Global In-Package Optical Interconnects Market Size, Share, Trends and Forecasts 2031

Key Findings

• In-package optical interconnects place optical engines, waveguides, and fiber attach features directly within the semiconductor package to move data off-die with far lower energy per bit than copper at extreme bandwidths.

• Co-packaged optics (CPO) and near-package optical I/O address reticle-limited switch/accelerator scaling by relocating high-loss PCB traces into low-loss optical domains at the package edge.

• Silicon photonics, InP laser sources, polymer waveguides, and glass/fan-out substrates are emerging building blocks, paired with 2.5D interposers and chiplets for heterogeneous integration.

• AI/ML clusters and memory-rich architectures push electrical reach and thermal limits, making optical I/O within the package a power, density, and signal-integrity imperative.

• External-laser architectures improve thermal budgets and field replaceability, while on-package laser integration maximizes density at the expense of serviceability.

• Reliability hinges on fiber attach precision, micro-lens alignment, hermeticity, and field-proven laser lifetimes under package temperatures.

• Test economics shift to wafer-level optical probing, built-in self-test (BIST), and loopbacks to contain production cost and yield risk.

• Standards efforts around electrical-to-optical breakpoints, management interfaces, and optical I/O lane definitions aim to avoid vendor lock-in.

• Packaging choices—co-substrate glass, molded fan-out, or organic ABF—drive coupling efficiency, warpage control, and thermal paths for hot logic dies.

• Business models evolve from module sales to platform partnerships spanning photonics, substrates, assembly, and switch/accelerator silicon roadmaps.

In-Package Optical Interconnects Market Size and Forecast

The global In-Package Optical Interconnects market was valued at USD 1.9 billion in 2024 and is projected to reach USD 9.7 billion by 2031, registering a CAGR of 26.0%. Growth reflects AI/ML hyperscale build-outs, next-gen Ethernet/InfiniBand switches, and accelerator fabrics that exceed the economic limits of copper at package egress. Revenue pools span optical engines, silicon photonics dies, lasers and drivers, substrates/waveguides, fiber attach assemblies, and test/inspection. Early deployments concentrate in high-radix switches and accelerator baseboards, expanding to memory-centric compute and disaggregated I/O chiplets mid-period. Value capture shifts toward co-design services and integration IP that align photonics, packaging, and thermal solutions against system-level energy targets.

Market Overview

In-package optical interconnects collapse the electrical-to-optical transition into the package boundary, replacing lossy board channels with fiber-class links while preserving tight latency budgets. Solutions range from full co-packaged optics with external laser boxes to near-package optics that keep pluggables close but move drivers/receivers on-package. Silicon photonics offers dense modulators and detectors, while InP supplies high-reliability lasers coupled via micro-lenses or grating couplers into on-package waveguides. Mechanical stability, coefficient-of-thermal-expansion control, and warpage management become first-order design axes for assembly yield. System designers weigh serviceability, thermal headroom, and network topologies against the energy/bit advantages of CPO. Tooling, test, and supply-chain maturity increasingly determine schedule risk as much as raw device performance.

Future Outlook

By 2031, the market will consolidate around standardized optical I/O breakpoints with interoperable electrical interfaces and management planes, allowing multi-vendor optical engines to dock into diverse logic packages. Glass and advanced fan-out substrates will host embedded waveguides and mechanical datum features for repeatable fiber attach at scale. External-laser architectures will dominate high-availability systems, while tightly integrated laser-in-package variants will target extreme density racks. Chiplet ecosystems will pair compute, memory, and optical I/O tiles over high-bandwidth die-to-die links to right-size fabrics by workload. Wafer-level optical test, BIST, and digital twins will compress learning cycles and stabilize yields. Vendors that master co-design across photonics, packaging, thermal, and system software will secure durable positions in hyperscale and enterprise upgrades.

Market Trends

• Co-Packaged Optics For High-Radix Switching
  Network switches are exhausting copper reach and face prohibitive power to sustain lane counts at next-gen SerDes rates. Co-packaged optics relocates electrical-optical conversion to the package boundary, slashing trace losses and enabling tighter faceplate density. Designers use external laser sources to offload heat and allow field replacement while keeping modulators/detectors on the substrate. Mechanical keys, fiducials, and fiber-array ferrules standardize assembly and service operations across platforms. Thermal co-design balances hot switch ASICs with cooler optical engines using dedicated heat spreaders and vapor chambers. Together these choices deliver lower energy per bit and higher faceplate bandwidth within existing rack envelopes.

• Chiplet Architectures With Optical I/O Tiles
  Disaggregation of compute, memory, and I/O into chiplets enables targeted process nodes and yield optimization. Optical I/O tiles expose standardized short-reach electrical interfaces to logic dies while presenting fiber connections externally. This approach decouples optical cadence from compute cadence, protecting system roadmaps from single-vendor dependencies. Package routing simplifies as long electrical runs are eliminated, improving signal integrity and freeing substrate layers. Toolchains evolve to co-place optical and electrical models for timing, power, and thermals in one flow. Over time, optical chiplets become as common as HBM stacks in high-performance packages.

