Background
The relentless pursuit of performance enhancement in AI chips mandates ever-broader data transmission bandwidth between processors and memory, dramatically fueling demand for advanced packaging technologies and high-functional substrates. Advanced packaging solutions, such as TSMC’s CoWoS (Chip-on-Wafer-on-Substrate), are currently facing severe supply shortages, thereby transforming GPUs, HBM, and the ABF substrates that interconnect them into critical bottlenecks across the entire AI supply chain. This environment is compelling semiconductor manufacturers to bolster their in-house packaging capabilities and diversify their supply chains. Concurrently, governments, exemplified by initiatives like the U.S. CHIPS Act and the European Chips Act, are actively supporting the domestic resilience of semiconductor supply chains and strengthening investments in advanced packaging and substrates.
Key Findings
The rapid proliferation of AI data centers has led to an extremely tight demand for advanced substrates integrating GPUs and High Bandwidth Memory (HBM), causing substantial price increases. Capitalizing on this booming market, Samsung Electro-Mechanics (SEM)’s Packaging Solution Division achieved remarkable growth in the first half of 2026, reporting a 41% year-on-year increase in sales and a staggering 237% rise in operating profit. LG Innotek is also expanding its semiconductor substrate factory in Vietnam, while Ibiden and Unimicron are bolstering their investments in ABF (Ajinomoto Build-up Film) substrates. This collectively demonstrates a concerted effort by major manufacturers to significantly boost advanced substrate production for AI applications, pushing H1 utilization rates close to 90%.
Technical Deep Dive
Advanced substrates for AI chips require larger areas, higher layer counts, and finer wiring patterns compared to conventional counterparts. ABF substrates, specifically, are pivotal for enabling high-density interconnections between high-performance AI processors and HBM. With AI chips demanding 2.6 to 3 times the substrate area and 12 to 18 or more layers than traditional chips, manufacturing complexity has significantly escalated, posing challenges to maintaining high yields.
SEM boasts strong competitiveness in system LSI packaging technology and FC-BGA (Flip-Chip Ball Grid Array) substrates, strategically focusing on high-value-added products for AI, servers, and automotive applications. The company’s impressive financial performance underscores the success of this strategy. LG Innotek’s expansion of its Vietnamese factory is geared towards increasing production capacity for advanced packaging substrates like COF (Chip-on-Film) and FC-CSP (Flip-Chip Chip Scale Package), catering to the diverse requirements of AI devices. Leading ABF substrate manufacturers, including Taiwan’s Unimicron and Nan Ya PCB, and Japan’s Ibiden, are also accelerating capital investments and expanding production capacities to meet the burgeoning AI demand.
Strategic Outlook
Demand for AI chips is projected to maintain its upward trajectory, indicating that the shortage of advanced substrates will likely persist for an extended period. While major manufacturers are committed to continued capital investment and capacity expansion, achieving a balance between supply and demand will require considerable time, given the sophisticated technologies and lengthy qualification processes involved. A particular supply chain risk arises from the current reliance on small to medium-sized Japanese enterprises for key upstream materials like T-Glass. The proactive initiatives by Samsung Electro-Mechanics and LG Innotek are therefore crucial for maintaining and strengthening competitiveness in the AI-era semiconductor market, necessitating a sustained focus on technological innovation and the establishment of highly efficient production systems. Furthermore, the introduction of novel technologies, such as glass substrates, will be paramount for long-term supply stabilization and enhanced performance.
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