IQE GaSb and GaN strategy pivots business toward AI and power markets amid sale options

IQE

IQE’s GaSb and GaN strategy is reshaping the UK compound semiconductor maker as it explores a potential sale of the company. The IQE GaSb and GaN strategy shifts focus toward high-value sensing, photonics and power electronics while legacy wireless markets remain under pressure. As a result, the IQE GaSb and GaN strategy now sits at the core of IQE’s turnaround and M&A narrative.

IQE has continued to rationalise its footprint while redirecting capital to growth nodes. The firm suspended manufacturing at its Silicon site in south Wales and plans to exit fully by the fourth quarter, with a new operator taking over the facility. This follows the sale of its decommissioned Bethlehem, Pennsylvania site in late 2023, with skills, IP and customers transferred to Greensboro, North Carolina. That larger US site now anchors IQE’s presence in advanced sensing, optical communications, aerospace, defence and wireless markets.

However, the restructuring runs in parallel with a strategic review that has widened from a Taiwan business sale to a possible sale of the entire company. IQE has been approached by at least one potential buyer and has received further early expressions of interest. Any acquirer would gain exposure across all four III-V platforms — GaAs, InP, GaN and GaSb — with particular upside in infrared sensing, AI data communications and GaN power electronics.

GaSb sensor momentum underpins IQE GaSb and GaN strategy

GaSb is emerging as a central pillar of the IQE GaSb and GaN strategy, especially in infrared and space imaging. IQE holds GaSb substrate manufacturing capacity in Spokane, Washington, and in Milton Keynes in the UK, creating a transatlantic supply base. The company has shipped its first commercial 6-inch GaSb epiwafers for large-area sensor products used in advanced space and satellite imaging.

These technology milestones are now backed by tangible orders. IQE secured a first-year $1.7mn purchase order for GaSb epitaxial wafers under a three-year agreement with a long-standing infrared sensing customer. It also landed a $4.1mn purchase order for antimonide substrates, with deliveries running into 2026. These sensors target industrial, aerospace and security applications, where long qualification cycles favour stable, specialist suppliers.

Meanwhile, photonics revenue remained broadly flat at £26.6mn in the first half, compared with £26.8mn a year earlier. Strong InP demand for AI-driven data communications offset delays in US military and defence infrared programmes. IQE also launched a 6-inch foundry platform for silicon photonics, positioning GaSb and InP technologies inside emerging AI and hyperscale data centre architectures.

GaN power growth, AI demand and risks to IQE GaSb and GaN strategy

On the GaN side, IQE is expanding reactor capacity for 8-inch GaN-on-silicon targeted at gesture recognition in AR and VR displays. At the same time, it is developing high-voltage (>1,000V) GaN technologies, including vertical GaN and GaN-on-sapphire, to serve automotive power electronics and radar markets. These developments reinforce how GaN power is becoming a key enabler for AI-era data centre power needs and high-efficiency conversion.

Management sees this GaN power pivot as crucial to long-term growth. Chief executive Jutta Meier highlighted the diversification into GaN power and connectivity as the right strategy, citing surging AI-related infrastructure and communications demand. IQE expects to benefit from the exit of a key GaN foundry player, which could free market share for its expanded platform. Multiple Tier 1 design wins in laser and detector products for AI and hyperscale data centres signal that the IQE GaSb and GaN strategy is already landing important customers.

Yet the investment case also carries risks. First-half group revenue fell to £45.3mn from £66mn, driven by a 52pc collapse in wireless revenue to £18.6mn. Overhang from 2024 inventory builds, tariff uncertainty and weak smartphone demand continue to weigh on handset-linked GaAs volumes. IQE expects wireless inventories to normalise only from 2026 and now guides 2025 revenue at £90-100mn, down from £118mn in 2024. The success of the IQE GaSb and GaN strategy must therefore offset a structurally weaker wireless segment and fund ongoing capacity shifts.

The Metalnomist Commentary

IQE is moving from a broad, handset-heavy portfolio toward a more focused, higher-margin mix centred on GaSb sensing, GaN power and AI photonics. That repositioning strengthens its appeal as a strategic target for buyers seeking exposure to AI infrastructure and defence-linked semiconductors. The key question is whether GaSb and GaN growth can ramp fast enough to stabilise revenues before wireless markets recover.

