Nokia is buying an entire U.S. semiconductor plant to produce optical semiconductors for artificial intelligence (AI) data centers. It is unusual for a telecom equipment maker to go beyond sourcing parts to acquire a semiconductor plant and begin direct production. Nokia is seeking to transform from a telecom equipment maker into a data center infrastructure corporations in the AI era.
◇ Explosive surge in optical semiconductor demand driven by AI
On the 5th, according to Nokia, the company recently said in its second-quarter earnings announcement this year that it "signed a definitive agreement to acquire the Chandler, Arizona, U.S., semiconductor plant owned by NXP Semiconductors." Nokia will convert the plant into an indium phosphide (InP) semiconductor production line and begin mass production early next year by leasing part of the facility. The acquisition is planned to be finalized in the first quarter of 2029. Nokia noted, "Acquiring the Chandler plant will further strengthen our semiconductor manufacturing capabilities."
InP is one of the semiconductor materials like silicon. Unlike silicon semiconductors, which perform computing and storage functions, InP semiconductors convert electrical signals into light and light into electrical signals. That is why they are called optical semiconductors. They are key components of optical communication equipment, and as data center internal communications shift from copper (Cu) to optical, demand has surged recently. Until now, inexpensive copper handled data transmission, but with the spread of AI driving an explosion in traffic, optical communications, which lead in bandwidth and speed, have come to the fore.
The reason Nokia is producing InP semiconductors in-house is that there is virtually no one to make them instead. There are only a handful of fabs (plants) for InP semiconductors—such as U.S. firms Coherent and Lumentum—so there is no foundry (contract chip manufacturing) corporations with the scale to reliably handle AI data center volumes. Without a stable supply of InP semiconductors, Nokia cannot fulfill customers' optical equipment orders, so it chose to secure production capacity directly. CEO Justin Hotard explained the acquisition in the same vein, saying it is "to secure additional capacity to support our own demand while, given market supply constraints, ensuring we have greater optionality."
According to market research firm Futurum, current demand for optical transceivers (optical transmitters/receivers) exceeds supply by more than double due to an InP shortage. In March, Nvidia invested $2 billion (about 2.85 trillion won) each in Coherent and Lumentum and signed purchase agreements. Lumentum CEO Michael Hulston recently predicted, "The InP semiconductor shortage will become far more severe than the shortages of DRAM and NAND flash memory semiconductors." He said, "If existing customers—telecom equipment corporations—ordered optical semiconductor lasers in units of hundreds, Nvidia and hyperscale cloud corporations are demanding hundreds of millions."
◇ Nokia transforms into an optical communications corporations
Nokia's acquisition of the Chandler plant shows the company's center of gravity is shifting beyond parts internalization. After selling its mobile phone business institutional sector and shifting its main line to telecom equipment, Nokia is seeking to transform into a data center infrastructure corporations in the AI era. Last year, Nokia acquired optical equipment maker Infinera, and with it obtained Infinera's InP fab in California. Following the acquisition of the Chandler plant, it is investing to increase the production capacity of a packaging (back-end) plant in Pennsylvania by 10 times. The packaging plant was also obtained through the Infinera acquisition.
In fact, the optical communications business is driving Nokia's earnings growth. In the second quarter of this year, Nokia posted net sales of 4.815 billion euros, up 9% from a year earlier (excluding currency fluctuations hereafter), with optical communications net sales up 20% year over year. Net sales to AI and cloud customers rose 105% from a year earlier. Buoyed by this, Nokia's share price on the New York Stock Exchange has risen 52.4% this year.
The Wall Street Journal (WSJ) said, "Nokia's North American optical network market share grew from 6.3% in 2024 to 27.3% in 2025," and assessed that "Hotard, who oversaw the data center and AI division at Intel, was appointed Nokia's new CEO and is driving the expansion of Nokia's AI infrastructure business." Citing remarks by Amanda Lyons, head of Energy Group Capital Research, it reported, "Nokia is currently being valued like an AI corporations, but it has not yet proven the profitability expected of an AI corporations," adding that investors are worried about the impact of high interest rates on data center construction.