NVIDIA’s GB200 and GB300 are experiencing strong market conditions, with a surge in demand for indium phosphide (InP) as a critical material for high-speed AI computing. This has led to a significant shortage of related substrates, with buyers stating, ‘We’ll take as much (material) as available, price is not an issue.’
The critical material for AI chips is in severe shortage.
Indium phosphide is a key upstream material for optical communication chips used in AI servers, essential for enabling high-speed data transmission and generation functions.
With the flourishing of AI, the demand for indium phosphide has surged. However, due to export restrictions on rare earth materials in certain regions, supply has been affected, further tightening the supply of indium phosphide substrates and leading to a shortage of related epitaxial wafers. This has triggered a rush for materials amid soaring demand and insufficient supply.
Industry insiders point out that mainland China is the largest supplier of indium phosphide globally, accounting for about 60% of the market, followed by Germany, Japan, and the United States. The top three suppliers of indium phosphide substrates are Sumitomo Electric of Japan, AXT of the USA, and II-VI of France. Among them, AXT holds a market share of 60-70%, making it a primary supplier for most epitaxial wafer manufacturers.
As epitaxial wafer manufacturers typically maintain a stock of substrates for about two months, the previous rush for materials at the end-user level has led to shortages that prevent shipments. Even with urgent orders placed with Japanese suppliers, the quantities remain limited, affecting the revenues of many epitaxial wafer manufacturers in April and May. As restrictions in related regions are expected to be lifted, Taiwanese manufacturers are working overnight to fill the gaps and meet the enormous demand from customers, ensuring operations remain robust until the end of the year.
As long as there is stock, ‘customers will clear it out immediately; price is no longer an issue.’
Industry analysis indicates that with NVIDIA’s GB200 volume shipments increasing, and the GB300 set to follow in the second half of the year, the market demand for optical communication modules will become even stronger. Indium phosphide is an indispensable raw material for optical communication chips, playing a crucial role in the supply chain’s shipping momentum.
Regarding the indium phosphide epitaxy market, some manufacturers have noted that the supply shortage has persisted for several months. Therefore, as long as there is stock available, ‘customers will clear it out without hesitation; price is no longer an issue.’ The key is to have stock available, indicating that the demand for indium phosphide epitaxy is extremely strong.
Some manufacturers believe that as rare earth restrictions are eased, the tight supply of indium phosphide substrates is expected to gradually improve, and the shipping momentum for indium phosphide epitaxy will strengthen in the third quarter. Optical communication chips and modules are also expected to begin large-scale deliveries to meet the strong demand from the AI market for optical communication components.
Indium phosphide, a popular raw material amid the AI boom.
Indium phosphide is favored for its high saturation electron drift velocity, strong radiation resistance, good thermal conductivity, high photoelectric conversion efficiency, and wide bandgap, making it a new favorite for high-speed transmission in AI servers.
Industry experts state that indium phosphide is a type of Group III-V semiconductor, previously mainly used in telecommunications equipment and specialized instruments, making its product applications relatively niche. With the rise of AI servers, the characteristics of indium phosphide align well with the high-speed computing requirements of AI, transforming it from a niche product into one of the hottest materials in recent years, bringing new industrial opportunities to the upstream and downstream supply chains of indium phosphide.
In terms of the global industry landscape, most indium phosphide substrates are currently controlled by three major foreign companies, while the epitaxy sector is dominated by Taiwanese manufacturers, holding a market share of 70%, making Taiwan a key player in the indium phosphide industry. In terms of epitaxy capacity ranking, Lian Ya leads, followed closely by Chuang Hsin and Ying Te, while Huan Yu is responsible for the back-end processing of epitaxy.
With optimism about the explosive market demand brought by AI, Ying Te, Lian Ya, and Chuang Hsin are all emphasizing the active expansion of indium phosphide epitaxy capacity to fully meet customer needs. Among them, Ying Te’s new factory in the USA is set to begin construction in July, with completion expected next year; Lian Ya has recently been expanding its epitaxy capacity, with production expected to continue increasing in the coming months, while Chuang Hsin continues to purchase new equipment to expand capacity. Industry analysis suggests that compared to other Group III-V semiconductors, indium phosphide has a supply-limited characteristic due to technical constraints.
Disclaimer: Cover image/source from the internet, the article is a compilation from various sources for reference and exchange purposes only, and does not constitute any investment/purchase advice. Investors operate at their own risk based on this information.
