According to Digitimes data, the global server shipment volume has ended a continuous six-quarter year-on-year decline, achieving a year-on-year growth of 5.9% and a sequential growth of 7.3% in 2024Q2. The recovery of the PC and server market is expected to drive the回暖 of the ABF substrate industry. In addition, the peak of capital expenditure for major substrate manufacturers has passed, and most of the capacity in Taiwan has been released in 2024H1 or earlier. After continuous high investment in the substrate industry from 2020 to 2023, a large amount of capacity has been released, and subsequent expenditures have been temporarily suspended. Therefore, the competitive pressure on the supply side of the ABF substrate industry is expected to continue to weaken. Coupled with the recovery of demand for PCs and general-purpose servers and the increase in the AI market, the industry believes that the ABF substrate industry will bottom out and recover in 2024.
The main points are as follows:
IC packaging substrates are the core materials in the chip packaging process. IC packaging substrates not only provide support, heat dissipation, and protection for chips but also provide electronic connections between chips and PCBs, playing a "connecting" role. IC packaging substrates are mainly divided into BT substrates and ABF substrates according to the substrate material. The supply pattern of IC substrates is concentrated, with a CR5 of up to 72% in the ABF substrate field. At the same time, the asset value ratio in the IC substrate industry is low, about 3.4%, and there is a broad space for domestic substitution.
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PCs and servers constitute the core demand for ABF substrates, and signs of recovery in the PC and server market have appeared. Ajinomoto data show that in 2017, PCs accounted for a higher proportion of ABF materials in terminal applications than servers, but it is expected that 75-85% of ABF material demand will come from servers and network markets by 2030. Tracking the PC and server market in 2024Q2, we observed that after eight consecutive quarterly year-on-year declines, the traditional PC market has welcomed two consecutive quarters of year-on-year growth. According to IDC data, the global shipment volume in 2024Q2 reached 64.9 million units, a year-on-year increase of 3.0%. According to Digitimes data, the global server shipment volume ended a continuous six-quarter year-on-year decline, achieving a year-on-year growth of 5.9% and a sequential growth of 7.3% in 2024Q2. The recovery of the PC and server market is expected to drive the回暖 of the ABF substrate industry.
AI and high-performance computing are the sources of market growth for ABF substrates. Under the demand for AI and high-performance computing, ABF substrates are developing towards higher layers and larger areas. According to IBIDEN display materials, the average area of ABF substrates for a single data center chip is 2.5 times the number of layers and 3.6 times the area of ABF substrates for a single PC chip. IC substrates manufactured using SAP as the manufacturing process are distinguished between PCs and servers. In 2021, the value of server substrates was 6.5 times that of the PC side, and by 2025, the value of server substrates will further increase, becoming 9 times that of the PC side substrates. In AI server applications, ABF substrates are the core PCB products in AI servers. Taking the DGX A100 server as an example, the cost of ABF substrates accounts for about half of the overall PCB cost.
Tracking ABF substrate supply chain companies, the following two important trends have been observed:
1) The prosperity of high-end and low-end substrates is differentiated: The production time of the Gama factory newly built by ABF substrate leader IBIDEN (mainly producing PC substrates) will be postponed from 2024 to 2026. The Ono factory, which focuses on high-performance products such as AI servers, will go into production as planned in 2025. The progress of expansion plans indicates that the prosperity of high-end ABF substrates is better than that of low-end products.
2) The peak of capital expenditure for major substrate manufacturers has passed, and most of the capacity in Taiwan has been released in 2024H1 or earlier: In 2024, the capital expenditure on substrates for AT&S, Xingxin, NanDian, and JingShuo has all decreased significantly. The expansion of AT&S's Kulim II factory may be temporarily suspended, and the expansion capacity of NanDian and JingShuo has been released in 2024H1 or earlier, and no subsequent expansion plans have been seen. After continuous high investment in the substrate industry from 2020 to 2023, a large amount of capacity has been released, and subsequent expenditures have been temporarily suspended. Therefore, the competitive pressure on the supply side of the ABF substrate industry is expected to continue to weaken. Coupled with the recovery of demand for PCs and general-purpose servers and the increase in the AI market, the industry believes that the ABF substrate industry will bottom out and recover in 2024.
