AXT Inc., a California-based semiconductor materials company, said in an Aug. 13 quarterly filing that it cannot estimate when it will receive Chinese export permits needed to resume shipments of InP wafer substrates to U.S. customers, calling it its most significant challenge.
The company said some customer orders remain backlogged while its applications await approval from Chinese authorities. The company’s InP substrates are used to make lasers, receivers and high-speed photodetectors for fiber-optic communications and data center networks.
IQE Chief Executive Jutta Meier separately described access to these substrates as an emerging industry supply risk, according to Bloomberg on Sept. 7. IQE said in its Sept. 7 interim results that strong demand is driving higher production volumes and that it plans to convert existing equipment during the second half of 2026 to add capacity for artificial intelligence and data center markets.
AXT and IQE operate at different stages of the supply chain. AXT makes the underlying material. IQE works further downstream, growing specialized layers on wafers to produce epitaxial products.
Why InP matters
These materials are foundational to the optical components that enable high-speed data transmission in fiber-optic networks and data centers. As demand for bandwidth-intensive applications, including AI inference and training, cloud computing and high-speed networking, has grown, so has demand for the components that InP enables.
Unlike silicon, which dominates general-purpose computing, indium phosphide has specific properties that make it uniquely suited for optical applications at the speeds data centers and fiber networks require. There is no commodity substitute.
The China export permit dimension
AXT manufactures these materials in China, which means it is subject to Chinese export control regulations that have become increasingly significant in the context of U.S.-China technology competition. The inability to estimate a timeline reflects regulatory uncertainty that is unusual in supply chain planning and makes it difficult for U.S. customers to forecast their own production schedules.
The backlogged orders indicate demand that AXT cannot currently fill. For downstream manufacturers like IQE, finding alternative sources or building inventory ahead of disruptions are the available responses, but both options carry cost and complexity.
China’s ability to affect the supply of these materials is a specific example of the leverage that semiconductor material and component exports give producing countries in the context of technology supply chain competition. The United States has its own export controls on advanced semiconductors and equipment, and these restrictions represent a point where China holds meaningful influence over U.S. technology infrastructure.
The broader supply chain picture
IQE’s plan to add capacity through equipment conversion in the second half of 2026 suggests the company sees demand as durable enough to justify capital investment. The specific mention of AI and data center markets as the growth drivers reflects where incremental demand for InP-enabled optical components is coming from.