• Substrate And Waveguide Innovation
  Glass and molded fan-out substrates provide low CTE mismatch, fine features, and integrated optical guides or alignment features. Polymer and glass waveguides reduce coupling loss to grating or edge couplers while tolerating package warpage. Designers add micro-lens arrays and passive alignment features to improve assembly yield and serviceability. Advanced underfills and low-modulus materials protect photonic dies from stress during thermal cycling. Co-optimization with heatsinks and airflow paths preserves optical alignment across operating ranges. These packaging advances turn lab-grade assemblies into manufacturable, fieldable products.

• External-Laser Boxes And Laser Safety Cases
  Moving lasers off-package improves thermal margins and eases field replacement without disturbing compute packages. Fiber-delivered pump light feeds multiple optical engines, enabling redundancy and shared spares. Safety interlocks, monitoring, and key-management for high-power optics integrate with system management buses. Power control firmware manages aging and end-of-life gracefully to protect link availability. Mechanical and optical interfaces are standardized to shrink NPI timelines across platforms. The pattern stabilizes reliability while preserving the density benefits of in-package modulation and detection.

• Test, Telemetry, And Digital Twins
  Wafer-level optical test with loopbacks and on-die monitors reduces back-end scrap and accelerates root-cause analysis. Built-in self-test exercises modulators, detectors, and thermal controls during burn-in to screen marginal parts. Field telemetry exposes optical budgets, temperature, and aging indicators for predictive maintenance. Golden-unit digital twins correlate assembly variables to link margin drift, guiding process tweaks and firmware updates. Inline inspection and metrology link MES data to yield models for continuous improvement. These practices convert early-stage fragility into production-class reliability at scale.

Market Growth Drivers

• AI/ML Cluster Bandwidth And Power Pressure
  Training and inference clusters require massive east-west bandwidth that outstrips copper’s reach and power budgets at package egress. In-package optics deliver substantial energy-per-bit reductions while maintaining low latency to sustain collective operations. Higher faceplate density enables more radix per rack, improving job placement and scaling efficiency for large models. Thermal gains allow more compute per chassis because I/O power no longer dominates the budget. Platform designers can simplify boards and power distribution by removing long high-speed traces. These system-level wins convert directly into TCO advantages that justify optical I/O adoption.

• Switch Silicon And SerDes Roadmap Continuity
  Next-gen switches push serial rates where PCB insertion loss and crosstalk become prohibitive without cost-inflating materials. Co-packaged optics restores margin and preserves ASIC performance scaling without exotic board stacks. Standardized electrical breakpoints reduce bespoke re-spins each speed node, stabilizing development cadence. Optics at the package edge future-proofs chassis designs against upcoming lane rates. Vendors can reuse thermal and mechanical infrastructure across multiple silicon generations. This continuity reduces risk and supports multi-year procurement commitments.

• Memory-Centric Compute And Disaggregation
  As memory bandwidth and capacity drive performance, systems distribute memory pools and accelerators over short-reach optics. In-package optical I/O keeps latency low and power bounded, enabling practical memory disaggregation. Chiplets with optical interfaces connect compute to HBM or CXL-attached memory shelves efficiently. The result is higher utilization, better scaling, and easier upgrades over time. Datacenter operators gain architectural flexibility without large rewires each generation. These benefits pull optical I/O into broader portfolios beyond switching alone.

• Density And Serviceability At The Rack Edge
  Faceplate port counts rise while operators demand fast field replacement and minimal downtime. External-laser CPO and modular optical engines provide service paths comparable to pluggables. Standard ferrules and blind-mate couplers simplify swaps without disturbing hot logic packages. Monitoring and hot-spare strategies maintain link availability during maintenance windows. Lower heat near faceplates simplifies airflow and acoustic constraints in dense racks. The service story strengthens the business case alongside pure performance metrics.

• Sustainability And Energy-Per-Bit Targets
  Power caps and sustainability goals push operators to reduce I/O energy as traffic scales. In-package optics cut watts per terabit compared to long electrical channels and repeaters. Reduced copper complexity also lowers material use and improves recyclability of boards. Cooling loads drop as fewer high-loss traces dissipate heat across the chassis. Efficiency improvements compound at hyperscale, making optics a lever for corporate ESG targets. These pressures elevate optical I/O from niche to strategic infrastructure choice.

Challenges in the Market

• Assembly Yield And Alignment Tolerances
  Micron-class alignment for fibers, lenses, and couplers must be achieved at high throughput without driving cost. Package warpage and CTE mismatch can shift alignments during thermal cycles, reducing link margin. Passive alignment reduces cost but tightens fabrication tolerances on substrates and optics. Active alignment improves yield yet adds time, equipment, and handling risks. Reworkability is limited once optics are bonded, raising scrap penalties for small defects. Managing this stack of tolerances is central to economic mass production.

• Thermal Budget And Reliability Of Optics Near Hot Logic
  Logic dies operate at temperatures that stress lasers, modulators, and detectors over lifetime. External-laser schemes ease this but create new interfaces and control complexities. Heat spreaders, isolation structures, and airflow paths must protect optical devices without throttling compute. Aging models for lasers and modulators must be validated under realistic duty cycles. Firmware needs to derate gracefully and flag impending margin loss before failures. Thermal-reliability co-design is mandatory to earn hyperscale qualification.

