The Critical Minerals Gap: Compound Semiconductors in the Defense Supply Chain

The Gap in Critical Minerals Frameworks

Several national and multilateral frameworks identify materials essential to defense, energy, and technology supply chains. The U.S. Geological Survey (USGS), under the Department of the Interior, maintains a Critical Minerals List, most recently updated in 2025, which includes gallium and indium as critical minerals.^[5] The European Commission's Critical Raw Materials Act (2024) similarly lists gallium and germanium.^[6] Australia's Critical Minerals Strategy (2023–2030) covers rare earths, lithium, cobalt, graphite, and gallium.^[12]

These frameworks share a common gap: while raw gallium is classified as critical, the processed compound semiconductor materials derived from it—InP, GaAs, GaN, and GaSb—are not separately classified. This matters because the supply chain risk profile of a finished InP substrate is distinct from that of raw gallium. The substrate manufacturing step introduces a different set of geographic concentrations, a different set of controlling companies, and a different set of export control authorities.

They fall between mining policy (which covers gallium ore) and semiconductor policy (which covers logic chips), and are addressed by neither.

This matters for defense because compound semiconductor substrates and epitaxial wafers gate the production of specific weapon system components. If substrate supply is disrupted, the downstream photonic components cannot be manufactured regardless of available fabrication capacity. The dependency is structural, not substitutable on relevant timescales.

The Compound Semiconductor Supply Chain

The compound semiconductor photonics chain consists of seven layers, from raw substrate production to finished optical modules. Each layer has distinct companies, geographic concentrations, and barrier-to-entry characteristics. The "moat score" (1–10) reflects the difficulty of establishing a new supplier at that layer, based on qualification time, capital intensity, and technical complexity.

Three patterns emerge from this mapping:

The upstream layers are the most concentrated. Substrates (Layer 1) and epitaxy (Layer 2) have the fewest suppliers and the highest qualification barriers. A new epitaxy supplier requires years of process development and customer qualification. These layers are where disruption risk is highest and substitution timelines are longest.

Geographic risk peaks at different points for different reasons. Substrate manufacturing concentrates in China (AXT/Tongmei) with alternatives in Japan and the UK—creating export control risk. Epitaxy concentrates in the UK (IQE) and Taiwan—creating single-point-of-failure risk. Foundry concentrates in Taiwan (TSMC, WIN Semi)—creating geopolitical risk. No single geography dominates the entire chain, but each layer has its own concentration vulnerability.

The test layer has the highest moat. Photonic wafer-level test (Layer 5) is a near-duopoly of US companies (Teradyne, FormFactor). While this reduces foreign dependency, it also means that capacity constraints at either company could bottleneck the entire downstream chain.

Layer detail

Market share estimates are derived from company disclosures and industry analysis. Moat scores are assessed by ForcedAlpha based on qualification time, capital requirements, and technical complexity. See Methodology for details.

The China Export Control Parallel

China's export controls on compound semiconductor materials follow the same pattern as its rare earth export restrictions: a controlling state restricts exports of a strategically important material for which it holds dominant production capacity. The parallel is structural, not coincidental.

Two differences are worth noting. First, compound semiconductor supply chains involve fewer companies—the substrate and epitaxy layers are more concentrated than rare earth processing. This means that disruption affects a smaller number of entities but with higher per-entity impact. Second, rare earth alternatives (MP Materials, Lynas) have received significant government investment; compound semiconductor alternatives have not received comparable support.

Defense Systems at Risk

Compound semiconductor photonics serve as enabling components in multiple weapon system categories. The dependency is not theoretical: III-V compound semiconductor materials are physically present in fielded systems. The following mapping identifies the photonic component, the supply chain layer it depends on, and the concentration risk at that layer.

A pattern repeats across these categories: the epitaxy layer (Layer 2) appears as a bottleneck in four of six application categories. IQE's Cardiff facility, which serves as the primary outsourced epitaxy source for both defense IR detectors and commercial photonics, represents a single point of failure that spans multiple weapon system families.

