Indium phosphide is in the spotlight.
Jensen Huang once asserted, "In the next decade, the ceiling of computing power will be determined by optical transmission efficiency." This statement not only reveals the crucial role of optical interconnection technology in the future competition of computing power but also ignites the market enthusiasm for indium phosphide (InP), a once niche semiconductor material.
Currently, as the training of large AI models enters the era of ten - thousand - card clusters, the demand for data transmission within data centers is growing exponentially. Global spending on AI infrastructure is expected to exceed one trillion US dollars in 2026, driving the rapid iteration of data center optical modules towards 800G/1.6T and higher speeds.
In this wave, indium phosphide material has become the core support for the optical communication revolution due to its unique properties. The orders of global leading indium phosphide suppliers are fully booked until 2026. The global demand for devices will reach 2 million pieces in 2025, while the production capacity is only 600,000 pieces. A supply - demand gap of nearly 70% continues to boost the industry's prosperity.
This material, once considered niche, is now becoming a new focus in the semiconductor industry.
Why Indium Phosphide?
In the semiconductor field, the choice of materials often determines the boundaries of technological routes.
Although traditional silicon materials have mature processes and low costs, their physical properties are showing limitations in high - frequency and high - speed application scenarios. As a representative of the second - generation III - V compound semiconductors, indium phosphide stands out in this technological evolution.
Indium phosphide has an electron mobility more than ten times that of silicon materials (up to 1.2×10⁴ cm²/V·s). It also has a high saturated electron drift velocity, excellent thermal conductivity, and optoelectronic conversion efficiency, and can support ultra - high - frequency signal processing above 100GHz. This makes it the only core material suitable for high - frequency and high - speed optoelectronic integration scenarios.
Especially at the two key wavelengths of 1310nm and 1550nm in optical fiber communication, indium phosphide shows irreplaceable advantages. These wavelength bands are the windows with the lowest optical fiber transmission loss. As a direct - bandgap material, indium phosphide can efficiently manufacture optoelectronic devices operating at these wavelengths. It also has lattice matching with ternary/quaternary alloys such as InGaAs and InGaAsP, making it the best choice for producing core optical communication devices.
In addition, indium phosphide has the characteristics of high heat resistance and radiation resistance, which is very important for AI servers or AI data centers operating in high - temperature environments for a long time. Optoelectronic communication chips or modules made of indium phosphide materials will be more stable and reliable.
From the perspective of application scenarios, indium phosphide competes differently with silicon materials. Silicon materials can be used as substitutes in medium - short - distance and medium - low - end scenarios, but in the field of high - end long - distance communication, the position of indium phosphide is unshakable. Compared with gallium arsenide, another III - V compound, indium phosphide has better optoelectronic conversion efficiency and is more suitable for high - end scenarios such as 800G and 1.6T optical modules and satellite communication.
With the Explosion of Applications, Which Fields Have Spurred the Demand for Indium Phosphide?
Relying on its extreme performance advantages, indium phosphide is accelerating towards large - scale commercial use, forming a demand pattern with multi - scenario resonance.
First of all, the explosive growth of AI data centers is the core driving force for the current surge in indium phosphide demand.
As the training of large AI models enters the era of ten - thousand - card clusters, the demand for computing power interconnection in data centers is triggering a revolution in optical communication technology. High - speed optical modules of 800G and above have become standard in AI data centers. Each 800G optical module requires 4 - 8 indium phosphide laser chips. As the speed of optical modules evolves towards 1.6T and 3.2T, the demand for indium phosphide is growing exponentially.
NVIDIA's Quantum - X switch is equipped with 18 silicon - photonics engines per unit, all of which rely on indium phosphide substrate laser chips. The demand for substrate area of 1.6T optical engines is more than 300% higher than that of 800G. As the scale of AI server clusters expands, large - scale data centers often deploy tens of thousands of optical modules, directly triggering a rigid demand for indium phosphide.
AXT predicts that the orders for "horizontal expansion" optical modules for connections between data center server racks will nearly double in 2026 and may double again in 2027. It is expected that the indium phosphide industry will maintain a high - speed growth of over 25% annually in the next five years, and will welcome a historic development window period.
Some industry insiders say that the current market has increasingly realized the role of indium phosphide in data center infrastructure and describes indium phosphide as one of the primary links in the value chain of artificial intelligence data centers.
The commercialization of co - packaged optics (CPO) technology has opened up medium - and long - term growth space for indium phosphide.
As the core solution for AI data centers to break through the "power consumption wall", CPO tightly packages the optical engine and the computing chip, shortening the signal transmission distance from meters to centimeters and reducing power consumption by more than 50%. This places extremely high requirements on the stability and low - defect nature of indium phosphide substrates and will also significantly increase the demand density of indium phosphide per chip.
