AI Chip Boom to Lift Semiconductor Packaging

In the rapidly evolving world of semiconductor technology, advanced packaging plays a pivotal role in enhancing chip performance, particularly in the realm of artificial intelligence (AI) applicationsThe contribution of mainland China's advanced packaging production is on the rise, now representing a significant portion of the global marketDomestic manufacturers are making strides in crucial technologies like 2.5D and 3D packaging, achieving varying levels of breakthroughs, with some equipment reaching internationally advanced technical standards.

Each wave of technological advancement in the semiconductor industry serves as a catalyst for growth, opening new cycles of prosperityFollowing a period of relative stability in consumer electronics, a rebound in the memory market, and an aggressive acceleration in AI and high-performance computing, the global semiconductor market is poised for a robust resurgence in 2024. Predictions from research institutions suggest that overall sales could grow by more than 10%, with the packaging and testing sector anticipated to experience significant recoveryThe release of AI-enabled smartphones and PCs is expected to significantly stimulate global demand for semiconductorsThe packaging and testing sector, in particular, is sensitive to this renewed interest from downstream markets, evidenced by the year-on-year net profit growth reported by the top three domestic packaging and testing companies in Q1 of 2024.

From a broader perspective, packaging manufacturers are adapting advanced techniques such as FCBGA (Fine-pitch Ball Grid Array) and Chiplet technology to meet the increasing demand for AI processing power from their clientsThese companies are capable of producing multi-chip systems integrated packages at nodes of 4nm, thus ensuring that performance requirements are met with cutting-edge innovation.

Power consumption and computing performance are critical metrics for AI chips

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The diminishing pace of Moore’s Law has rendered the exclusive reliance on advanced process nodes for enhancing performance increasingly ineffectiveAdvanced packaging technology can improve chip bandwidth and processing speeds, thus augmenting overall chip performanceThis technology facilitates high-density integration and miniaturization of chips while simultaneously reducing costsConsequently, advanced packaging is becoming crucial for enhancing chip density, reducing inter-chip distances, and optimizing overall performance.

The domestic production of advanced packaging equipment is undergoing rapid developmentIn the first quarter of 2024, the performance of semiconductor equipment manufacturers continued to demonstrate growth.

Notable advancements are evident in etching and thin film deposition equipment, with companies like Zhongwei and Northern Huachuang launching series of products that cater specifically to advanced packagingIn the area of bonding equipment, Tuojing Technology’s wafer-level bonding products have passed stringent client validation and have secured repeat ordersSimilarly, Huahai QK’s CMP devices designed for advanced packaging have been delivered in bulk for large production lines, and newly developed ultra-precision thinning machines are meeting core technical benchmarks required by customers.

Despite the overall sluggishness of the global consumer electronics market in 2023, which saw semiconductor sales falling by 9.4% to $520 billion amidst an industry downturn, China's semiconductor sector showcased resilienceThe domestic market's robustness has led to continuous expansion, with China's integrated circuit production reaching an impressive 351.4 billion units, marking a 6.9% increase year-on-year.

As the second half of 2023 progressed, global semiconductor sales began to rebound

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The fourth quarter, in particular, saw a stabilization in shipments of consumer electronics such as personal computers, with expectations of growth in 2024. Research indicates that worldwide shipments of smartphones will reach 1.2 billion units, reflecting a 2.8% year-on-year increaseWith AI technologies rapidly emerging, AI smartphones are anticipated to represent 15% of total shipments by this timeFurthermore, global investment in artificial intelligence is projected to soar to $423.6 billion by 2027, with China's allocation reaching $38.1 billion, representing 9% of worldwide investment.

Driving the expansion of wafer factories will be capital investments fueled by the burgeoning demand in sectors such as artificial intelligence, high-performance computing, and electric vehiclesThis legacy of growth indicates the integrated circuit production in China is entering an upward trajectoryIn the first quarter of 2024, Changdian Technology reported a net profit of 108 million RMB, a staggering 91.33% increase over the past yearMeanwhile, Huatian Technology has managed to reduce losses, and Tongfu Microelectronics reported net profits of 94.52 million RMB for the first quarter, marking a turnaround from losses endured in the previous yearDuring this period, the three major packaging and testing companies have maintained significant fixed asset levels while continuing to invest heavily in construction projects.

The automotive electronics sector remains a hotbed of growth, retaining a remarkable increase of 23.7% in 2023, translating to $42.2 billion in revenueThis trend illustrates a significant shift in energy structure driving demand for power semiconductors and large power modulesChangdian Technology has established an automotive chip production facility focused on high-performance computing and storage applications, power devices, energy systems, AI edge terminal applications, and upgrading traditional packaging forms

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Similarly, Tongfu Microelectronics is witnessing substantial progress in their memory and display driver production lines, which are finally entering the mass production phase.

As we witness a slowdown in Moore’s Law, the need to enhance chip density through process upgrades has become increasingly impracticalThis shift highlights the growing importance of advanced packaging, which involves integrating diverse systems within a single package for improved efficiencyAdvanced packaging dramatically enhances chip integration and communication speed compared to traditional methods, which primarily focus on electrical connections and protection.

The rise of companies like OpenAI signifies the rapid development of AI models, which in turn is increasing the demand for processing and storage chipsThe maturing fusion of AI technology and consumer electronics demonstrates a pivotal role in advancing packaging technologiesIn particular, the technique of chip stacking by employing innovative solutions like Chiplet allows the breaking down of complex functions into smaller, more manageable units, thus facilitating modular assemblyThis approach aims to solve the 'memory wall' issue that has long restricted performance advancements, especially under the surge in demand for AI and high-performance computing capabilities.

