Rosenblatt: Indium Phosphide Expansion 12x in Five Years, Still a 50% Shortage in Demand by 2030

The latest photonics industry report published by U.S. investment bank Rosenblatt Securities indicates that the shortage of indium phosphide (InP) is becoming the most critical structural bottleneck for the global optical communication industry chain in the coming years, with a supply-demand gap potentially reaching as high as 50% by the end of 2030, even if major manufacturers complete their planned expansion programs.

According to Rosenblatt's proprietary supply-demand model, major InP component manufacturers such as Lumentum, Coherent, Broadcom, Sumitomo, Mitsubishi, and Applied Optoelectronics (AAOI) are actively expanding their production capacities related to EML electro-absorption modulated lasers, CW continuous-wave lasers, and UHP CW ultra-high-power continuous-wave lasers. Rosenblatt estimates that the combined InP-related production capacity of these manufacturers will increase by approximately 12 times between 2025 and 2030.

However, this expansion is far from meeting the market's growth rate. Rosenblatt warns that the data communication demand gap will further widen to about 50%, compared to the previously predicted 25% to 30%.

Nvidia's Pressure, Unmoved Supply Chain

The crux of the supply-demand conflict lies in the fact that, as the main driver for the large-scale deployment of Co-Packaged Optics (CPO), Nvidia has demanded the supply chain to increase InP laser production capacity by about 20 times over the same period to satisfy its next-generation AI infrastructure's massive demands for high-speed optical interconnectivity. But suppliers have generally adopted a more cautious stance, agreeing to expand only by about 12 times.

The suppliers' conservative attitude reflects multiple real-life pressures: the expansion of InP production capacity itself relies on the supply of equally tight InP substrate materials and epitaxy equipment, compounded by the risk that demand cycles may cool down. Overexpansion could lead to a severe risk of excess capacity. Rosenblatt points out that the key variable in expansion decisions is whether downstream customers can provide clear financial security commitments.

High Manufacturing Barriers, Costs Multiples of Silicon

InP is a key compound semiconductor material for manufacturing high-speed optical communication core components, widely used in components such as EML lasers, photodiodes (PD), and electro-absorption modulators (EAM). Compared to the mature silicon-based semiconductor industry chain, the overall infrastructure of InP manufacturing is still relatively weak—at present, most InP wafer production is still concentrated on 2 to 4-inch sizes, and although the production line for 6-inch wafers has made some progress, its widespread adoption is extremely limited.

The cost disparity is also significant. Rosenblatt data shows that a 6-inch InP wafer used for optical components can sell for thousands of dollars, several orders of magnitude more expensive than the 12-inch silicon wafers commonly used in data center computing applications. The manufacturing challenges of InP also stem from the limited supply of its raw material—rare metal indium—and the high difficulty of crystal growth processes.

Market Size Increases More Than Tenfold in Five Years

Rosenblatt estimates that the laser market revenue corresponding to InP data communication capacity will be about $1.9 billion in 2025, which will leap to about $22.75 billion by 2030, with a compound annual growth rate of over 65% over five years.

Analysts emphasize that against the backdrop of the continuous expansion of AI infrastructure investment, InP supply capability has become the key variable constraining the large-scale deployment of optical interconnectivity, and its strategic value will significantly increase in the coming years.