In 2026, as the first year of CPO technology introduction, NVIDIA and Broadcom have achieved product shipments, TSMC has completed the verification of its COUPE platform, and cloud giants are accelerating the introduction. Changjiang Electronics Technology also recently announced important progress in the field of CPO product technology - the silicon - photonics engine product samples of the XDFOI process delivered to customers were successfully lit up at the customer end and passed the test smoothly. Industry trends and progress have injected new impetus into the demand for indium phosphide.
According to Fuji Keizai's prediction, the global CPO market size will increase by about 166 times compared with 2024, reaching 14.2 trillion yen in 2030, and the market size of optical transceivers will also expand to 10.7 trillion yen, an increase of about 260% compared with 2024.
In addition to data centers, indium phosphide is also accelerating its penetration in cutting - edge fields such as lidar, 5G/6G mobile communication, low - orbit satellite communication, and quantum computing. The global lidar shipments are expected to reach 20 million units in 2030. Due to its performance advantages, the indium phosphide - based solution is continuously increasing its penetration rate in the high - end market.
In practical applications, the Luminar Iris lidar is equipped with an indium phosphide detector, which can identify targets with a 10% reflectivity at a distance of 250 meters and is used in models such as the NIO ET7 and Volvo XC90, fully verifying its performance advantages. NXP's UWB chip uses indium phosphide technology to achieve centimeter - level positioning accuracy and supports the contactless entry function of BMW's digital key. The indium phosphide infrared camera on China's "Jilin - 1" satellite achieves 10 - meter resolution night imaging for agricultural monitoring and disaster emergency response.
For a long time, the application fields of indium phosphide have mostly been in niche markets, so the industry scale is relatively narrow, leading to the industry's stereotype that it is expensive. Some products even still use 2 - inch wafers. However, as the application scenarios gradually expand, indium phosphide - related technologies will welcome new opportunities.
According to Yole's data prediction, the global InP substrate market size will increase from 3 billion US dollars in 2022 to 6.4 billion US dollars in 2028, with a compound annual growth rate of 13.5%. Among them, the data center chip market is growing the fastest.
Global Monopoly and the Breakthrough of Domestic Enterprises
Facing the explosive market demand, the global indium phosphide industry is setting off a wave of production expansion, but the market still shows a highly oligopolistic pattern.
Sumitomo Electric of Japan leads with a 60% market share. It uses the VB method to produce 4 - inch Fe - doped semi - insulating substrates, with mature technology and stable yield. AXT of the United States occupies about 35% of the market through Tongmei Beijing. It has achieved mass production of 6 - inch InP substrates by the VGF method, with significant cost advantages. Together with France's II - VI (focusing on high - end epitaxial wafers and dominant in the optical communication field) and Japan's JX Metals, several giants jointly monopolize more than 95% of the global production capacity.
As mentioned above, the global demand for indium phosphide devices is expected to reach 2 million pieces in 2025, while the production capacity is only 600,000 pieces, with a supply - demand gap as high as 70%. Currently, the orders of global leading suppliers are fully booked until 2026.
To ease the supply - demand contradiction, leading manufacturers are increasing their efforts. AXT has raised 100 million US dollars for the production expansion of its Beijing subsidiary and plans to double the production capacity by 2026 by renovating existing facilities and using the vertically integrated Chinese park (raw materials, furnaces, recycling). Sumitomo Electric plans to increase its production capacity by 40% by 2027. Japan's JX Metals has also announced a 20% production expansion.
In the fourth quarter of 2024, the indium phosphide - related business of Coherent achieved a year - on - year growth of 200%. Moreover, Coherent was the first to establish the world's first 6 - inch indium phosphide wafer production line and has formulated an ambitious production expansion plan, aiming to increase the production capacity to five times the current level by 2026.
However, even so, the market supply - demand contradiction is still difficult to ease in the short term. At the same time, facing the extremely monopolistic situation in the indium phosphide industry, it not only means the lack of bargaining power but also means that China's entire advanced computing and communication industries are built on an "external blood transfusion line" that may be cut off at any time.
Against this background, domestic enterprises are accelerating their breakthrough in localization. A group of domestic enterprises such as Yunnan Germanium Industry, Sanan Optoelectronics, Yunnan Xinyao, and Jiufengshan Laboratory are gradually breaking the foreign monopoly through technological breakthroughs.
Xinyao Semiconductor, a subsidiary of Yunnan Germanium Industry, has achieved mass supply of 4 - inch indium phosphide substrates. Its 6 - inch products have passed the verification of HiSilicon, and the production capacity reaches 150,000 pieces per year. The high - end substrates fill the domestic gap.
Sanan Optoelectronics has raised 6.5 billion yuan for production expansion. Its Wuhan base produces 10,000 6 - inch substrates per month, and its products have entered Huawei's supply chain. It is accelerating the import substitution with high cost - performance.
