bipartisan group of US lawmakers introduced legislation to prevent the federal government from equipping sensitive systems with Chinese-made optical transceivers. Microsoft has declined to comment on the discussions, and responses from the White House, the FCC, and the Chinese embassy in Washington were not immediately available.

"This situation highlights a critical challenge in global technology infrastructure: the deep reliance on specific regional supply chains for advanced hardware. When regulatory measures target core components like optical transceivers, the immediate bottleneck impacts large-scale infrastructure deployment, such as data centres. For businesses operating in high-growth technology sectors, supply chain diversification and proactive risk management are essential to mitigate unexpected policy shifts and maintain operational continuity." — Dr. Shishir Gupta, Founder & CEO, StartupLanes