Nokia Is Buying a Closed Semiconductor Fab for $1.35 Billion to Solve a 70% Supply Gap in Optical Chips
By OFOKI TECH | August 7, 2026
On August 5, 2026, Nokia signed a definitive agreement to acquire NXP Semiconductors’ manufacturing facility in Chandler, Arizona, for $1.35 billion. The fab, which opened in September 2020 and produced RF gallium nitride chips until NXP announced its closure in late 2025, will be converted to manufacture indium phosphide optical components. Nokia will lease part of the facility starting in early 2027 and complete the full acquisition in the first quarter of 2029.
The InP Supply Crisis
The acquisition is a response to a supply crisis that has no obvious short-term solution. Indium phosphide, a compound semiconductor used in optical transceivers for data centers, is in critically short supply. Yole Group predicts global demand for InP substrates will reach 2.6 to 3 million pieces in 2026, while effective production capacity sits at roughly 750,000 pieces. That is a gap of over 70%. Orders from leading optical module companies are backlogged to 2028.
Jensen Huang, CEO of NVIDIA, predicted in March 2026 that global demand for InP wafers would increase approximately 20 times from 2026 to 2030. The company invested $2 billion each in Coherent and Lumentum, the two largest InP suppliers, and signed multi-billion-dollar purchase agreements to secure supply.
Nokia’s Vertical Integration Strategy
Nokia is not entering this market from scratch. In February 2025, the company acquired Infinera, gaining an InP wafer fab in San Jose, California, and a back-end packaging facility in Pennsylvania. The San Jose fab is on track to begin ramping production in the fourth quarter of 2026. During the second quarter of 2026, Nokia announced a 10x capacity increase at the Pennsylvania plant.
The financial rationale is compelling. Nokia’s optical networking revenue grew 20% year-over-year in the first quarter of 2026. In the second quarter, network infrastructure revenue reached €2.04 billion, with optical networks contributing €868 million (up 20%) and AI and cloud customer revenue specifically growing 105% year-over-year to €446 million. CEO Justin Hotard told investors that the addressable market in AI and cloud is now expected to grow at a 27% compound annual rate from 2025 to 2028.
The Market Structure
The market dynamics are straightforward. AI data centers require optical interconnects to move data between chips, servers, and buildings. As training clusters scale from thousands to tens of thousands of GPUs, electrical signaling becomes impractical. InP is the material of choice because its electron mobility is more than ten times that of silicon, and it can support signal processing above 100GHz.
The problem is concentration. Sumitomo Electric holds approximately 60% of the substrate market. AXT, through its Beijing subsidiary Tongmei, holds about 35%. Coherent, Lumentum, and MACOM collectively hold over 68% of the InP laser market. This concentration creates a brittle supply chain.
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