Tight InP/Epi wafer supply, with technical barriers and rising prices increasing upstream attention
AI summary card
Tight InP/Epi wafer supply, with technical barriers and rising prices increasing upstream attention
Nomura AI Expert Call #69 focused on the upstream optical laser chip segment, noting that InP wafers and epitaxial wafers face high barriers in single-crystal preparation, surface treatment, MOCVD equipment, and process know-how. Chinese manufacturers still lag in yield and stability, while export controls have led to tight supply of large-size InP wafers and pushed up prices.
- The core difficulty of InP wafers lies in the conversion from polycrystalline to single-crystal material, as well as wafer cleaning, surface treatment, and control of metal residue.
- Barriers in Epi epitaxial growth come from MOCVD equipment performance, InP wafer quality, and know-how in materials, processes, and epitaxial structure design; 6-inch large-size epitaxy is even more difficult.
- Leading global InP wafer manufacturers include Sumitomo Electric, JX Metal, and AXT; in the Chinese market, Yunnan Germanium and Vital Materials are leading players, but their yield and process stability remain weaker than those of global peers.
- Chinese customers face shortages of 3-inch and larger InP wafers due to export controls between China and Japan, and prices for both 2-inch and 3-inch InP wafers have risen significantly versus the end of 2025.
- Epi wafer manufacturers can be divided into third-party foundries and IDMs, with IDM players such as Coherent and Lumentum having stronger bargaining power relative to foundries.
Report interpretation
Overview
This report compiles the key takeaways from Nomura's AI Expert Call Series #69 held on June 30, 2026, featuring an expert from the optical laser chip field. The discussion focused on the technical barriers, competitive landscape, supply-demand gaps, price changes, and MOCVD equipment and EML/CW laser chip output efficiency for InP wafers and Epi epitaxial wafers. The overall conclusion is that upstream materials and epitaxy have high process barriers, global leaders hold clear advantages, and Chinese manufacturers are still catching up; meanwhile, export controls and insufficient supply of large-size wafers are pushing up prices in the Chinese market.
Core views
The report's core views include: first, the key challenges in InP wafer manufacturing are the conversion from polycrystalline to single-crystal material, as well as surface cleanliness and impurity control; second, Epi epitaxial growth depends on MOCVD equipment, substrate wafer quality, and long-term process accumulation, with large-size epitaxy being particularly difficult; third, the global InP wafer landscape is led by Sumitomo Electric, JX Metal, and AXT, while Chinese manufacturers still lag in yield and stability; fourth, IDM players in the Epi wafer segment have stronger bargaining power than third-party foundries; fifth, due to tight supply of large-size InP wafers, prices of InP and Epi wafers in China have risen significantly since the end of 2025.
Analysis framework
The report uses the format of expert call notes to provide qualitative and data-based analysis of the upstream optical laser chip industry chain, with a focus on comparing global and Chinese manufacturers in terms of technical barriers, yield stability, supply capability, and price trends.
Methodology notes
Assessment of the upstream optical laser chip industry chain
Through discussions with an optical laser chip expert, the report distills key technical, supply-demand, and pricing points related to InP wafers, Epi epitaxial wafers, MOCVD equipment, and EML/CW laser chip output.
Capability gap between global and Chinese manufacturers
It compares global leading manufacturers with Chinese domestic players across dimensions including single-crystal pulling, surface treatment, epitaxial structure design, equipment performance, yield, and process stability.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- InP wafersKey upstream material for AI optical communications and laser chips
- Strengths
- Supply is tight, technical barriers are high, and prices have risen significantly since the end of 2025.
- Weaknesses
- Large-size wafer production is highly difficult, with stringent requirements for single-crystal pulling, cleaning, and surface treatment.
- Comparison
- Global leading manufacturers outperform Chinese manufacturers in yield and process stability.
- Risks
- Export controls, supply-demand changes, and improvements in Chinese domestic capacity could alter the price trend.
- Epi epitaxial wafersA key intermediate step in the manufacturing of EML/CW laser chips
- Strengths
- Epitaxial structure design and process know-how create barriers to entry, and prices are rising along with tight supply.
- Weaknesses
- Highly dependent on MOCVD equipment performance and substrate InP wafer quality, with greater difficulty for large-size epitaxy.
- Comparison
- IDM manufacturers have stronger bargaining power than third-party foundries.
- Risks
- Yield, packaging loss, and equipment capacity constraints may affect actual chip output.
