Coherent prepays $22.3M for indium phosphide supply amid AI chip crunch

Coherent's prepayment to AXT signals a structural shift in how buyers manage photonics supply chains. Rather than purchasing on spot markets, Coherent is locking in future capacity by paying upfront, a strategy that typically emerges when supply is tight relative to demand. The body attributes this pressure to AI data center investment, which has driven photonics demand sharply upward—photonics components are critical for data center interconnects and optical communications that underpin AI infrastructure scaling.

The indium phosphide substrate market is highly concentrated, meaning few producers control supply. This concentration creates vulnerability, particularly for countries like South Korea that depend on imports rather than domestic production capacity. Coherent's three-year commitment effectively removes that capacity from the open market, forcing other buyers to compete for remaining supply or negotiate their own prepayments. This dynamic may push smaller or less-capitalized suppliers downstream, tightening access further and potentially raising costs across the photonics ecosystem.