IET-KY Chairman Cites InP Substrate Impact on Short-Term Operations Amid Strong Demand

Taiwanese semiconductor firm IET-KY (4971) announced a significant improvement in its financial performance for the first half of the year, with revenue climbing 15.57% year-on-year to NT$588 million and operating profit surging nearly 80%. The company achieved a net profit of NT$98 million, turning around from a loss in the same period last year, and posted an earnings per share (EPS) of NT$2.31. This growth reflects a substantial increase in gross profit margin, which rose to 41.81% from 34.57% previously.

Despite the positive financial turnaround, Chairman Kao Yung-chung cautioned that short-term operations remain impacted by supply constraints of Indium Phosphide (InP) substrates. These substrates are crucial for high-speed optical communication components used in AI data centers, a sector experiencing robust demand. A production halt by a major Japanese InP substrate supplier during Golden Week in May led to insufficient supply, limiting shipments and causing a dip in gross profit margin to 34.0% in the second quarter from 47.8% in the first.

Kao emphasized that the underlying market demand for InP has not weakened; rather, the substrate availability is the primary bottleneck. To address this, IET-KY is actively pursuing multiple strategies. These include guiding clients to use substrates from various suppliers, negotiating for larger quotas from existing manufacturers, and expanding the use of large clients' self-provided substrates for production. The company is also leveraging InP substrate grinding and recycling technology for R&D orders and working with a German supplier to improve yield and technical issues.

Looking ahead, IET-KY's growth hinges on the improvement of InP substrate supply. The company is also progressing with its expansion plans, with the second phase of its new plant in Texas expected to be completed in the first quarter of next year. The firm is also in the process of securing funding from the US CHIPS Act, with contract signing targeted for later this year. If substrate supply issues are resolved, IET-KY anticipates a significant increase in InP shipments and production capacity utilization, driving further revenue and profit growth.