Key facts
- China's control over indium phosphide (InP) exports poses a threat to global AI data center rollout.
- InP is essential for high-speed optical chips used in AI data centers, with no current substitute.
- China, the top global producer of indium, began export restrictions in February 2025.
- The average price for a 6-inch InP wafer has increased by 250% to $5,000.
- U.S. photonics firms are seeking alternative suppliers and increasing domestic production capacity.
China's export restrictions on indium phosphide (InP), a critical material for high-speed optical chips used in AI data centers, are threatening the global rollout of AI infrastructure. The restrictions, which began in February 2025, have led to a 250% surge in the price of InP wafers, with U.S. chipmakers facing significant supply chain disruptions.
Nvidia-backed chipmaker Coherent first warned of an InP shortage in early May, prompting its CEO Jim Anderson to raise the issue with U.S. and Chinese officials. The material is essential for photonics, the technology using light instead of electrical signals for faster and more energy-efficient data transmission, a key component in the next generation of AI hardware.
China, which produces 70% of the world's indium, is leveraging its control over the supply chain, similar to its past actions with rare earths. This strategy could significantly slow down the scaling of optical modules needed to meet the growing demand from hyperscale data centers. Companies like AXT, a major InP substrate producer manufacturing in China, are experiencing significant delays in obtaining export permits.
In response, U.S. photonics firms are exploring options such as increasing domestic production capacity, with Coherent doubling its InP wafer capacity in Texas. They are also seeking alternative suppliers, though adding new capacity typically takes two to three years. Meanwhile, Chinese InP manufacturers like Yunnan Germanium are rapidly expanding their own production, though their ability to export is uncertain and likely to be limited.