Summary of Key Points
Yunnan Germanium Industry achieved remarkable performance in the first half of 2026, with revenue and net profit (especially non-recurring net profit) doubling or even increasing several times year-on-year, primarily driven by its indium phosphide chip business. This growth is fueled by the surge in demand for AI data centers, which has led to both increased demand and prices for indium phosphide. The entry of prominent investor Zhang Jianping and the signing of large supply contracts have also drawn attention from the capital market. However, the indium phosphide business is still relatively small, and there is uncertainty regarding its impact on future performance.
I. Explosive Performance: The Main Business Is Really “Making Big Money”; Indium Phosphide Is the Core Driver
Yunnan Germanium Industry's revenue for the first half of the year was 732 million yuan (a 38% year-on-year increase), and its net profit was 74.27 million yuan (a 235% increase). The most impressive figure is the non-recurring net profit, which soared by 770% to 66.9 million yuan. Non-recurring net profit reflects the “real profit” after excluding incidental income such from asset sales, indicating that the company's main business (especially indium phosphide) is growing at a rapid pace.
Compound semiconductor revenue accounted for less than 20% of total revenue (19.42%) but increased by 154.57%, significantly boosting overall performance. The company also secured large indium phosphide supply contracts worth between 570 million and 855 million yuan, which represents 53% to 80% of last year's annual revenue, ensuring a stable income source for the next one to two years.
II. Why Has Indium Phosphide Suddenly Become So Popular? The “Essential Need” for High-Speed Data Transmission in AI Data Centers
What is indium phosphide? Simply put, it is a material that can convert electrical signals into optical signals (or vice versa) and is essential for 800G and higher-speed optical communications. AI data centers, which process massive amounts of data, require high-speed optical modules (such as 800G and 1.6T), and the amount of indium phosphide used in these modules increases significantly with speed upgrades. For example, the demand for indium phosphide may double when upgrading from 800G to 1.6T.
Moreover, the technical barriers for indium phosphide are extremely high: only three companies—Sumitomo Electric, AXT of the United States, and JX Metal—control more than 90% of the global market share. New companies face significant challenges in entering the market due to strict certification requirements, making it difficult to quickly fill the supply gap.
III. How Large Is the Supply-Demand Gap? Prices Have Rose by 70% in Half a Year; Everyone Is Competing for It
The surge in demand, combined with supply monopolies, has led to a dramatic increase in indium phosphide prices:
- The price of 4-inch indium phosphide substrates (the basic material for chips) rose from around 3,700 yuan at the beginning of the year to 6,500–7,500 yuan per piece, a 73% increase in just half a year.
- The price of the upstream raw material, refined indium, increased from 2,980 yuan per kilogram to 5,350 yuan per kilogram, a 80% increase.
Demand is expected to continue to grow: According to Yole Group, the compound annual growth rate for indium phosphide substrates is expected to exceed 18% from 2026 to 2031, driven mainly by AI data centers and high-speed optical communications. Leading global manufacturers, such as JX Metal in Japan, are investing heavily in capacity expansion (120 billion yen over four years to increase production by 7–10 times), but it will take time for new capacity to be available, so the supply gap will not be resolved immediately.
IV. Capital Market Excitement, But Risks Cannot Be Ignored
The enthusiasm for indium phosphide has spilled over into the stock market: Yunnan Germanium Industry's stock price hit consecutive daily limits at the beginning of the month due to the indium phosphide trend, and prominent investor Zhang Jianping became the fourth-largest shareholder (holding 1.02% of the shares), indicating that professional investors are optimistic about this sector.
The company has also highlighted potential risks: indium phosphide business currently accounts for less than 20% of total revenue, and although it is growing rapidly, its impact on overall performance remains uncertain. Additionally, capacity expansion takes time, and if supply increases in the future, prices may stabilize. Investors should be cautious and avoid chasing high prices blindly.
V. AI Is Reshaping the Semiconductor Supply Chain; Indium Phosphide Is Just the Beginning
Analysts believe that AI is transforming the entire compound semiconductor industry. Not only is indium phosphide used for high-speed data transmission, but silicon carbide (SiC) can also help data centers save energy. As AI systems evolve from vertical expansion to horizontal integration, the applications for indium phosphide will become even more widespread—for example, with shorter connection distances, potentially leading to further increased demand. This suggests that the high demand for indium phosphide is not a short-term phenomenon but a long-term trend of the AI era.
In summary, Yunnan Germanium Industry's performance growth reflects the impact of the AI revolution. The value of indium phosphide as a core material is being recognized by the market, but investors should also consider the risks associated with the business’s scale and potential changes in supply in the future.
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