Direct:
China cleared roughly 4,000 indium phosphide substrates for export in late May, the first 2026 batch after about 8,000 went out in August 2025. Against the scale of the AI optical buildout, that is barely a gesture. Indium phosphide is the base wafer for the lasers and electro-absorption modulators inside the high-speed optical transceivers that wire AI clusters together, and Beijing put it under export licensing in February 2025. China refines around 70% of the world's indium, which is why the export-permit queue now gates the optical supply chain even where wafer capacity exists.
A six-inch InP wafer has gone from roughly $1,400 to about $5,000 since the controls landed, up more than 250%. AXT (AXTI), the second-largest substrate maker, produces most of its InP through a Chinese subsidiary and has called export permits its single biggest problem. It didn't get a first permit until late June 2025 and is still working through a backlog. Sumitomo Electric (TYO: 5802) and JX Advanced Metals (TYO: 5016) in Japan are the other main suppliers, and they are largely spoken for.
The squeeze lands hardest on the laser makers. Coherent (COHR) and Lumentum (LITE) build the EML lasers, and fewer than five companies on earth can volume-produce them. Lumentum is sold out into 2028. Nvidia (NVDA) pre-bought the bottleneck in March, $2 billion each into Coherent and Lumentum, which pushed EML lead times past 2027 for anyone who isn't Nvidia. Taiwanese epitaxy and substrate names like VPEC (TWSE: 2455) and LandMark Optoelectronics (TWSE: 3081) took direct hits when AXT's permits stalled, and LandMark signed a long-term InP deal with Sumitomo in April to get out from under it.
The capacity answer exists, but it's slow. Coherent is doubling its Sherman, Texas InP line this year and again by the end of 2027, and Lumentum is expanding San Jose. None of that lands in time for the 2026-2027 demand curve, and adding wafer fabs doesn't add refined indium feedstock. McKinsey pegs InP-EML shortfalls near 17% this year, running into the second half of 2027.
The pattern echoes China's rare-earth controls, this time aimed at a more specialized material a layer up the supply chain. Instead of restricting finished optical modules, Beijing is gating the wafer they get grown on, where qualification cycles run long and alternative supply takes years to stand up. The recent US-China summit produced a promise of smoother indium flow. The open question for 2027 optics is whether that becomes real volume or just faster paperwork.
Drafted with AI assistance against parallel reporting.
Sources:
- DigiTimes, “China's InP export relief falls short, suppliers race to secure 2027 supply” (June 22, 2026)
- Reuters, “China's control over indium phosphide exports threatens AI data centre rollout” (June 11, 2026)
- Nikkei Asia, “AI demand strains supplies of lasers, fiber, and other optical tech” (June 6, 2026)
- The Next Web, “China tightens indium phosphide checks as AI demand climbs” (June 19, 2026)
- Semiconductor Today, “AXT's Q4/2025 revenue constrained by delay in China export permits” (March 2026)
- McKinsey, “Opportunities in networking optics: Boosting supply for data centers” (2025)
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