At present, export controls continue to tighten, and domestic substitution of indium phosphide is accelerating.
In the entire digital economy industry chain, the iteration speed of AI servers, high-speed optical modules, and satellite communication equipment continues to accelerate, but the core underlying material that supports all high-speed optical and electrical signal transmission—indium phosphide—is rarely known.
Unlike silicon carbide, which focuses on power conversion, and gallium nitride, which focuses on radio frequency fast charging, indium phosphide is the only semiconductor substrate that can stably realize the transmission and reception of optical signals.
All laser chips and detection chips inside high-speed optical modules of 200G and above are all based on indium phosphide single crystal, and there are no other materials that can be completely replaced.
Previously, global high-end indium phosphide substrates and high-end optical chips have long been controlled by overseas manufacturers, and domestic optical communication companies are highly dependent on imported supply chains.
Recently, export control of related overseas products has continued to tighten, setting multiple thresholds for the shipment and customer certification of high-end indium phosphide products, directly disrupting the stocking pace of domestic high-speed optical modules and computing hardware companies, and completely exposing security risks in the industrial chain and supply chain.
External restrictions have forced domestic industries to accelerate independent breakthroughs. Policy levels have increased support for compound semiconductors and optoelectronic materials. Industrial parks in various regions have implemented special production expansion projects, and upstream and downstream companies have concentrated on launching new production lines.
In order to give everyone a clearer understanding of the indium phosphide industry, this article integrates multiple industry research reports, corporate production capacity announcements, and optical module manufacturer supply chain bidding information. It uses popular logic to dismantle the irreplaceable industrial value of indium phosphide and the industry changes brought about by export control. It also takes stock of ten local companies that have implemented actual expansion of production and are leading the progress in ramping up production capacity.
If you want to understand the underlying logic of the current enterprises’ concentrated expansion of indium phosphide production, you must first clarify the unique performance advantages of the material and the two rigid demand tracks that support industry expansion.
Ordinary silicon wafers can only transmit electrical signals and cannot emit light independently; silicon carbide and gallium nitride have outstanding high-temperature and high-voltage resistance, but their light-emitting wavelength bands do not meet optical fiber communication transmission standards.
Only indium phosphide can adapt to the two common communication bands of 1310nm and 1550nm, and stably complete electro-optical and photoelectric conversion. The chip has low transmission loss and fast response speed, perfectly adapting to ultra-high-speed data transmission scenarios.
The core value of a complete high-speed optical module is concentrated in the internal optical chip. The first step in manufacturing the optical chip is the indium phosphide substrate. The purity and flatness of the substrate crystal directly determine the transmission rate and stability of the optical chip.
The growth process of large-sized, high-purity indium phosphide single crystals is extremely difficult. The crystals are brittle and the growth cycle is long. Improving the yield rate requires years of process accumulation. This naturally creates extremely high industry barriers and makes it difficult for new entrants to achieve mass production and supply in the short term.
The entire indium phosphide industry chain is divided into three layers, with barriers decreasing from top to bottom: the upstream indium phosphide single crystal substrate is the core point of the entire chain; the midstream indium phosphide epitaxial wafer is responsible for growing luminescent films on the surface of the substrate; the downstream optical chip design and manufacturing, and optical module packaging have relatively lower entry barriers.
Overseas export control focuses on restricting upstream high-purity substrates and high-end epitaxial products, which are also core areas for domestic companies to expand production.
The dual tracks of AI computing power and satellite communications continue to drive incremental demand for indium phosphide.
The first core demand comes from AI computing power data centers.
At present, global cloud manufacturers continue to expand computing power clusters, and servers rely on high-speed optical modules to transmit massive data. 800G optical modules have become standard equipment in medium and large data centers, and 1.6T and 3.2T new generation products are gradually introduced in batches.
Each generation of high-speed optical modules requires higher-performance indium phosphide laser chips. The expansion of the computing power industry directly drives the demand for upstream substrates, epitaxy, and optical chips to rise year by year. The agency estimates that the annual compound growth rate of global indium phosphide-related products will exceed 28% in the next three years.
The second growth curve is the upgrade of satellite Internet and backbone optical fiber.
The construction of low-orbit satellite networks continues to advance, and satellite-borne radio frequency and optical communication devices rely on indium phosphide materials; domestic operators’ backbone transmission networks upgrade long-distance optical transmission equipment in batches, and long-distance optical fiber links replace high-end optical modules, creating stable mid- and long-term procurement needs.
At the same time, vehicle-mounted lidar and industrial infrared detection equipment are gradually becoming popular, further broadening the downstream application scenarios of indium phosphide. Industry demand does not depend on a single industry cycle, and the demand base is very stable.
The tightening of overseas export controls on indium phosphide-related products has directly brought about three irreversible changes in the industry and is also the core driver of the concentrated production expansion of ten companies.
First, the uncertainty of overseas supply has increased, and downstream manufacturers have accelerated the introduction of domestic supply chains.
