Lumentum CEO Michael Hurlston warned that an indium phosphide shortage is forming around the lasers needed for AI networking, telling the RAISE Summit in Paris that demand from Nvidia and hyperscale data-center operators has moved far beyond the scale the telecom market used to require.
Hurlston said telecom buyers once ordered lasers by the hundreds, while Nvidia and large cloud operators are now seeking them by the hundreds of millions. Lumentum operates five indium phosphide fabs, he said, yet is still supplying more than 30% less than customers are asking for.
Nvidia responded in March with $2 billion commitments to both Lumentum and Coherent, the two companies that make much of the world’s high-speed datacom laser supply. Those agreements included purchase commitments and access to future production capacity. Hurlston said that even together, the two suppliers may not meet what Nvidia and others are asking of them.
Why is indium phosphide needed for silicon photonics?
Silicon photonics can move, split and modulate light, but silicon does not efficiently create that light. Indium phosphide has the direct bandgap needed to turn electrical current into photons, so silicon photonics systems from companies including Nvidia, Broadcom, Marvell and Cisco still need an indium phosphide laser in the optical package.
That matters as AI clusters push more traffic through each data center. Moving optics closer to switches through co-packaged designs changes placement and packaging, but it does not remove the laser from the hardware list.
Nvidia has said its photonics switches use four times fewer lasers than comparable pluggable deployments, with 3.5 times better power efficiency and ten times better network resiliency. Those are Nvidia’s own figures. The catch is volume: the company’s high-end Spectrum-X Photonics setup lists 512 ports at 800 Gb/s for 400 Tb/s of switching, while Quantum-X Photonics InfiniBand lists 144 ports at 800 Gb/s.
Co-packaged optics also tend to use high-power continuous-wave lasers and external laser modules that feed several channels. Coherent’s agreement with Nvidia covers those high-power CW lasers, external laser source modules and fiber array units.
What are Lumentum and Coherent doing about capacity?
Lumentum reported fiscal third-quarter revenue of $808.4 million, up 90% from a year earlier. Components revenue reached $533 million, and pump laser shipments rose 80%. On its May earnings call, Hurlston told analysts the company expects supply to rise 50% from one December quarter to the next, while the imbalance for electro-absorption modulated lasers had grown from 25% to 30% to more than 30%. He said pump lasers were even tighter.
Coherent CEO Jim Anderson told investors its 6-inch indium phosphide line produces more than four times as many devices as its older 3-inch line at less than half the cost. Anderson said EMLs, CW lasers and photodiodes are already running on the 6-inch line with yields above the legacy process. He said internal capacity would double by the end of the June quarter, one quarter ahead of plan, and more than double again by the end of 2027.
Coherent reported record revenue of $1.8 billion, up 21%, with data center and communications at 75% of total revenue, compared with about 41% a year earlier. The company said backlog extends into 2028.
How much does China matter to indium phosphide supply?
Indium is mostly recovered during zinc refining, so producers cannot raise output independently just because laser demand rises. The U.S. Geological Survey estimated China produced 760 tonnes of about 1,100 tonnes of global primary refined indium in 2025, or roughly 69%.
USGS also recorded a 72% year-over-year drop in China’s unwrought indium exports between September 2024 and September 2025 after Beijing put the metal under export controls in February 2025. AXT’s Chinese subsidiary Tongmei needed Chinese Ministry of Commerce permits, granted in June and August 2025, before it could resume exports of indium phosphide substrates.
Hurlston compared the looming squeeze with the memory-market crunch, where TrendForce recorded 90% to 95% quarter-over-quarter DRAM contract price increases in Q1 2026 and forecast more increases in Q2. That comparison cuts both ways. Lumentum benefits from scarcity, and LightCounting’s April 2026 forecast said transceiver shortages should clear by the end of 2026, even as current demand sits about 30% above supply.
This story draws on original reporting from Tom's Hardware.
