"Even with money, it's unattainable"! Supply-demand imbalance intensifies, indium phosphide experiences the largest price surge in history

The explosive demand for AI computing power is pushing a key semiconductor material to its supply limits.

According to Taiwan's Economic Daily News on August 17, Indium Phosphide (InP) substrates and epitaxial wafers are experiencing a severe supply shortage, with prices in the fourth quarter expected to rise by over 10%, marking the largest single increase in history. Suppliers admit that even if buyers are willing to pay more, securing supplies is not guaranteed. Optical module manufacturers and AI data center operators are rushing to purchase this scarce material, driving the InP market into the largest price surge ever seen.

This round of price increases is not sudden. Industry sources report that InP substrate prices began rising in the fourth quarter of last year and have now seen three increases already, with a "fourth consecutive increase" imminent. Epitaxial wafers made from these substrates have also risen in price twice, and a "third consecutive increase" is approaching for the fourth quarter. The pace of price hikes is accelerating—from the initial 3% to 5%, to this historic high of over 10%.

Taiwanese epitaxial wafer manufacturers, including Win Semiconductors, LandMark Optoelectronics, and IET-KY, are expected to be direct beneficiaries of this supply-demand imbalance. Strong order visibility and capacity expansion plans are bolstering their business momentum.

Supply-Demand Imbalance: Upstream Bottlenecks Are Hard to Resolve Quickly

The reason InP has become the core material of the optical module industry is its high-frequency and high-speed transmission properties, which meet the AI data centers’ urgent demand for ultra-high-speed optical interconnects. As the global optical communications industry rapidly shifts from "optical and copper coexisting" to "optical replacing copper," demand for InP has surged in recent years.

However, the production of InP epitaxial wafers is highly dependent on upstream substrate supplies, while the substrate end is constrained by policy restrictions and capacity bottlenecks, leading to capacity expansion lagging far behind the pace of downstream demand. This structural contradiction is the root cause of the current supply-demand imbalance and means that simply relying on financial strength to secure goods often fails in practice.

The report noted that industry analysts believe as NVIDIA rolls out its new platforms, demand for optical communications will surge further. Combined with peak seasonal demand, InP epitaxial wafers have become one of the most sought-after key components in the entire AI supply chain.

In response to the rising market demand, major Taiwanese epitaxial wafer manufacturers have initiated or increased their capacity expansion plans.

• Win Semiconductors is continuously adding new equipment to expand capacity. The company emphasizes current high order visibility, expects its third quarter performance to rise month by month, and will continue striving to acquire substrate materials to meet the vigorous demand for InP epitaxial wafers.
• IET-KY launched the second phase of its new U.S. factory in July last year, with completion expected later this year. The added capacity will become a significant growth driver for the company’s operations.
• LandMark Optoelectronics is also expanding its epitaxial wafer capacity, and production is expected to keep increasing in the coming months. The company recently announced an investment of NT$1.315 billion to purchase production equipment for expansion and signed a long-term InP substrate supply contract with Sumitomo Electric Industries, Ltd. of Japan, securing its raw material supply to support future capacity releases.

Although all parties are aggressively expanding, building new capacity is time-consuming and will not effectively relieve the supply-demand gap in the short term. While upstream substrate and epitaxial wafer manufacturers have launched expansion plans, InP's seller-dominated market is expected to continue until new capacity comes online and increases effective supply.

The report points out that for optical module factories and AI data center clients, the current core challenge is no longer price increases, but whether a stable supply can be secured. LandMark Optoelectronics and Sumitomo Electric’s long-term supply contract is a direct reflection of this market logic—when supply is tight, securing materials strategically is more valuable than short-term price bargaining power.