Tongfu Microelectronics has successfully positioned itself as AMD’s largest packaging and testing supplier, now accounting for over 80% of their total ordersThey have improved their sales figures from 54.15% to 59.38% with their primary clientTheir cutting-edge technologies, including super-large 2D+ packaging, 3D stacking, and large-size multi-chip chip last packaging technology, have all passed stringent validations, thereby affirming their continued focus on the development of new products representative of advanced technologies like 5nm, 4nm, and 3nm categories.

For Changdian Technology, automotive revenues surged by 68% year-on-year, prompting them to bolster their automotive electronic chip production base

They have also completed the development of next-generation millimeter-wave AiP solutions as well as WiFi and 5G RF modulesIn the realm of 2.5D high-performance advanced packaging, they have aligned effectively with the mainstream Chiplet solutions currently available in the market, with production already established across various subsidiariesTheir proprietary XDFOI® Chiplet series has successfully transitioned into stable mass production.

Forecasts indicate that the global advanced packaging market is set to expand from $44.3 billion in 2022 to $78.6 billion by 2028. This growth rate significantly outpaces that of traditional packaging methodsDomestic players in China have rapidly advanced their technologies in advanced packaging, steadily increasing their global market share, with mainland China's output surging from 10.9% in 2016 to 16.8% in 2022 and expectations of further increases in the coming years.

With a robust demand for semiconductor equipment projected to skyrocket, the expected monthly production of semiconductor wafers is anticipated to increase by 6.4% in 2024, marking a historic milestone in exceeding 30 million pieces monthlyIn the coming year, it is expected that 18 new projects will become operational across mainland China's chip manufacturing industry, thereby ramping up their monthly output by another 13% to 8.6 million pieces, thereby consolidating their share of global semiconductor capacity.

Correlating with this expansion trend, investment in 300mm wafer fab equipment is predicted to rise by 20% to $116.5 billion by 2025, reflecting a bullish trajectory for the near futureCrucially, mainland China is expected to sustain an annual investment of over $30 billion for the next four years, aligning with global semiconductor fabrication equipment sales projected to reach $124 billion by 2025.

Equipment used for packaging encompasses a variety of technologies including die bonders, wire bonders, plating machines, molding machines, inspection tools, dicing saws, and thinning tools

The principal materials involve substrates, lead frames, bonding wires, encapsulating materials, ceramic packaging, and die attach materialsAs of 2022, the global packaging equipment market was valued at $5.8 billion, with die bonders and wire bonders holding 24% each, while package molding equipment accounted for 15%.

To maintain cutting-edge developments, semiconductor manufacturers are tasked with advancing electronic systems through new generations of processes, while semiconductor equipment necessitates anticipation of next-gen product needsThis interdependence drives the capital expenditures of wafer fabs which fuel market demand for semiconductor equipmentIn response, local semiconductor equipment companies are continuously enhancing their R&D capabilities to speed up product iteration, upgrading existing tools while innovating new products.

Recent advancements in semiconductor cleaning technologies have been exemplified by Shengmei’s SAPS/TEBO technology and the development of combined cleaning technologiesCurrently, their cleaning equipment is primarily tailored for use in 12-inch wafer fabrication processes, achieving coverage of roughly 90-95% of cleaning steps across the industry.

Tuojing Technology has successfully validated their wafer-to-wafer bonding products and surface treatments for chip-to-wafer bonding, expanding their application into the realm of three-dimensional integrations across storage, logic chips, advanced packaging, and image sensors.

Jingsheng Mechanical Electric has developed thinning, epitaxy, LPCVD equipment, ALD tools, and more for 8-12 inch wafers, in addition to carbon-silicon epitaxial systems and optical measurement devices tailored for power semiconductors.

In Q1 of 2024, semiconductor equipment manufacturers continued reporting growth, with packaging and testing equipment closely aligned with the demands of assembly and testing companies

Some products having extended debugging periods may lead to fluctuations between net profits and the net cash flow generated from operational activities, but as these products reach maturity in their lifecycles, a potential improvement in operating cash flow is anticipated.

The advanced packaging processes are being gradually integrated into front-end wafer fabrication tasks, encompassing lithography, etching, deposition, and polishingTSV technology encompasses critical techniques such as through-silicon via etching, through-silicon thin film deposition, filling via holes, and chemical mechanical polishingThe essential equipment in these processes includes photolithography machines, etchers, wafer thinning tools, mask equipment, coater machines, and plating devicesCMP and thinning tools are critical components of chip stacking/packaging technology, reinforcing the technological backbone for advanced packaging strategies.

The implementation of Chiplet technology necessitates thinning wafers, however, ultra-thin wafers are characterized by high flexibility and brittleness, making them prone to warping and cracking during processing, which leads to low yield ratesTo mitigate this, temporary bonding and debonding techniques are employed, where the wafer is firmly affixed to a carrier before the thinning process which subsequently supports back-end operations.

Hua Haiking has developed 12-inch wafer edge trimming equipment targeting integrated circuit and advanced packaging disciplines, with installations already verified by leading storage manufacturersTheir first ultra-precision cleaning machine, the HSC-F3400, has been dispatched for validation at a major domestic silicon wafer producer, meeting core technical metricsIn addition, piece numbers for wet process equipment such as slurry and cleaning agents have seen successful batch payments from domestic integrated circuit customers.

Zhongwei’s TSV etching devices have gained traction in the production of advanced packaging and MEMS products

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