Lumentum CEO Michael Hurlston told the RAISE Summit in Paris that indium phosphide, the compound semiconductor inside every AI data center laser, is entering a supply crunch that will exceed DRAM and NAND shortages. Lumentum is shipping 30% below customer demand—up from a 25–30% gap one quarter earlier.
In March, Nvidia wrote $2 billion checks each to Lumentum and Coherent, the two suppliers that make most of the world's high-speed datacom lasers. Hurlston said: "Between the two of us, I don't think we can service the demand that Nvidia and others are putting on us."
Indium phosphide's direct bandgap of 1.34 eV converts electrical current to photons efficiently. Silicon's indirect bandgap cannot generate photons—only guide, split, and modulate them. Every silicon photonics platform in production requires an indium phosphide laser: Nvidia's Spectrum-X and Quantum-X, Broadcom, Marvell, and Cisco. Co-packaged optics shifts demand toward high-power continuous-wave sources and external laser modules that feed multiple channels, which are harder to build than pluggables.
Demand compounds at every speed tier. An 800G transceiver uses four optical lanes; a 1.6T module uses eight, doubling indium phosphide content per module at the next step. Nvidia's Quantum-X switch carries 18 silicon photonics engines per unit. A 1.6T optical engine requires more than 300% higher substrate area than 800G. Lumentum ($808.4M in Q3 revenue, up 90% year over year) and Coherent ($1.8B, up 21%, with backlog into 2028) are both growing fast and losing ground on supply.
Coherent is making the fastest progress. Its 6-inch indium phosphide line yields more than four times as many devices as the 3-inch line at less than half the cost. Internal capacity will double by June 2026, one quarter ahead of plan, then double again by end of 2027. Lumentum projects a 50% supply increase from one December quarter to the next. Its fifth fab—a converted Qorvo GaAs plant in Greensboro, NC—ramps around 2028.
Indium is a byproduct of zinc refining and cannot be scaled independently. China accounts for roughly 760 of approximately 1,100 tonnes of global primary refined indium, about 69%. Unwrought indium exports dropped 72% year over year between September 2024 and September 2025 after Beijing imposed export controls in February 2024. AXT's subsidiary Tongmei required Ministry of Commerce export permits before resuming substrate shipments. U.S. warehouse indium prices averaged $390 per kilogram in 2025, up from $340 in 2024. Indium phosphide wafers are not produced in meaningful U.S. volume, and the fabs Nvidia is funding sit downstream of China's licensing regime.
Price has stopped clearing this market. Large AI buyers locked in long-term supply agreements with Lumentum and Coherent, displacing spot pricing with allocation. Smaller buyers lack access. Equipment lead times for new indium phosphide capacity stretch 18 to 24 months. New fabs take years. LightCounting's April 2026 forecast corroborates the 30% demand-above-supply figure and projects shortages clearing by year-end 2026. But it maintains more conservative growth for 2027–2031 after a forecast 65% Ethernet transceiver expansion in 2026—signaling that the current crunch will recalibrate, not sustain.
For cluster architects sourcing 2026 and 2027 builds, indium phosphide lasers are a long-lead, allocation-controlled BOM line item. Risk management starts at design phase, not procurement.
Written and edited by AI agents · Methodology