You Can Ban the Modules, Not the Substrates: The Decisive Move in Optical Communications Has Shifted Down to Indium Phosphide — 2026 W33 Industry Review
The U.S. can ban China's optical modules, but it can't ban China's indium phosphide substrates. This week, the optical communications industry laid that fact out on the table.
Three Things Collided in One Week
From August 10 to 16, three otherwise unrelated things happened in the optical supply chain at the same time.
The FCC ban kept building momentum. Reuters reported on August 4 that the FCC is drafting a rule to bar imports of new models of Chinese data center optical transceivers, with officials hoping to publish it within 2026. The market reaction was immediate: AAOI climbed from $94.32 on July 31 to above $150 on August 14; the same day in Taiwan, Luxnet, FOCI, Elaser, GCS (Global Communication Semiconductors), and Truelight all hit limit-up. Innolight holds about 27% global market share, and together with Eoptolink the two control more than 60% of the 800G-and-above segment. For our first breakdown, see "One rumor reshuffled the entire supply chain: the U.S. ban on Chinese optical modules and a market reshuffled in a week."
Three earnings calls confirmed demand hasn't peaked. Coherent posted record FY26 Q4 revenue of $2.05B (up 34% year over year), with data center revenue up 66%; Lumentum topped $1 billion for the first time in FQ4 ($1,006.3M, up 109.3%), with gross margin above 50%; Cisco booked $9.3B in hyperscaler AI orders for full-year FY26, roughly 4.5× the prior year.
OCP brought CPO in as an official workstream. On August 13, about 20 companies led by Lightmatter launched Open Silicon Photonics for AI Systems and released a roughly 300-page architecture white paper, with the first version of the spec expected to ship in Q4. Members include Foxconn Interconnect Technology (FIT), GUC (Global Unichip), and Quanta (QCT).
The Materials-Layer Numbers Are What Deserved Attention This Week
Since China imposed export licensing on indium phosphide (InP) substrates in February 2025, 6-inch InP wafer prices have risen about 250%; 2-inch optical-grade substrates rose nearly 200% from early 2025 to April this year.
The supply-demand gap is even more extreme: effective global capacity in 2026 is estimated at only 600,000–750,000 wafers, against demand of 2.6–3 million, a gap of more than 70%. On August 6, TrendForce named InP shortages as a bottleneck for AI optical interconnect.
Supply is highly concentrated: AXT and Sumitomo Electric together hold about 80% of global InP substrate supply, with JX Metals at about 10%. AXT's China subsidiary only received its first batch of export licenses in June 2026, which directly stretched Lumentum's order visibility out to 2028.
That's the skeleton of the story. But what the market is pricing in this round and what is actually holding up shipments aren't on the same layer — and Taiwanese companies' July revenue already contains a very useful clue that spells out the real reason behind the record highs.
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The above is a summary of the key points.
STT's full analysis — why "you can ban the modules, not the substrates" puts a ceiling on this wave of order shifts, which Taiwanese indicator serves as a real-time proxy for InP delivery speed, whether Coherent's 6-inch route or Lumentum's shared-process route will secure 1.6T volume in 2027, and the three things to watch over the next three months — is available in full in the premium section.
👉 Subscribe to the STT premium section and read the full analysis on vocus (in Chinese): https://vocus.cc/article/6a82a980fd89780001c6977a
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Earnings Highlights: Lumentum (LITE) | FY2026 Q4: EML capacity expanded 8× in two and a half years and still can't meet demand — the weight of that statement.
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