San Francisco Frontiers - AI data centre supplier Zhongji InnoLight slips on Hong Kong debut

The leading manufacturer of optical transceivers -- used in AI data centres to transmit vast amounts of digital information -- raised about US$6.8 billion from the listing.

InnoLight has been riding high on the global data centre boom, supplying the likes of Google, Nvidia and Huawei, but was blacklisted by the US Department of Defense in June alongside other Chinese firms over its alleged military ties.

The company, which is also listed in Shenzhen, priced its Hong Kong shares at HK$980, raising about HK$53.4 billion (US$6.8 billion), the most since Chinese tech behemoth Alibaba listed in the city in 2019.

But its share price soon sank by as much as 10 percent, before rallying to end the day down two percent at HK$960.

The company rejected the US claims in its filing to the Hong Kong stock exchange, saying "we have not engaged in any military-related businesses or activities".

It warned investors that the blacklist "may subject us to increased scrutiny and potential further government actions".

Over half of InnoLight's revenue last year came from the United States, where AI infrastructure has surged, while China accounted for less than one-tenth, according to the filing.

China and the United States are locked in a race for dominance in the fast-moving AI field, fuelling huge global expansion of data centres -- warehouse-like facilities crammed with computer servers.

- Key supplier -

Thursday's listing is the latest in a recent run of blockbuster debuts from Chinese AI-related companies in Hong Kong, indicating optimism for China's ambitions in the sector.

Poe Zhao, founder of analysis publication Hello China Tech, told AFP that the listing timing "highlights a growing tension between commercial integration and regulatory scrutiny".

"InnoLight is important because large AI clusters depend on moving data between processors as efficiently as they perform computation," Zhao said.

The firm's manufacturing scale and dominance in high-speed optical transceivers make it a "significant supplier", and "American customers rely on its capacity, cost and delivery capabilities", he added.

InnoLight said its sales have benefitted from growing global investment in AI infrastructure, and it would use the proceeds to boost its production capacity and supply chain resilience.

The company has production facilities across China, Thailand and Taiwan.

Nomura analysts said in a July 6 note that InnoLight is expected to maintain around 30-percent market share in the global AI transceiver sector in the coming years thanks to its "strong R&D and effective supply chain management".

"InnoLight's leadership in the optical communication market will solidify," they said, adding that high-end optical products remain "key bottlenecks" in the sector.

InnoLight's share sale in Hong Kong is also in line with what analysts view as a deliberate push by Beijing authorities to use the capital markets to attract the overseas funds needed to finance national technology goals.

Last week, the Hong Kong stock exchange eased rules to allow companies from all sectors to submit confidential listing applications, with it boasting more than 520 applicants.

Hong Kong's IPO market had raised about HK$210 billion (US$26.8 billion) as of June, the strongest first-half result in five years, according to accounting firms KPMG and PwC.

S.Hall--SFF