IQE InP Capacity Positions UK Wafer Producer for AI Data Centre Demand

IQE

IQE InP capacity gives the UK compound semiconductor wafer producer a stronger position as artificial intelligence infrastructure drives demand for faster optical data transmission. The company says it has enough capacity to ramp output for AI infrastructure, aerospace and defence, and wireless markets in 2026.

IQE InP capacity is becoming more strategically important because indium phosphide supports high-speed photonic products used in data centres. These systems need faster, lower-latency connectivity as AI workloads increase.

IQE InP capacity could also be expanded by converting some gallium arsenide capacity if customer commitments support the move. That flexibility gives IQE a way to respond to demand without large immediate capital spending.

The company expects 2026 revenue to grow by more than 20%, supported by strong demand across core segments and a sharper recovery in photonics.

InP and GaN Demand Strengthens With AI Infrastructure

Indium phosphide demand is rising because AI data centres require ultra-fast optical and wireless communications. High-performance photonics are becoming essential as data movement becomes a bottleneck in AI infrastructure.

IQE produces InP, gallium nitride, gallium arsenide and gallium antimonide wafer products and material systems. The company sees the strongest opportunities in InP and GaN.

The AI buildout helped turn IQE’s business around in the second half of last year. First-half revenue had been pressured by tariff uncertainty, weakness in wireless handsets, customer inventory builds and delays in military and defence funding.

Photonics revenue rose by 15% to £57.1mn in 2025, supported by AI, data centres and the release of funding for some US military and defence programmes.

GaN is also gaining relevance. Demand for GaN power semiconductors is being driven by data centres, aerospace, defence and space applications, where efficiency, power density and heat resistance are critical.

GaAs remains relevant in wireless and sensing markets. IQE’s message is that InP may be leading the current growth cycle, but it sits inside a broader compound semiconductor materials platform.

Supply Security and Customer Commitments Will Decide Expansion

IQE’s capacity position improved after US chipmaker Macom invested in the company last month. The investment allowed IQE to avoid a sale process and retain manufacturing sites in the UK, US and Taiwan.

Each site has its own technology focus and capacity to scale production without major new capital expenditure. But any expansion must be supported by customer engagements, commitments or financing.

That condition matters because compound semiconductor supply chains require long qualification cycles. Customers need reliable wafer quality, secure supply, technical consistency and predictable production before committing to larger volumes.

IQE is also working with suppliers to reduce exposure to shortages in InP materials. The company is looking to dual-source or expand sourcing capabilities so it does not depend on a single supplier.

This highlights a wider materials issue. AI infrastructure is increasing demand not only for chips, but also for specialised semiconductor materials such as indium, gallium, phosphorus and antimony-based systems.

For IQE, the opportunity is clear. If AI, defence and wireless demand remain strong, the company can use its existing asset base to scale higher-value wafer production.

The challenge is execution. IQE must secure firm customer commitments, manage raw material sourcing and convert technical capacity into qualified volume growth.

The Metalnomist Commentary

IQE’s outlook shows that AI infrastructure is pulling compound semiconductors deeper into strategic supply-chain planning. The next bottleneck may not only be chip design, but access to qualified InP, GaN and GaAs wafer capacity.

InP and GaN Wafer Supply Deal Strengthens Macom’s Compound Semiconductor Chain

Macom

InP and GaN wafer supply has become a strategic priority for Macom Technology Solutions as the US semiconductor manufacturer invests in UK-based compound semiconductor wafer supplier IQE. The investment secures long-term epitaxial wafer services and strengthens Macom’s access to materials used in photonics, defence, satellites and 5G telecom systems.

Macom has committed £45mn as part of an £81mn investor package for IQE. The financing includes £23mn of reinvestment from convertible loans and will allow IQE to repay debt while funding core technologies such as indium phosphide and gallium nitride.

InP and GaN wafer supply is increasingly important because both materials sit at the centre of high-performance semiconductor applications. Indium phosphide supports optical transmission and silicon photonics, while gallium nitride enables high-frequency, high-power radio frequency and defence electronics.

The investment also allows IQE to end its strategic review. The company had considered selling or spinning out operations in Taiwan and later examined a possible full sale of the business. Those discussions have now been terminated.