Jiufengshan Laboratory, in cooperation with Yunnan Xinyao, has successfully developed a 6 - inch indium phosphide - based epitaxial growth process, with key performance reaching the international leading level. Each 6 - inch wafer can manufacture more than 400 chips, four times that of a 3 - inch wafer. At the same time, the cost per chip is reduced to 60% - 70% of that of a 3 - inch wafer. Jiufengshan Laboratory plans to overcome the 8 - inch epitaxial technology by 2026 to further reduce costs.
Zhongke Optoelectronics covers InP - based epitaxial wafers, optical chips, and devices of various rates.
Bo Jie Co., Ltd. has built the first domestic InP substrate production line with independent intellectual property rights by investing in Dingtai Xinyuan, breaking the foreign monopoly.
Shaanxi Indiumjie Semiconductor has solved the "bottleneck" problem in material preparation and achieved stable mass production of substrates and epitaxial wafers, providing local support.
Huaxinjingdian has overcome the technology of preparing 4 - inch InP substrates by the vertical gradient freeze method (VGF), with a product yield of 70%. The price is only 50% of imported products, and its products have entered Apple's supply chain.
Youyan New Materials is deploying InP epitaxial wafer technology and cooperating with domestic optical module manufacturers to promote localization.
The total investment of the Guangdong Pingruijingxin Semiconductor Technology Industrial Park project is 1.1 billion yuan. It is expected to produce 300,000 indium phosphide single - crystal substrates per year, with an expected annual total sales revenue of more than 600 million yuan.
Jiangxi Leading Semiconductor also said that it already has the supply capacity of 2 - 4 - inch indium phosphide substrates and is moving towards the goal of industrializing 6 - inch indium phosphide substrates.
It can be seen that domestic enterprises are working together to promote the indium phosphide industry chain from "single - point breakthrough" to "full - chain upgrade", and the quality and efficiency of domestic substitution are continuously improving.
Looking forward to the future, the technological iteration direction of indium phosphide materials is clear. On the one hand, the industry is committed to technological breakthroughs in larger - area wafers and epitaxial sizes to further reduce costs. On the other hand, photonic - integrated - circuit (PIC) technology will achieve heterogeneous integration of InP and silicon - based materials, promoting the integration of lasers, modulators, and detectors on a single chip.
At the policy level, China has included indium phosphide substrates in the "Catalogue of Key New Materials for First - Batch Application Demonstration", reduced tariffs on core consumables, and the Ministry of Science and Technology has led the research on ultra - high - purity indium preparation technology, providing multi - dimensional support for the industry's development. With the support of industrial capital such as Huawei Hubble and the third phase of the Integrated Circuit Industry Investment Fund, by clearly specifying the localization rate requirements through government procurement and supporting the research and development of ultra - high - purity indium preparation technology above 6N level, the industry chain is promoted to make coordinated breakthroughs and the localization rate is continuously improved.
On the other hand, the enthusiasm of the capital market for the indium phosphide track is also continuously rising, which is an important confirmation of the industry's prosperity. The stock price of AXT in the US stock market has increased by 1000% in the past six months, and the quarterly revenue of its indium phosphide business has increased by more than 250% compared with the previous quarter, with backlogged orders of nearly 50 million US dollars. The indium phosphide production line of Lumentum, the leading optical chip manufacturer, is operating at full capacity, and related targets such as Yunnan Germanium Industry in the A - share market have also welcomed valuation restoration. After the initial general rise of the sector, the market is gradually moving towards value differentiation, and technical strength, customer certification progress, and CPO adaptability layout have become the core valuation logic.
Overall, in the current situation where the explosion of AI computing power and global technological competition are intertwined, the competition in the indium phosphide market has become a key bargaining chip in the game between major powers and a crucial battle for China to achieve "overtaking on a curve" in the semiconductor field. The breakthrough in the indium phosphide industry not only solves the "bottleneck" problem of photonic chips but also reconstructs the global industrial competition pattern through full - chain localization. With the large - scale application of the 6 - inch process, China is expected to occupy 30% of the global InP market by 2030, promoting strategic industries such as optical communication and quantum computing to enter the "China - dominated era".
Undercurrents are Surging: Technological Challenges and Industrial Chain Security of Indium Phosphide
Although indium phosphide stands at the forefront of AI and optical communication development due to its excellent performance, its path to industrialization and large - scale commercialization still faces challenges in terms of technology and cost, which need to be urgently addressed.
Some industry experts say that, first of all, the "black - box" effect at the process level restricts the rapid release of production capacity. The core pain point in the indium phosphide industry chain lies in the crystal growth stage. Currently, the mainstream vertical gradient freeze method (VGF) process is extremely complex. Since the crystal must grow in an extreme environment