• Test Coverage, Cost, And Field Diagnostics
  Optical BIST and wafer-level probing reduce risk but cannot catch every assembly-induced defect. Full link testing at system level is expensive, time-consuming, and hard to parallelize. Field diagnostics need standardized telemetry so operators can triage without invasive procedures. Return/repair logistics for hybrid electro-optical packages are more complex than for pure electrical modules. Excessive test escapes or returns can erase energy-per-bit savings with operational costs. Creating economical, scalable test regimes is as important as device performance.

• Standardization, Interop, And Vendor Lock-In
  Without common electrical breakpoints and management schemas, each platform risks bespoke integrations that slow adoption. Multi-vendor ecosystems require agreed optical lane definitions and control planes to mix engines and logic dies. Lack of standards raises qualification effort for every new device or speed grade. Operators fear lock-in that limits sourcing flexibility and price leverage. Interoperability labs and compliance suites add cost but accelerate ecosystem maturity. Until standards solidify, procurement cycles remain cautious.

• Supply Chain, Materials, And Capital Intensity
  Photonics wafers, precision optics, advanced substrates, and specialized assembly tools must scale together. Any bottleneck elevates lead times and jeopardizes synchronized launches with switch/accelerator silicon. Capital for new lines competes with fast-moving roadmaps, raising utilization risk. Regionalization pressures complicate vendor selection and dual-sourcing of critical parts. Qualification of alternates for lasers or substrates consumes schedule and engineering bandwidth. These constraints require long-horizon planning and strong partnerships to de-risk ramps.

In-Package Optical Interconnects Market Segmentation

By Integration Approach

• Co-Packaged Optics (CPO) with External Laser Source

• Co-Packaged Optics with In-Package/On-Substrate Lasers

• Near-Package Optical I/O (short electrical, proximate optics)

By Photonic Technology

• Silicon Photonics Modulator/Detector Engines

• InP-Based Laser Sources and Gain Chips

• Polymer/Glass Waveguides and Micro-Lens Assemblies

By Substrate/Packaging

• Glass Core Substrates

• Advanced Fan-Out (Molded/Panel-Level)

• Organic ABF with Optical Attach Features

• 2.5D Interposer + Optical Edge Coupling

By End Application

• Ethernet/InfiniBand High-Radix Switches

• AI/ML Accelerators and GPU/TPU Baseboards

• Memory-Centric Compute and CXL Fabrics

• HPC Systems and Scientific Instrumentation

By Service Model

• Optical Engine Components (Die-Level)

• Integrated Package Solutions (Turnkey)

• Design-In/Co-Design and Test Services

By Region

• North America

• Europe

• Asia-Pacific

• Latin America

• Middle East & Africa

Leading Key Players

• Intel (silicon photonics and packaging)

• Broadcom (switch silicon and CPO platforms)

• Marvell Technology

• NVIDIA (accelerator platforms and optical I/O initiatives)

• Coherent Corp.

• Lumentum

• II-VI (now Coherent heritage)

• Ayar Labs

• STMicroelectronics

• GlobalFoundries (SiPh and packaging ecosystems)

• TSMC (advanced packaging and SiPh platforms)

• Foxconn/ASE/Amkor (OSAT integration partners)

Recent Developments

• Ayar Labs demonstrated a multi-terabit optical I/O chiplet interoperating with a leading accelerator package using external-laser drive for improved thermal margins.

• Broadcom unveiled a co-packaged optics reference platform aligning switch silicon with modular optical engines and standardized fiber-array interfaces.

• Intel showcased silicon-photonics-based optical tiles with wafer-level BIST and telemetry hooks aimed at hyperscale serviceability requirements.

• Coherent Corp. introduced high-reliability external laser boxes with redundant emitters and health monitoring tailored for CPO deployments.

• TSMC expanded advanced packaging offerings featuring glass-core substrates with integrated alignment features to stabilize optical attach yields.

This Market Report Will Answer the Following Questions

• Which integration approach—external-laser CPO or in-package lasers—delivers the best balance of density, reliability, and serviceability by workload?

• What substrate and waveguide stacks most effectively control warpage, alignment, and coupling loss at production scale?

• How should operators structure telemetry, BIST, and sparing to manage field reliability and maintenance cost?

• Where do chiplet-based optical I/O tiles outperform monolithic approaches on yield, cadence, and vendor flexibility?

• Which standards and management interfaces are most critical to avoid lock-in and accelerate ecosystem maturity?

• What test strategies—wafer-level optics, loopbacks, burn-in—minimize escapes without crippling throughput?

• How do energy-per-bit and faceplate density gains translate into rack-level TCO for AI/ML and switching use cases?

• What supply-chain partnerships across photonics, substrates, and OSATs are required to de-risk volume ramps?

• How will memory disaggregation and CXL fabrics reshape demand for optical I/O inside packages?

• Which KPIs—pJ/bit at package egress, link margin over temperature, service MTTR—should anchor procurement scoring?