Macom Secures Materials for Photonics and Data Centres

Macom said it will sign long-term supply agreements with IQE across multiple epitaxial technologies. These agreements will support scalable, high-volume manufacturing and strengthen supply-chain resilience.

This matters because AI data centres are driving rapid growth in optical transmission technologies. As computing loads rise, data centres need faster and more energy-efficient data movement between chips, servers and racks.

Indium phosphide is a critical material for lasers and photonic components used in optical networks. It has become a key bottleneck as demand from AI infrastructure, cloud computing and high-speed communications accelerates.

Macom’s strategy includes expanding laser and silicon photonic-based optical transmission products. Long-term InP and GaN wafer supply from IQE gives the company more confidence as it scales these technologies.

IQE also benefits from the arrangement. The funding improves its balance sheet and gives the wafer supplier stronger customer visibility from an existing key customer.

For the compound semiconductor industry, the deal shows how customers are moving closer to upstream wafer suppliers. Securing epitaxial capacity is becoming as important as chip design when materials availability is tight.

GaN Demand Links Defence, Satellites and 5G

Gallium nitride is another core part of Macom’s growth strategy. GaN is used in radio frequency sensors, amplifiers and other components for defence, satellite and 5G telecom systems.

These applications require materials that can handle high power, high frequency and demanding operating conditions. GaN offers performance advantages over conventional silicon in several advanced RF and power applications.

Macom is also developing advanced GaN-on-silicon processes and installing new equipment to modernise and expand manufacturing capabilities. This points to a broader push to scale production while improving cost and process efficiency.

IQE’s manufacturing footprint gives the partnership wider supply-chain relevance. The company operates two sites in south Wales, a facility in Milton Keynes, four plants in the US and operations in Taiwan.

IQE expects revenue to grow by more than 20% in 2026. The company cited strong demand from AI and data-centre photonics, laser and wireless products for smartphones, and continued strength in aerospace and defence.

The transaction also gives Macom a governance role, as the company will join IQE’s board. This deepens the relationship from customer-supplier contracting into strategic influence.

InP and GaN wafer supply will remain critical as semiconductor demand becomes more materials-intensive. Data centres, defence electronics, satellites and telecom infrastructure all need reliable compound semiconductor capacity.

The Metalnomist Commentary

Macom’s investment in IQE shows that semiconductor supply security is moving upstream into compound wafer materials. As AI data centres and defence RF systems expand, control over InP and GaN capacity will become a strategic advantage, not just a procurement issue.

Tower Semiconductor InP Wafer Deal Secures AI Photonics Supply

iQE

Tower Semiconductor InP wafers will be supplied by UK-based IQE under a long-term agreement supporting next-generation optical connectivity products for artificial intelligence data centres. The deal strengthens Tower's access to indium phosphide epiwafers as demand for high-speed photonics accelerates.

Tower Semiconductor InP wafers will be used across several silicon photonics platforms, including technology for 200 Gb/s per lane optical transceivers and prototype 400 Gb/s per lane modulators. These components are designed to handle the rapidly increasing data requirements of AI training and inference systems.

Tower Semiconductor InP wafers have become strategically important because AI data centres require faster connections between servers, switches and accelerators. Indium phosphide is particularly suited to lasers and modulators operating at optical communications wavelengths.

The agreement includes minimum purchase commitments from Tower and reciprocal supply obligations from IQE, giving both companies greater visibility as they prepare for higher production volumes.

AI Data Centres Accelerate InP Photonics Demand

AI infrastructure is pushing optical networking requirements beyond traditional telecom applications. Larger computing clusters need higher bandwidth while also reducing the amount of electricity consumed moving data between processors.

InP plays a central role because it can efficiently generate and manipulate light for high-speed optical transmission. This makes it valuable for lasers, modulators and other photonic devices integrated with silicon-based platforms.

Tower plans to use IQE material for 200 Gb/s per lane pluggable transceivers and is also developing 400 Gb/s per lane modulators. Optical circuit switching represents another potential application as hyperscale data centres seek more efficient network architectures.

Commercial commitments are already building around Tower's expansion. The company has signed $1.3bn of silicon photonics contracts linked to 2027 revenue and received $290mn in customer prepayments to reserve production capacity.

