A method includes encapsulating a first device die and a second device die in an encapsulant, and forming an interconnect structure over and electrically connecting to the first device die and the second device die. A waveguide is formed in the interconnect structure. An optical-engine based interconnect component is bonded to the interconnect structure. The optical-engine based interconnect component forms a part of a signal path that connects the first device die to the second device die.