Schulz Duggan
AI Supply-Chain Research, Optics/Memory/Macro, Original Asian/US Filings & Pricing
InP substrate demand and pricing still support the AI optics supply chain. Yunnan Germanium reports higher InP volumes from AI data centers and optical communications, plus higher prices. Q3 revenue rose 134.6% year on year, near AXT's guided 136%, but also includes germanium. IQE's H1 photonics grew 45%, partly from US defense funding. AXT's $66m Q3 guide covers only licensed exports or sales needing no license; a miss would more likely reflect licensing. x.comÂ
Qualified indium phosphide wafers remain scarce, though Intel's bonding process could stretch supply if it wins volume. Wuhan Tianyuan plans raw material, not qualified wafers; it has no InP staff or orders. AXT's substrates and IQE's epi layers stay in the chain. Lumentum's accepted orders are non-cancellable, but it held only $16.8m in customer deposits against $2.4bn of orders to its own suppliers. Lumentum expects customer scale-up CPO deployments in 2028. x.com x.com x.com x.comÂ
AXT's indium phosphide substrate chokepoint gives it pricing potential, though its Coherent agreement caps annual wafer-price increases. Channel checks suggest increases of 50-60% in Q2 2026, 10% in Q3 and over 10% in Q4. With supply agreements to Lumentum and Coherent, AXT probably becomes No. 1 ahead of Sumitomo Electric. A SanDisk-style hike now looks less likely because of the annual cap, whose percentage is redacted. x.comÂ
IQE's new multi-year indium phosphide epiwafer supply deal with Tower Semiconductor puts a 5x-10x move from March 2026 levels in the works, and IQE is the pick over Tower itself. Per Wall St Engine, the wafers support Tower's silicon photonics platforms for AI data center optics, including 200G/lane pluggable transceivers, 400G/lane modulator prototypes and optical circuit switches. The two also settled their IP dispute, with Tower granting IQE a worldwide royalty-free license. x.com x.comÂ
Indium phosphide substrates, AXT's business, should never become tight despite explosive demand, because Chinese capacity comes online quickly. InP demand should grow nearly 6x from 2026 to 2030, a 56% CAGR, driven by ultra-high-power CW lasers for co-packaged optics and InP photonic chips. Yet Yunnan Germanium alone should make nearly half of all InP production by 2030, so demand never fully exceeds substrate supply, which is bad for AXT. x.comÂ
SpaceX's $40B financing for GPU procurement adds another large, funded source of AI-infrastructure demand, with spending flowing into GPUs, memory, networking and optics. At the same time, InP substrates are seriously short, and Morgan Stanley identifies InP, EML and CW lasers as primary bottlenecks; suppliers that secure raw materials should gain pricing power. Any slowdown looks unlikely. x.comÂ
IQE's new multi-year InP epiwafer supply deal with Tower Semiconductor shows its product is irreplaceable, adding a third Tier-1 foundry anchor in the AI photonics stack after Lumentum and MACOM. IQE is the non-Chinese InP source Tower needed, a geopolitical moat, and is designed into the optical roadmap from 200G pluggables to 400G-per-lane modulators and optical circuit switches. Tower, which IQE sued for IP theft in 2022, even granted IQE a royalty-free patent license. x.comÂ
IQE's outsourced epitaxy business is structurally disadvantaged because demanding optics customers want the whole chain under their own control. Big integrated players such as Lumentum and Applied Optoelectronics run their own reactors and want to control manufacturing conditions throughout. Shipping wafers to an outside fab for epi growth and back falls short of that ideal, so regardless of IQE's execution the business model is unappealing, even as @crux_capital_ turns more positive. x.comÂ
AXT's Q2 2026 results confirm its role as an upstream indium phosphide supplier to AI optical modules. Revenue rose 164% year on year to $47.6 million, well above $30.4-34.1 million consensus, with GAAP net income of $11.1 million and adjusted EPS of $0.19 versus $0.07 expected. Lumentum signed an InP substrate capacity reservation through 2031 with $87 million of prepayments. InP revenue hit a record and backlog topped $100 million as data-center links move to 800G and 1.6T. x.comÂ
AXT remains a vital InP substrate bottleneck, and keeping some exposure makes sense because a ton of AI capex flows directly to it, though much is priced in. Transceivers moving from 800G to 1.6T and 3.2T need lasers built on InP substrates, which AXT and Sumitomo supply; demand exceeds supply even as AXT doubles capacity by end-2026. Management sees CPO inflecting late 2027 and beyond. Earnings should improve as backlog converts, though another parabolic move looks unlikely. x.com x.comÂ
IQE is hard to call undervalued because its price already embeds a mature-margin scenario two-plus years out. At a 15% margin and 20% yearly growth, FY28 EBITDA is about GBP25 million, worth about GBP500 million at a generous 20x, versus a GBP520 million market cap at 40p. IQE earns about 3% adjusted EBITDA margins versus LandMark's high-margin epi, MACOM's convertible and warrants carry about 76 million shares of overhang, and InP supply constraints threaten its H2-weighted guide. x.com x.com … Show more
AXT is the upstream chokepoint of the photonics buildout, supplying the indium phosphide substrates every high-speed laser needs amid a massive global shortage. About 600,000-700,000 wafers shipped in 2025 against demand of 1.5-2 million, and AXT holds roughly 36% of a market three firms control. Record revenue rose 164% to $47.6M and gross margin hit 45% from 8.2%; Lumentum prepaid $87M to reserve capacity through 2031. The real risk is China, where slow export permits caused a guidance miss. … Show more