- Coherent (COHR US)An IDM-related player in Epi wafers
- Strengths
- As an IDM player, the expert believes it has stronger bargaining power relative to third-party foundries.
- Weaknesses
- The report does not provide specific financial forecasts, a target price, or rating coverage.
- Comparison
- Compared with third-party foundry players such as IQE and Landmark, the IDM model offers stronger pricing power.
- Risks
- It is labeled Not rated in the text, so investment conclusions need to be combined with other research and company disclosures.
- Lumentum (LITE US)An IDM-related player in Epi wafers
- Strengths
- Its IDM model gives it some bargaining power in the epitaxial wafer segment.
- Weaknesses
- The report does not disclose company-level earnings estimates or a target price.
- Comparison
- Compared with third-party foundries, IDM players have stronger control over the industry chain.
- Risks
- It is Not rated and lacks ongoing coverage assumptions, so attention should be paid to changes in AI optical communications demand and supply chain constraints.
- Chinese domestic InP/Epi manufacturersA beneficiary direction of domestic substitution and supply gaps
- Strengths
- The Chinese market faces shortages of large-size InP wafers and rising prices, increasing attention on the domestic supply chain.
- Weaknesses
- Single-crystal pulling yield, process control, stability, and large-size Epi epitaxy capabilities still lag global peers.
- Comparison
- Yunnan Germanium, Vital Materials, Huaxing Laser, WaferChina, EPIHOUSE, and Wuhan Jiufengshan Laboratory are mentioned, but overall the sector remains in a catch-up stage.
- Risks
- If yield and stability improvements fall short of expectations, the pace of domestic substitution may be limited.
Key data
- China price of 2-inch InP wafersFrom CNY500-600 per wafer at the end of 2025 to CNY850-880 currentlyThe price increase is driven by tight supply.
- China price of 3-inch InP wafersFrom CNY1800 at the end of 2025 to CNY3200 currently3-inch and larger InP wafers are mainly supplied by global manufacturers, and Chinese customers face shortages.
- Price of 2-inch EML Epi wafersFrom CNY40k+ per wafer at the end of 2025 to CNY60-70k currentlyPrices of Epi epitaxial wafers have risen in tandem.
- Price of 3-inch CW Epi wafersFrom CNY50k at the end of 2025 to CNY70k+ currentlyCW epitaxial wafers are also affected by tight supply-demand conditions.
- Overseas price of 2-inch Epi wafersAbout USD10-20k/waferHigher than the CNY60-70k per wafer range in the Chinese market.
- Monthly EML output of Aixtron G4 equipmentAbout 350-400 wafers/monthThe expert said CW output is about 20% higher than EML because CW lasers require fewer rounds of epitaxial growth.
- 100G EML output from 2-inch Epi wafersTheoretical maximum of about 10k units, actual output about 2k+ units/waferActual output is affected by cutting loss, yield, and packaging loss.
Impact & implications
These notes show that demand for AI optical communications is increasing the importance of upstream InP and Epi wafers, and supply bottlenecks and price increases may benefit manufacturers with stable yield, mature processes, and integrated IDM capabilities. For China's industry chain, large-size InP wafers and 6-inch Epi epitaxy are still at an early stage, leaving room for domestic substitution, but in the short term they remain constrained by equipment, process capability, and stability.
Risks
- Information from expert interviews may not be equivalent to formal company disclosures, and some views may not have been independently verified.
- Rising InP and Epi wafer prices may attract new capacity additions, creating a risk of future changes in the supply-demand landscape.
- Chinese manufacturers still face catch-up pressure in yield, process stability, and large-size wafer capabilities.
- Changes in export control policies may alter supply availability and pricing paths for Chinese customers.
- MOCVD equipment performance, capacity, and process parameters may limit the pace of Epi epitaxial capacity expansion.
- Many companies in the text are labeled Not rated, and the report does not constitute ongoing single-stock coverage or explicit investment advice.
What to watch
- Whether supply of 3-inch and larger InP wafers for Chinese customers remains tight.
- Whether prices of 2-inch and 3-inch InP/Epi wafers can stay elevated.
- Progress in improving single-crystal pulling yield, surface treatment, and process stability among Chinese manufacturers.
- R&D and mass-production progress of 6-inch Epi epitaxial wafers in China.
- Changes in MOCVD equipment supply, equipment performance, and EML/CW output efficiency.
- The bargaining power and capacity expansion of IDM players such as Coherent and Lumentum amid AI optical communications demand.
- Changes in export controls between China and Japan and other cross-border supply chain policies.