IQE returns to profit in 1H26, warns on China InP risk

IQE's return to profitability in H1 2026 is driven by surging demand for InP-based optical chips in AI data centers, but the company warns of supply risks from China's control over phosphorus indium. This shift impacts the entire optical communication stack, from chip design to module manufacturing, with potential bottlenecks in 5G/6G infrastructure. Compliance costs are rising as firms seek to diversify supply chains, especially from Taiwan, China and Hong Kong, China. Competitors like KLA and ASML are accelerating alternative technology pathways to reduce reliance on restricted materials. In the next 12–24 months, the optical chip sector will likely see a consolidation of supply chains toward regions with greater autonomy. If China tightens export controls further, global optical module production could face severe disruptions, pushing manufacturers to relocate operations to Southeast Asia or North America. This marks a pivotal moment in the tech sovereignty debate.