Google Inspects InP Factories to Boost Non-China Supply Share
Alina Collins
Google and other cloud providers are visiting overseas indium phosphide substrate makers in person, pushing non-China sourcing past 50% — supply-chain security has overtaken price as the optical-communications industry's top priority.
Why are InP substrates suddenly critical?
Indium phosphide (InP) substrates — the base wafer material for high-speed optical-communications chips — are a key input for AI data-center optical interconnects.
Beijing imposed export controls on InP substrates in February 2025, widely seen as a countermeasure to U.S. curbs on advanced chips. This means → a single material restriction choked the throat of global optical-communications expansion.
Global capacity is highly concentrated: AXT and Sumitomo Electric each hold roughly 40%, together controlling about 80% of InP substrate supply.
China released some shipments — why isn't the industry reassured?
A batch of substrates was cleared for export in August 2025; the first 2026 InP shipments began in late May, enough to sustain Taiwan-based VPEC and GCS through the second half.
Yet a long-term consensus has formed across the supply chain: non-China sourcing must exceed 50% for genuine security.
In plain terms = a short-term "release" is not long-term reliability; as long as Beijing holds the control lever, it can tighten again at any time.
Why are overseas makers reluctant to scale up?
Germany's Freiberg Compound Materials originally focused on gallium arsenide; its InP output is still small-scale with yields that need improvement.
Japanese suppliers are cautious on expansion — unwilling to commit heavy capex without firmer demand guarantees.
This reflects a deeper fear: if China fully reopens exports later, cheap substrates will flood the market and wipe out the return on overseas investment.
What signal does Google's on-site push send?
Google and other CSP giants are visiting overseas substrate makers in person, delivering one message face-to-face: cloud demand is real and substantial.
This means → CSPs are no longer just placing purchase orders — they are actively underwriting overseas makers' expansion decisions with their presence.
Whether this signal converts into actual capacity commitments from overseas producers is the critical test of whether the optical supply chain can truly reduce its China dependence.
How urgent is downstream demand?
CSPs have raised rack-to-rack transmission requirements from 400G to 800G; co-packaged optics (CPO — integrating optical modules directly into switch chips) is becoming the mainstream scaling path.
Optical-communications demand is expected to peak around 2027–2028. In plain terms = the supply chain has a two-to-three-year window to adjust.
Meanwhile, China's domestic producers — such as Yunnan Germanium — are expanding aggressively, triggering price competition among local suppliers. The tug-of-war between security and cost will define this industry cycle.
Content is for reference only, not financial advice.