These figures highlight how optical connectivity is becoming a major infrastructure bottleneck alongside processors, memory and power supply.

Supply Commitments Highlight Tight InP Capacity

The agreement is also important because global InP wafer availability remains constrained. IQE has been working with multiple suppliers to secure enough material as semiconductor manufacturers compete for capacity.

The minimum volume commitments give IQE a clearer demand base for future investment while providing Tower with greater supply certainty.

IQE recently secured investment and purchase commitments from US semiconductor manufacturer Macom, helping the company avoid a potential sale and reinforcing its position in the compound semiconductor market.

As hyperscalers such as Amazon and Google continue expanding AI infrastructure, more semiconductor manufacturers may seek long-term contracts to secure InP supply.

The Tower-IQE deal therefore reflects a broader shift in the semiconductor supply chain. Access to advanced materials is becoming as strategically important as chip fabrication capacity itself.

Under a separate agreement, Tower will also provide IQE with a worldwide royalty-free licence covering porous silicon patents, resolving previous intellectual property litigation between the companies.

The Metalnomist Commentary

InP is moving from a specialist telecom material into a core AI infrastructure input. As optical bandwidth requirements rise, long-term wafer supply agreements could become increasingly important to securing semiconductor capacity.

Lumentum Indium Phosphide Capacity Expansion Targets AI Optical Demand

Lumentum

Lumentum indium phosphide capacity is set to expand in the US as the photonics manufacturer increases production for artificial intelligence and cloud infrastructure. The company is preparing a new North Carolina facility focused on six-inch InP wafer production.

Lumentum indium phosphide capacity is strategically important because InP is a critical material for high-speed laser chips used in optical transceivers. These devices move large volumes of data between servers, switches and accelerators inside AI data centres.

Lumentum indium phosphide capacity expansion also reflects a broader shortage of compound semiconductor manufacturing capacity. AI infrastructure is now creating a new demand channel for InP beyond traditional telecom and sensing applications.

The company has ordered multiple InP production systems from German equipment supplier Aixtron. The North Carolina site is expected to open by mid-2028.

Nvidia Deal Anchors US InP Manufacturing Growth

Part of Lumentum’s future production is already committed to Nvidia under a multibillion-dollar supply agreement for advanced InP laser components. Nvidia is also investing $2bn in Lumentum’s manufacturing expansion.

That commercial backing is important because compound semiconductor fabs require large capital investment and long qualification cycles. Firm customer commitments reduce the risk of adding capacity ahead of demand.

AI data centres require increasingly fast optical links as computing clusters grow larger. Copper interconnects remain important at shorter distances, but optical systems become more critical as bandwidth and transmission distance increase.

InP laser chips sit at the centre of that shift. They enable high-speed optical transceivers used to connect servers and networking equipment inside cloud and AI infrastructure.

These AI-related applications now account for around 10% of global InP demand. That share could rise as data-centre operators move toward higher-speed optical architectures.

The expansion therefore gives Lumentum exposure to one of the fastest-growing segments of the semiconductor materials market.

Structural Supply Constraints Lift InP Investment

Global InP manufacturing capacity remains limited, prompting producers in several regions to expand.

UK semiconductor producer IQE has said it could convert some gallium arsenide capacity to InP if customer demand continues to strengthen. That illustrates how manufacturers are reallocating compound semiconductor assets toward higher-growth photonics markets.

Chinese producer AXT is also expanding aggressively. The company plans to double InP capacity in 2026 and again in 2027 to serve growing data-centre demand.

This competition shows that InP is becoming a strategic material rather than a niche semiconductor substrate. Supply availability, wafer quality and production scale will increasingly affect optical component growth.

For AI infrastructure, the bottleneck is shifting beyond processors. High-performance computing also depends on optics, power electronics, cooling and materials capable of moving data efficiently.

The next phase of AI investment will therefore benefit companies positioned in these supporting supply chains. Lumentum’s North Carolina expansion places InP wafer production directly inside the US manufacturing ecosystem.

The Metalnomist Commentary

AI growth is turning indium phosphide into a strategic semiconductor material, not just a telecom input. The companies that secure wafer capacity and qualified laser production early could gain significant leverage as optical connectivity becomes a core data-centre bottleneck.