With AI data centers' surging demand for high-speed transmission, the compound semiconductor "Indium Phosphide (InP)" is becoming an indispensable material in the supply chain. Lumentum CEO Michael Hurlston bluntly stated its tightness will be more severe than memory. Since platforms like Nvidia, Broadcom, and Cisco's silicon photonics all require InP lasers as light sources, and even the future adoption of Co-Packaged Optics (CPO) architecture cannot replace its role, a new wave of material hoarding has emerged in the market.
"Indium Phosphide (InP)" is becoming an indispensable material in the AI data center supply chain. Lumentum CEO Michael Hurlston stated its tightness will be more severe than memory.
The enormous demand continues to widen the supply gap. Cloud service providers' demand has reached hundreds of millions of units. Even though Lumentum owns five wafer fabs, its shipment gap still exceeds 30%. To address the transmission bottleneck, Nvidia in March this year invested $2 billion each in Lumentum and Coherent to secure priority capacity. However, even with both major suppliers expanding production at full capacity, their combined output still struggles to meet the market's massive demand.
Lumentum pointed out that the supply of pump lasers remains constrained, with some key components almost sold out in the short term. Benefiting from strong demand and product price increases, the company's revenue for the third quarter of fiscal year 2026 reached $808.4 million, a year-on-year increase of 90.1%. It also forecasted fourth-quarter revenue to further increase to $960 million to $1.01 billion, with operating profit margin expected to rise to 35%-36%.
In the face of supply shortages, suppliers are accelerating capacity expansion through wafer size upgrades. Coherent stated that the yield of its 6-inch indium phosphide production line is better than the traditional 3-inch process, not only significantly reducing costs but also achieving a capacity doubling ahead of schedule, with plans to double again by the end of 2027. Lumentum, through retrofitting new factories, is introducing 4-inch and 6-inch processes, expected to commence mass production in 2028. Compared to building new wafer fabs, upgrading processes and expanding existing production lines could alleviate market supply tightness more quickly.
