materialScore 65/100Research
Material supply risks identified as constraint; AAOI working with 4-5 indium phosphide substrate suppliers, 4 non-China sourced; minimum 1-year inventory available
Thompson Lin· Applied Optoelectronics· AI· 2026-05-07· about Applied Optoelectronics (AAOI)
“another risk is material. This is why we are working with all the material suppliers... Right now, we have four to five suppliers. We are in some discussions... but four of them are outside of China. I would say right now, we should have enough inventory minimum for almost one year.”
Why it matters
Indium phosphide substrate supply is a identified material constraint for AAOI's growth. Despite 1-year inventory buffer, rapid scaling of capacity from 350% laser fab expansion creates forward demand risk. Management is actively qualifying non-China suppliers to de-risk geopolitical exposure.
Investment implication
Indium phosphide substrate suppliers (including Japanese, US, and European vendors) face tight supply windows. Companies like Sumitomo Chemical, IQE (UK), and domestic U.S. producers are positioned to benefit from supply diversification away from China. Long-term contracting likely already underway.