Previously, domestic head optical module companies relied on overseas procurement for more than 60% of their high-end indium phosphide raw materials. Now overseas companies have reduced shipment quotas, lengthened the review process, and even restricted shipments of some high-end models to China.
In order to ensure the stable operation of their own production lines, domestic leading optical module manufacturers such as Zhongji InnoLight and Xinyi Sheng have launched a dual supply chain layout, proactively connecting with local indium phosphide substrate and optical chip companies to carry out sample certification, shortening the local product introduction cycle, and locking in long-term downstream orders for domestic production expansion companies.
Second, the policy favors supporting funds to reduce the financial pressure on enterprises to expand production.
Various localities have introduced special support policies for compound semiconductor materials. New substrates and epitaxial production lines can enjoy multiple supports such as equipment purchase subsidies, tax exemptions, and factory facilities; industrial funds have increased equity investments in indium phosphide track companies to alleviate the cash flow pressure caused by large-scale expansion of companies.
Compared with overseas companies, domestic companies have policy dividends to support their expansion of production, and their production capacity is deployed faster, quickly narrowing the gap with overseas production capacity in a short period of time.
Third, the gap between supply and demand continues to expand, and local production expansion companies enjoy product premiums for a long time.
The construction period of new overseas indium phosphide substrate production lines takes 5 to 7 years, and large-scale production capacity cannot be added in the short term; domestic computing power and communication demand continue to grow, and the tight balance between supply and demand is maintained for a long time.
Local companies that have achieved stable mass production and continued expansion of production have no worries about downstream sales of their products. High-purity indium phosphide products have a stable premium. The release of production capacity directly translates into corporate revenue and gross profit growth. The logic of industry profit improvement is clear.
According to the three major links of upstream substrate, midstream epitaxy, and downstream high-speed optical chips, we have sorted out ten local companies that have continued to implement production expansion projects and are leading the production capacity ramp-up progress. The technology layout of each company is obviously differentiated, and there is no homogeneous competition.
The upstream indium phosphide single crystal substrate track includes Yunnan Germanium Industry and Tianyue Advanced; the midstream indium phosphide epitaxial wafer track includes Haite High-tech, Sanan Optoelectronics, and SMIC’s compound platform; the downstream indium phosphide high-speed optical chip track includes Yuanjie Technology, Guangxun Technology, Changguang Huaxin, Huaxing Optoelectronics, and Shijia Photonics.
As the export control news ferments, the indium phosphide track market has rapidly increased in popularity, and a large number of individual stocks have followed suit. However, companies in the market can be clearly divided into two categories.
The first category is the ten high-speed expansion companies listed above, which belong to the core and main lines of the track.
Such companies have standardized indium phosphide production lines that have been put into production or are under construction, and have publicly disclosed clear production expansion plans, equipment procurement, and plant construction announcements. Their products have completed sample certification by downstream optical chip and optical module manufacturers, and some have achieved stable batch shipments. The production capacity can be directly converted into revenue increases.
The second category is themed stocks that only speculate on the concept of indium phosphide.
The company’s main business has a very low correlation with indium phosphide substrates and optical chips. It only touches on hot topics through short-term laboratory research and development and small-amount cooperation announcements. It has no new production expansion projects, no mass production lines and stable downstream orders, and is unable to undertake the market gap caused by domestic substitution.
To determine the true value of a company, you only need to check three publicly available information: whether the company has announced the expansion and start-up of the indium phosphide production line; whether there are corresponding products supplied in batches to downstream optical module companies; whether the revenue of indium phosphide-related business continues to grow in the financial report. If all three are met at the same time, it is a high-quality target that can truly benefit from the wave of localized production expansion.
At the same time, we must also look at the objective status quo of industry development objectively. The process of high-end indium phosphide substrates and high-speed epitaxial wafers is difficult. It takes a certain period of time to expand production lines from construction to stable mass production. It is difficult to achieve an immediate performance explosion in the short term. Industry growth follows a long-term logic of gradual progress. The long-term value of the track cannot be judged by the rise and fall of the market in a single month.
The two core driving factors of overseas export control and computing power infrastructure expansion will remain unchanged for a long time, and the general trend of upward development of the domestic indium phosphide industry will not change.
The domestic optical communications and computing hardware industries lead the world in scale, and the huge downstream market provides sufficient space for domestic substitution of indium phosphide. From upstream single crystal substrates, midstream epitaxial wafers to downstream high-speed optical chips, the wave of full-chain production expansion continues to advance.
Internal differentiation on the track will continue to intensify. The ten leading companies that have implemented production expansion projects ahead of schedule and are the first to complete head customer certification will continue to seize the market share ceded by overseas manufacturers and enjoy the dual dividends of capacity release and product premiums in the long term.
When following up on indium phosphide-related companies, don’t simply chase short-term hot topics. Focus on tracking the company’s production line start-up progress, downstream manufacturers’ designated procurement announcements, and high-speed optical module industry shipment data. Judge the company’s fundamentals from the perspective of real production capacity and industrial demand, and avoid purely conceptual speculation stocks without expansion or shipment.