The substrate layer (Layer 1) is the second most common bottleneck, appearing in three categories. AXT/Tongmei's Beijing manufacturing facility is the primary source of InP and GaAs substrates, and is now subject to Chinese per-order export permits.^[1][3]

The Dual-Use Convergence

The compound semiconductor supply chain simultaneously serves defense photonics and the AI datacenter buildout. IQE's epitaxial wafer lines produce both IR detector wafers for missile seekers and InP epi for 800G and 1.6T transceiver laser sources. The same three-company bottleneck (AXT substrates, IQE epitaxy, Aixtron/Veeco equipment) constrains both demand streams.

This dual-use convergence distinguishes compound semiconductors from rare earths in one important respect: rare earth demand is primarily industrial and defense, while compound semiconductor epitaxy faces simultaneous demand from a rapidly expanding commercial market.

Policy Implications

The supply chain mapping in this analysis suggests four areas where existing policy frameworks could be extended:

1. Framework inclusion. InP, GaAs, GaN, and GaSb should be evaluated for explicit inclusion in the USGS Critical Minerals List and equivalent allied frameworks (EU CRM Act, Australia's Critical Minerals Strategy). These processed materials exhibit the same concentration, export control, and defense dependency characteristics as mined critical minerals already on these lists. The current classification gap—where raw gallium is listed but finished compound semiconductor substrates are not—leaves a structurally important material class without dedicated monitoring or policy attention.
2. Export control monitoring parity. China's per-order permit regime for InP (since February 2025^[1]) and GaAs (since August 2023^[2]) warrants the same monitoring infrastructure applied to rare earth export controls. This includes tracking permit approval rates, processing delays, and any escalation of restrictions to entity-specific or end-use-specific blocks.
3. Domestic capacity assessment. US sovereign compound semiconductor substrate and epitaxy capacity is limited. CHIPS and Science Act funding^[7] has concentrated on logic and memory fabrication facilities; III-V compound semiconductor facilities have received comparatively less attention. An assessment of domestic capacity relative to defense demand requirements would clarify whether investment gaps exist.
4. Allied supply chain coordination. Non-China compound semiconductor capacity is distributed across allied nations: the UK (IQE epitaxy), Germany (Aixtron equipment), Japan (Sumitomo substrates), Israel (Tower Semi foundry), and the US (Veeco equipment, GlobalFoundries foundry, Teradyne test). Coordination frameworks comparable to the Minerals Security Partnership could strengthen supply chain resilience across these allied nodes.

Methodology

This analysis draws on ForcedAlpha's supply chain knowledge graph, a structured dataset mapping material, component, and company dependencies across defense and technology supply chains.

Data sources. Company data is drawn from SEC filings (Form 10-K, 8-K), annual reports, and corporate disclosures. Export control data is sourced from China MOFCOM official announcements. Defense system dependencies are identified from open-source procurement data, DOD budget documents, and manufacturer disclosures. Market share estimates are derived from company disclosures and industry research; where estimates are used, they are noted as such.

Scope. This analysis maps supply chain dependencies. It does not predict the likelihood of supply disruptions, estimate financial impact, or recommend policy actions. Moat scores are ForcedAlpha's assessment of supplier replaceability based on qualification time, capital intensity, intellectual property barriers, and alternative supplier count. They are ordinal, not cardinal—a moat score of 9 indicates higher barriers to entry than 7, but should not be interpreted as a precise quantitative measure.

Limitations. Classified defense procurement data is not included. Some defense photonic component suppliers operate under ITAR restrictions that limit public disclosure. Market share estimates for privately held companies (e.g., Innolight) are based on industry reports and should be treated as approximate.

How to Cite This Analysis

When citing specific data points, please note the data source as indicated in the footnotes below. The underlying knowledge graph data is available for research use on request.