China's control over indium phosphide exports threatens AI data centre rollout

By Laurie Chen and Liam Mo

BEIJING, June 11 (Reuters) - Barely a week after Nvidia-backed chipmaker Coherent warned of a shortage of indium phosphide in an earnings call in early May, its CEO Jim Anderson was on a plane with a U.S. business delegation accompanying President Donald Trump on his trip to China.

Anderson's visit was partly to raise the issue of delays in China's export licenses involving the highly strategic ‌material, essential in manufacturing high-speed optical chips for AI data centres, said three sources familiar with the matter.

The issue was also discussed during talks in Seoul between top trade negotiators of the two countries ahead of Trump's ‌May 14-15 summit with China's President Xi Jinping, according to two U.S. government officials and a person briefed on the talks.

The U.S. urgency to resolve China's export controls on the compound highlights how indium phosphide (InP) has emerged as a powerful trade weapon for Beijing that experts and executives say could disrupt the ​global rollout of AI data centres.

"InP is one of several supply chain bottlenecks collectively gating AI data centre buildouts," said Konrad Wang, a research analyst at SemiAnalysis.

With AI workloads growing exponentially, InP is in high demand as it is a core material with no substitute in the new technology that data centre developers are turning to - using light through optical fibres, or photonics, instead of electrical signals through copper wire.

Nvidia announced $2 billion investments each into U.S. photonic product makers Coherent and Lumentum in March, while custom-chip maker Marvell Technology announced the acquisition of semiconductor startup Celestial AI last year to tap into its work on photonics.

China's export restrictions on InP that began in February 2025, however, have become a major hurdle in their race to design the fastest, most energy-efficient components for AI ‌data centres.

China's commerce ministry did not respond to a faxed request for comment.

Its control over ⁠InP highlights Beijing is prepared to expand on its well-proven export curbs on rare earths, which have disrupted global automotive, semiconductor and aviation supply chains since last year amid its tariff disputes with Washington.

"Beijing is developing a more granular 'materials chokepoint' toolkit," said Paul Triolo, a partner at consulting firm Albright Stonebridge Group.

"Rather than blocking finished photonics products outright, it can slow or condition the export ⁠of the upstream compounds, substrates, metals ... that determine whether the optical-module ecosystem can scale quickly enough to meet hyperscaler demand."