On August 5th, Nokia announced that it had signed a final agreement with NXP Semiconductors to acquire its semiconductor manufacturing facility located in Chandler, Arizona, USA. Nokia plans to transform this factory into an indium phosphide (InP) semiconductor production line, which will be used to produce optical semiconductors required for artificial intelligence data centers.

Strategic Acquisition

According to the plan, after obtaining the necessary regulatory approvals, Nokia will initially lease some facilities of this factory and start the mass production of InP in early 2027. The entire acquisition transaction of the factory is expected to be officially completed in the first quarter of 2029. Nokia CEO Justin Hotard stated in the second-quarter earnings call: “This new factory is expected to start production as early as 2029. Considering our production capacity planning, the San Jose factory will achieve mass production ramp-up in 2027, followed by incremental production capacity in 2029.”

InP Serious Shortage

The direct driving force behind this acquisition is the severe imbalance between supply and demand in the InP market. InP can convert electrical signals to optical signals and vice versa, and is the core component of optical communication equipment. As the internal communication architecture of AI data centers rapidly shifts from copper wires to optical fibers, the demand for InP has skyrocketed exponentially.

Market research company Futurum has pointed out that due to the insufficient InP production capacity, the current demand for optical transceivers has exceeded the supply by more than twice. According to Yole’s prediction, the global demand for InP substrates will soar to 2.6 million to 3 million pieces in 2026, while the effective production capacity is only about 750,000 pieces, leaving a gap of over 70%. The orders for InP substrates from leading optical module companies have been scheduled until 2028.

NVIDIA previously predicted that the overall global demand for InP wafers would increase by approximately 20 times from 2026 to 2030. In March 2026, NVIDIA made separate investments of 2 billion US dollars each in the two major global InP suppliers, Coherent and Lumentum, and signed multi-billion-dollar purchase agreements to ensure the supply of InP optical chips.

From Acquiring Infinera to Expanding Packaging Factory

In fact, this is not the first time that Nokia has deepened its optical and AI infrastructure layout through mergers and acquisitions. In 2025, Nokia completed the acquisition of the optical communication company Infinera, obtaining its InP wafer factory in California and the packaging back-end factory in Pennsylvania. Currently, Nokia is actively expanding the capacity of the packaging plant in Pennsylvania by 10 times. The new InP wafer factory in San Jose is also progressing as planned, and is expected to start mass production ramping in the fourth quarter of 2026.