On August 5 local time, global telecommunications equipment giant Nokia announced the signing of a definitive agreement to acquire NXP’s semiconductor manufacturing facility located in Arizona, United States.
Nokia plans to convert the site into production lines for indium phosphide (InP) photonic chips. The acquisition is expected to close in the first quarter of 2029, while pilot mass production will kick off in early 2027 by leasing portions of the plant. This represents a rare instance of a communications equipment vendor purchasing a manufacturing facility for in‑house chip production, signalling Nokia’s accelerated transformation into a data‑centre infrastructure enterprise.
As AI data‑centre communications shift from conventional copper cabling to optical fibre, demand for indium phosphide photonic chips — a core component — has surged. Unlike silicon deployed for computing and storage, indium phosphide enables bidirectional conversion between electrical and optical signals, making it fundamental to optical communications hardware. Sky‑rocketing AI traffic renders high‑bandwidth, high‑speed optical communications critical for resolving transmission bottlenecks. Market research indicates demand for optical transceivers has exceeded available indium phosphide supply by more than two‑fold.
Notably, AI chip heavyweight Nvidia invested USD 2 billion each in two major InP manufacturers, Coherent and Lumentum, back in March 2026 to secure supply contracts for indium phosphide photonic chips. Lumentum’s CEO warned that indium phosphide shortages could outpace memory shortages in severity. Whereas legacy telecommunications customers placed orders in the hundreds, AI giants such as Nvidia generate demand reaching hundreds of millions of units.
Given the extreme scarcity of global indium phosphide fabs and limited foundry capacity, Nokia opted to secure direct control over production capacity to guarantee stable InP chip supply and fulfil its equipment order book. Nokia’s newly‑appointed CEO Justin Hotard stated the acquisition aims to secure captive manufacturing capacity and deliver greater operational flexibility amid constrained market supply. The move also mirrors Nvidia’s strategic pivot following its mobile‑business divestment. Back in 2025, Nvidia completed the acquisition of Infinera to obtain its California‑based indium phosphide fab and is ramping up output at its Pennsylvania packaging facility by ten‑fold.
Nokia posted net sales of EUR 4.815 billion in the second quarter of 2026. Within its results, optical‑communications revenue rose 20 % year‑on‑year, and sales to AI and cloud customers jumped 105 %, driving a 52.4 % surge in its share price across 2026. Its North‑American optical‑network market share climbed from 6.3 % in 2024 to 27.3 % in 2025, illustrating explosive market momentum. Nevertheless, market analysts caution that Nokia has yet to deliver the high‑profit margins anticipated by the market. In addition, high‑interest‑rate conditions may slow down data‑centre construction, representing operational risks and uncertainties for Nokia going forward.
(Reprinted from https://news.eccn.com/）