More serious than memory shortages? Lumentum warns that the supply gap of indium phosphide has expanded to 30%

Lumentum CEO Michael Hurlston stated at the RAISE Summit held in Paris, France, that indium phosphide is an indispensable compound semiconductor for laser components in AI data centers, facing a supply crisis more severe than that of memory.

Hurlston noted that NVIDIA's simultaneous investments in Lumentum and its largest competitor Coherent are aimed at addressing this crisis. In the past, telecom customers purchased only hundreds of lasers, while the quantities demanded by NVIDIA and major cloud service providers have reached hundreds of millions. Even with five indium phosphide wafer fabs, Lumentum's shipments are still more than 30% below customer demand.

In March, NVIDIA invested $2 billion each in Lumentum and Coherent, requesting procurement commitments and priority access to future capacity. Hurlston admitted, "Even combined, Lumentum and Coherent cannot meet the enormous demand currently posed by NVIDIA and other customers to resolve the transmission bottlenecks faced by data centers."

Currently, silicon photonic platforms such as NVIDIA, Broadcom, Marvell, and Cisco use indium phosphide lasers as light sources, which are then processed by silicon photonic chips for optical signal processing. Even as optical communication architectures shift from pluggable optical modules to co-packaged optics, indium phosphide lasers remain an essential key component.

Lumentum is expected to report record performance in the third quarter of the 2026 fiscal year, with quarterly revenue reaching $808.4 million, a 90% year-on-year increase. Among them, component business revenue reached $533 million, with pump laser shipments increasing by 80% year-on-year.

Hurlston previously stated at an earnings call that the company's supply capacity would increase by 50% within a year, but the supply-demand gap for EML has widened from the previous quarter's estimate of 25%-30% to over 30%, with pump laser supply becoming even tighter. This means that even if Lumentum can increase its capacity by about 50% each year, it will still be unable to close the supply-demand gap and will continue to lag behind market demand.

On the other hand, Coherent CEO Jim Anderson also stated that the company's internal capacity would double by the end of June, a quarter ahead of the original plan, and further expansion of more than double is expected by the end of 2027. At the same time, the company is introducing a 6-inch indium phosphide production line, which can produce more than four times the number of components per wafer compared to the old 3-inch line, with manufacturing costs being less than half. Currently, products such as EML, CW lasers, and photodiodes are already in mass production on the 6-inch line, with yields even better than the existing 3-inch process.

In March, Lumentum announced the construction of its fifth indium phosphide wafer fab, which will be converted from Qorvo's gallium arsenide (GaAs) wafer fab located in North Carolina, USA. After the conversion, it will support 4-inch and 6-inch indium phosphide processes, with mass production expected to begin in 2028 However, even as foundries continue to expand production, upstream raw material supply still faces constraints. According to the U.S. Geological Survey (USGS) "2026 Mineral Commodity Summaries," China is expected to produce approximately 760 metric tons of refined indium in 2025, accounting for nearly 69% of the global total production of about 1,100 metric tons, making it the largest supplier in the world.

The report indicates that after the Chinese government included indium in export controls in February 2025, the export volume of unprocessed indium is expected to decrease by 72% from September 2024 to September 2025. Additionally, the average price of indium in the U.S. warehouse market is projected to rise from about $340 per kilogram in 2024 to approximately $390 per kilogram in 2025.

On the other hand, AXT's Chinese subsidiary Tongmei must obtain export permission from the Ministry of Commerce of China before it can resume exporting indium phosphide substrates. This also means that even if NVIDIA invests funds to assist Lumentum and Coherent in expanding production, the indium phosphide wafers they use will still heavily rely on Chinese supply, as the U.S. currently has almost no large-scale domestic production capacity for indium phosphide wafers.

• Lumentum CEO warns of impending bottleneck on critical material used for silicon photonics — fab and material shortfall already lags 30% below customer needs as co-packaged optics demand skyrockets

(Source of the first image: Lumentum)

Further Reading:

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