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Can ChatGPT detonate the demand with the packaging substrate market heading for recession

Since 2019, with the rapid development of advanced packaging technology, the market demand for packaging substrates as upstream materials has also shown rapid growth. According to Prismark data, from 2019 to 2022, the size of the global packaging substrate market doubled from US$8.139 billion to US$17.415 billion.

However, under the influence of sluggish demand in the terminal market and a sharp decline in the prosperity of the semiconductor industry, the packaging substrate industry also encountered headwinds. Prismark estimates that the output value of packaging substrates in 2023 will be US$16.073 billion, which will decrease by 7.71% compared with 2022.

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The packaging substrate market will fall into recession in 2023

In recent years, packaging substrates have been the fastest-growing sub-sector in the PCB industry, but the decline of the packaging substrate market in 2023 seems to have gained industry consensus.

packaging substrate
packaging substrate

The Taiwan Circuit Board Association (TPCA) has pointed out that with the reversal of the business in the second half of 2022, the growth of consumer-oriented BT substrates will weaken first, and then the ABF substrates related to high-speed computing will be also affected due to increased market uncertainty. In 2023, the power of the carrier board to boost the overall global (PCB) output value will weaken.

From the perspective of downstream industries, according to WSTS forecast, the global semiconductor market is expected to reach US$556.6 billion in 2023, a year-on-year decrease of 4.1%; Gartner expects the global semiconductor market to decline by 6.5% in 2023; IC Insights also predicts that the global IC market will decline by 6% in 2023.

With the rapid decline in the prosperity of the semiconductor industry, the market demand for packaging substrates has also fallen into weakness. According to industry insiders, at present, both BT substrates and ABF substrates are already in oversupply. It is also reported in the industry that Ibiden, a major Japanese packaging substrate manufacturer, is cutting prices to win orders. Therefore, packaging substrate manufacturers, including AT&S, Ibiden, Shennan Circuits,etc have lowered their company’s capacity utilization rate, and their performance is not good.

In the absence of signs of recovery in consumer electronics terminal markets such as smartphones, PCs, and TVs, the explosion of the AI chat robot ChatGPT opened the prelude to the commercial application of AI, and instantly ignited the market for AI chips such as GPUs, which is expected to drive long-term demand in the ABF substrate market.

In this regard, major packaging substrate manufacturers are also very optimistic about the demand for the AI market. Nan Ya PCB said that it will continue to be optimistic about the long-term demand for products such as EV, data center, HPC, and 5G Netcom; KINSUS also said that high-speed computing products such as HPC and AI are growth drivers worth looking forward to. Zhen Ding pointed out that the demand for multilayer PCB and large-sized high-end ABF products is still very good.

ChatGPT may detonate long-term demand for ABF substrate

After ChatGPT became popular, Internet giants including Google, Baidu, Ali, Tencent, JD.com, and 360 have intensively disclosed the progress of large-scale model technology and project plans similar to ChatGPT. The model training of generative AI technology requires a large amount of data resources and computing resources, which may drive a new round of AI server market demand to continue to grow, and drive the GPU market to enter the boom cycle earlier.

ChatGPT
ChatGPT

According to TrendForce’s forecast, to process the GPT-3.5 large-scale model with 180 billion parameters, the number of GPU chips required is as high as 20,000. In the future, the number of GPU chips required for the commercialization of GPT large-scale models will even exceed 30,000.

However, as a new application, the AI server initiated by generative AI is still in the early stage of development, and it may be difficult to drive the recovery of the ABF substrate market in the short term.

Since 2022, the demand for the global data center industry has gradually weakened, and the demand for servers has also declined. Cloud computing manufacturers including Tencent, Ali, Google, Amazon, Microsoft, and Oracle have repeatedly reported layoffs.

Up to now, due to the sharp increase in economic and financial risks in Europe and the United States, European and American cloud computing manufacturers are more conservative. Most companies are still cutting costs, and even further expanding the scope of layoffs. The purchase demand for new servers has also slowed down, resulting in a decline in GPU shipments. The scale of casting is also lower than expected, which is also the reason for the oversupply in the ABF substrate market.

ABF substrate
ABF substrate

There is no doubt that the development of generative AI technology will become a new driving force in the GPU market, which in turn will drive the long-term demand of the ABF substrate market.

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