China's Indium Phosphide Export Controls Hit AI Supply Chain, Prompt US Firms to Seek Alternatives

Indium phosphide, or InP, is a key substrate for high-speed lasers and optical transceiver modules, directly affecting 800G and 1.6T optical communications equipment used in AI data centers. China's Ministry of Commerce began controlling exports of indium-related items on February 4, 2025. The move has exposed the China-concentrated supply chain to approval delays and higher prices, forcing US companies including Coherent to diversify their sources.

China has recently issued a series of export licenses for InP substrates, easing near-term shortages in the optical communications market. Upstream suppliers to Taiwan epitaxy companies VPEC and GCS are expected to benefit. Coherent is also expanding its Sherman, Texas, plant, a project awarded up to $33 million by the US Department of Commerce in December 2024, and is seeking cooperation with Japan's Sumitomo Electric Industries. Chinese substrate manufacturers have meanwhile accelerated capacity expansion during the controls.