Microsoft Urges White House to Drop Planned Ban on Chinese Data Centre Transceivers

The Federal Communications Commission is drafting the ban. Reuters first reported in August that the administration wanted to bar US imports of new Chinese transceiver models, out of concern that Beijing could use them to steal data, install malware or disrupt service at American data centres. The FCC has not commented publicly on the issue.

For US cloud companies, the problem is supply. China holds two-thirds of the global optical transceiver market, according to Counterpoint Research figures cited by Reuters. Two Chinese manufacturers, Eoptolink and Zhongji Innolight, dominate supply and count the largest US hyperscalers among their customers. The Pentagon has put Zhongji Innolight on its list of Chinese military-backed companies. US-based Coherent and Lumentum make competing products, but a Foundation for American Innovation report cited in the article said they lack the scale to replace the Chinese vendors.

Microsoft has 35 data centres under construction in the US and 134 more planned, according to Cleanview data cited by Reuters. Two of the people said Microsoft was one of a handful of companies that met officials from the White House Office of Science and Technology Policy and the National Security Council in September to discuss the supply-chain problems a ban would cause. Microsoft declined to comment. The White House, the FCC and the Chinese embassy did not respond to Reuters' requests for comment.

Microsoft is not alone. The Information Technology Industry Council, a technology trade group, wrote to the FCC on August 13 asking it to "refrain from adding optical transceivers" to a trade blacklist, warning of the effect on data centre construction and US leadership in AI. John Miller, the group's general counsel, told Reuters the plan "really threatens to arguably grind (the data center rollout) to a halt." He said many cloud companies have already bought AI chips that could sit unused without transceivers, and some data centres need millions of them.

The final rule may be narrower than the industry fears. In an October note to clients, Morgan Stanley said the administration was considering a ban that would cover only Chinese transceivers capable of 3.2 terabits per second, and two of Reuters' sources said that threshold is under consideration. According to the note, production of transceivers at that speed is not expected to ramp up until 2028, with widespread installation in 2029. A cut-off at that level would leave the equipment now going into data centres untouched, avoid antagonising US companies and Beijing, and give US optical makers time to expand.

Congress is also involved. In September, a bipartisan group of lawmakers introduced a bill to bar the federal government from installing Chinese-made optical transceivers in sensitive government systems. That bill would cover only government systems, while the FCC rule would reach the commercial data centres that Microsoft and its rivals are racing to build.