China Eases Export Controls on InP Substrates, Benefiting Taiwan Compound Semiconductor Suppliers in H2
0xBroomberg
China shipped roughly 4,000 indium-phosphide wafers in late May — the second approved batch since August 2025 — temporarily easing the optical-communications bottleneck that has slowed global AI data-center buildouts. Taiwan compound-semiconductor suppliers expect a direct uplift in the second half.
Why can a single substrate choke the whole supply chain?
InP substrates — indium phosphide, the base wafer for making high-speed optical-communications chips — have long been dominated by U.S.-based AXT and Japan's Sumitomo.
China imposed export controls on these substrates from February 2025, blocking AXT shipments from its Chinese production base and severely squeezing optical-comms capacity.
This means → a wafer just a few inches across, once cut off, can force delays in downstream optical modules and ultimately in global AI data-center expansion.
How did this batch get approved?
China uses a "closed-loop management" review: epitaxy houses, foundries, and end customers must all submit proof of output and demand before any batch is cleared.
The first batch of 8,000 wafers was approved in August 2025; the second batch of roughly 4,000 wafers shipped in late May 2026.
In plain terms = this is not a blanket lifting of controls but a case-by-case clearance — every wafer's destination must be documented, and the pace of supply stays in the regulator's hands.
Why is GCS the most direct beneficiary?
GCS (Global Communication Semiconductors) runs a 4-inch wafer fab in the U.S. with monthly capacity of 4,500 wafers, or roughly 50,000 per year.
During the InP shortage, most of that capacity was diverted to RF components; photonic products shrank to about one-quarter of output.
Chairman Huang Da-lun expects shipments to recover from July–August, with photonic revenue rising in H2 to support full-year results.
This reflects a key structural point: photonics accounts for 70% of GCS revenue versus 30% for RF — once substrates flow again, the higher-margin photonic line scales immediately.
Where does GCS stand on photodetectors and lasers?
In photodetectors (PDs — chips that convert optical signals into electrical ones), GCS reportedly holds about 70% market share. Its main product is the 100G PD; 200G PD capacity is ramping.
Huang expects the optical-comms market to surge in 2027–2028, with annual PD wafer demand exceeding 40,000 by 2028.
On the laser side, GCS has developed 70 mW and 100 mW continuous-wave products but faces long certification cycles. The company plans to invest in Taiwan's Wellywave Semiconductors for laser capacity, targeting certification by end-2026 and volume production in 2027 at 1,000 wafers per month.
Who else benefits — and will supply last?
Taiwan epitaxy supplier VPEC (Visual Photonics Epitaxy) is also named a beneficiary — new substrate batches must pass through VPEC and similar epitaxy houses before reaching wafer fabrication.
This means → VPEC sits at a critical relay point between raw substrates and finished devices; the larger the approved volume, the stronger its order elasticity.
Whether supply remains stable, however, depends on the pace of future approvals — under the closed-loop model, each batch is reviewed independently, with no long-term quota guarantee.
Content is for reference only, not financial advice.