The Funeral of Copper: Silicon Photonics (CPO) and the Economics of Data Center I/O

When Compute Hits the "I/O Wall"

In the architecture of AI servers, the speeds of compute cores (GPUs) and memory (HBM) are growing exponentially. Yet, the "road" connecting them—copper interconnects—is facing a final judgment from physics.

This is the infamous "I/O Wall." As single-lane transmission rates breach 112Gbps and march toward 224Gbps, the Skin Effect and dielectric loss of copper become impossible to ignore. Signals traveling on a PCB degrade into noise within inches. To maintain signal integrity, engineers are forced to add expensive, power-hungry Retimer chips.

For data center operators, this is a nightmare of diminishing marginal returns: to move data faster, we are wasting vast amounts of electricity on "moving data" rather than "computing data." Copper is becoming the anchor dragging down Moore's Law.

The Economic Limit of Pluggables

The current solution is Pluggable Optical Transceivers—those densely packed modules on the server faceplate. This is a mature and flexible market.

However, from a capital efficiency perspective, this architecture is becoming unsustainable.

1. Path Loss: Electrical signals must travel a long journey from the GPU through the PCB to the module at the edge, burning energy every step of the way.

2. DSP Power: To compensate for signal degradation, the Digital Signal Processor (DSP) inside each module becomes a power vampire.

Estimates suggest that in next-generation AI clusters, optical communication modules could consume over 20% of total system power. This means for every five watts of electricity purchased, one watt is used solely to convert light to electricity, performing no actual computation.

CPO (Co-Packaged Optics): The Ultimate Integration of Light and Electricity

Co-Packaged Optics (CPO) is recognized by the industry as the endgame solution. Its core concept is disruptive: moving the Optical Engine from the faceplate edge directly next to the GPU, or even packaged onto the same substrate.

• Shortening the Path: Electrical signals travel only millimeters, virtually eliminating PCB transmission loss and rendering expensive Retimer chips obsolete.

• Efficiency Leap: Energy consumption per bit (pJ/bit) can drop by 30-50%.

This sounds like the perfect technological upgrade, so why is CPO still in the "high hype, low volume" phase? The answer lies not in technology, but in the asymmetry of business risk.

The Barrier to Adoption: Serviceability Economics

The biggest economic challenge CPO brings is this: "Are you willing to scrap a $30,000 GPU because a $100 laser died?"

In traditional architectures, if a pluggable module fails, a technician simply swaps it out (hot-swappable)—low cost, zero downtime. In CPO, the optical engine and the GPU are permanently packaged together.

• The Reliability Gamble: Laser Diodes are extremely sensitive to temperature and have lifespans far shorter than silicon chips. Placing a fragile laser source next to a blazing hot GPU is engineering suicide.

• The ELS Compromise: To solve this, the industry developed the External Laser Source (ELS) architecture. The laser is kept separate as a pluggable module, leaving only the heat-insensitive Modulator next to the GPU.

This increases cabling complexity and standardization difficulty. For Hyperscalers, it means reconstructing the entire supply chain and maintenance protocol—a massive, hidden Switching Cost.

Supply Chain Power Shift: From Module Makers to Foundries

The rise of CPO will reshape the optical value chain, shifting power from traditional module assemblers (like Innolight, Finisar) to semiconductor foundries mastering advanced packaging (like TSMC, Intel).

• Siliconizing Optics: When optical components (waveguides, modulators) are manufactured on silicon wafers using CMOS processes, optics becomes a semiconductor process rather than a manual assembly industry.

• The Foundry's New Battleground: TSMC’s COUPE (Compact Universal Photonic Engine) technology is designed to integrate Photonic ICs (PIC) with Electronic ICs (EIC) via 3D stacking. Future "optical communication" won't be about buying parts to assemble; it will be "printed" directly onto the chip.

Conclusion: The Moore's Law of Optics

For investors, the exit of copper is a physical inevitability. However, in the next 3-5 years, we will likely see a tug-of-war between Linear Drive Pluggable Optics (LPO)—a transitional tech removing DSPs to extend the life of pluggables—and CPO. LPO fits better with current data center OpEx models.

Yet, as AI clusters scale past tens of thousands of cards and interconnect bandwidth demands hit the Petabyte level, CPO will be the only way to keep energy consumption within physical limits. The winners of this revolution will be those who solve the yield issues of "opto-electronic heterogeneous integration" and provide reliable "External Laser Source" solutions. The age of copper is ending; the age of silicon photonics is just beginning.