Long-term contracts tie up InP capacity due to data center optics demand

The shortage of InP substrates is not coincidental but a direct consequence of the rapid upgrade in AI data center optical modules. As demand surges for 200G/400G optical transceivers, InP, as the core material for high-frequency devices, faces severe supply constraints. Upstream material suppliers, constrained by limited capacity, are locking in supply through long-term contracts, exposing downstream optical module manufacturers to cost pressures and delivery risks. Although China has recently relaxed some substrate export controls, technical barriers and capacity bottlenecks continue to hinder supply chain resilience. This trend will prompt global players to accelerate local InP production, especially in Taiwan and Hong Kong, where foundries are expected to play pivotal roles. In the short term, leading firms may pursue vertical integration or strategic investments to secure resources, while in the longer term, the imbalance could trigger a fundamental reshuffling of the global optical communication supply chain. Over the next 12–24 months, sustained InP supply shortages will force manufacturers to reassess capacity planning and technology roadmaps, accelerating the shift toward more integrated and cost-efficient optical chip solutions.