Haitong Securities: PC and server markets are picking up, ABF carrier boards are recovering

The Zhitong Finance App learned that Haitong Securities released a research report stating that IC packaging substrates are mainly divided into BT carrier boards and ABF carrier boards according to the substrate material. According to Digitimes data, global server shipments ended six quarters of year-on-year decline. In 2024Q2, shipments achieved a 5.9% year-on-year increase and a 7.3% month-on-month increase. The recovery in the PC and server market is expected to drive the ABF carrier board boom to pick up. After continuing high investment in the carrier board industry in 2020-2023, a large amount of production capacity has been released, and subsequent spending has been suspended. Therefore, supply-side competitive pressure on the ABF carrier board industry is expected to continue to weaken. Combined with the recovery of demand-side PCs and general purpose servers and the increase in the AI market, the ABF carrier board industry will bottom out and recover in 2024.

Haitong Securities's main views are as follows:

IC packaging substrates are the core materials in the chip packaging process

The IC package substrate not only provides support, heat dissipation and protection for the chip, but also provides an electronic connection between the chip and the PCB, playing a “on-and-off” role. IC packaging substrates are mainly divided into BT carrier boards and ABF carrier boards according to the substrate material. The IC carrier board supply pattern is concentrated. CR5 in the ABF carrier board field is as high as 72%. At the same time, the share of asset value in the IC carrier board industry is low, about 3.4%, and there is plenty of room for domestic replacement.

PCs and servers form the core requirements of ABF carrier boards, and there are signs of recovery in the PC and server market

Ajinomoto data shows that in 2017, PCs accounted for a higher share of ABF material terminal applications than servers, but it is estimated that 75-85% of demand for ABF materials will come from the server and network market in 2030. Following the 2024Q2 PC and server market, it was observed that after eight consecutive quarters of decline, the traditional PC market ushered in two consecutive quarters of year-on-year growth. According to IDC data, global shipments in 2024Q2 reached 64.9 million units, an increase of 3.0% year on year. According to Digitimes data, global server shipments ended six quarters of year-on-year decline. In 2024Q2, shipments achieved a 5.9% year-on-year increase and a 7.3% month-on-month increase. The recovery in the PC and server market is expected to drive the ABF carrier board boom to pick up.

AI and high-performance computing are incremental sources for the ABF carrier board market

Under the demand for AI and high-performance computing, ABF carrier boards are developing in the direction of a higher number of layers and a larger area. According to IBIDEN presentation materials, the average ABF carrier board area of a single data center chip is 2.5 times the number of layers and 3.6 times the area of a single PC chip ABF carrier board. IC carrier boards using SAP as the manufacturing process are divided into PCs and servers. In 2021, the value of a server carrier board is 6.5 times that of a PC side, and by 2025, the value of a server carrier board will further increase, 9 times that of a PC side carrier board. In AI server applications, the ABF carrier board is the core PCB product in the AI server. Taking the DGX A100 server as an example, the ABF carrier board cost accounts for about half of the total PCB cost.

Following ABF carrier board supply chain companies, the following two important trends were observed

High/low-end carrier board boom differentiation: The commissioning time of the new GAMA factory built by ABF carrier board leader Ibiden (the main products are PC carrier boards) will be postponed from 2024 to 2026. The Ono factory, which focuses on high-performance products such as AI servers, will be put into operation in 2025 according to the original plan. The progress of the production expansion plan indicates that the popularity of high-end ABF carrier boards is superior to that of low-end products.

The peak of capital expenditure of major carrier board manufacturers has passed, and most of the production capacity of Taiwanese manufacturers has already been released in 2024H1 or earlier: in 2024, AT&S, Xinxing, NTC, and Jingshuo's capital expenditure on carrier boards dropped sharply, AT&S's Kulim Plant 2 may be suspended, and TEC and Jingshuo will expand production capacity in 2024H1 or earlier, and there are no subsequent production expansion plans. After continuing high investment in the carrier board industry in 2020-2023, a large amount of production capacity has been released, and subsequent spending has been suspended. Therefore, supply-side competitive pressure on the ABF carrier board industry is expected to continue to weaken. Combined with the recovery of demand-side PCs and general purpose servers and the increase in the AI market, the ABF carrier board industry will bottom out and recover in 2024.

Risk warning: The recovery in terminal demand falls short of expectations; the capital expenditure of cloud vendors falls short of expectations; the domestic replacement process falls short of expectations.