The realm of technology is ever-evolving, significantly impacted by the ceaseless tide of advancements in artificial intelligence (AI) and data processing requirementsAs organizations seek to harness the potential of AI, there's been an unprecedented surge in the demand for data centers, servers, switches, and other hardware, leading to a composite response from the printed circuit board (PCB) industryThe integration of advanced IC packaging substrates has emerged as a focal point for material suppliers and PCB manufacturers looking to thrive in this rapidly changing landscape.

Over the past three years, the largest cloud service providers experienced a robust expansion phaseHowever, as economic realities shifted, capital expenditures entered a phase of scrutiny and moderation, with predictions for 2023 indicating a retreat in global data center capital expenditures to single-digit growth rates.

As applications tied to AI and the metaverse gain momentum, the demand for computing power has become increasingly pronounced, propelling growth within the foundational infrastructure sectorDespite short-term fluctuations, experts foresee sustained expansion in data center capital expenditures over the long term, breathing new life into the upstream PCB industryFor reference, global server shipments in 2022 reached approximately 15.16 million units, reflecting a year-over-year growth of 12% and a value of about $121.6 billionBy 2026, it is projected that the global server PCB market will achieve a valuation of $16 billion, with AI servers potentially commanding $4.7 billion of that market.

In a more immediate context, the global PCB market value for 2023 is anticipated to hit $73.9 billion, indicating a decline of 15.6%. Nevertheless, a recovery period is expected as inventory rebalances and downstream demand improves, with forecasts suggesting a reversal to $78.2 billion in 2024, marking a 6.3% growth from the previous year

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The future direction of PCB products prominently highlights advancements in high-speed, high-frequency, and high system integration technologies, with projections indicating that the IC packaging substrate sector will reach $21.4 billion by 2026.

The road ahead appears to be winding and multi-faceted.

In 2021, the top ten PCB companies globally held a combined market share of only 36%, illustrating a fragmented competitive landscapeThe PCB supply chain has gradually shifted from developed countries towards developing economies since the dawn of the 21st century, with China stabilizing its production value share at roughly 53.27%. Projections indicate a decline to approximately 51.97% by 2027; however, the nation will likely retain its status as a manufacturing center, even amidst a transfer of manufacturing focus to other Asian nations.

Within the PCB manufacturing domain, copper clad laminates form the direct upstream component, while key downstream industries encompass consumer electronics, automotive, telecommunications, aerospace, and medical apparatusThe cost structure of copper clad laminates primarily consists of copper foil (42.1%), resin (26.1%), and fiberglass fabric (19.1%). Fluctuations in raw material prices are typically passed on to PCB manufacturers through the costs of copper clad laminatesSince Q2 2020, copper prices have surged dramatically, maintaining high levels until mid-2022. At present, copper prices still hover near a ten-year peak, while resin and fiberglass prices have been trending downward since September 2021, leading to a lower baseline costDuring this cycle of rising raw material costs, PCB firms faced substantial pressure on their performanceConsequently, leading manufacturers implemented stricter cost management, lowered production capacities, and began planning new production facilities to ensure they stay ahead in terms of product innovation and technological advancements in the face of recovering demand in the electronics sector.

Diving deeper into the specifics, it’s notable that between 2021 and 2026, the annualized growth rate for packaging substrates is forecast to reach 11.6%, while high-density interconnect boards are expected to grow at 5.3%, flexible printed circuits at 5.1%, and multilayer boards with 18 layers or more at 4.9%. The fluctuations in consumer electronics demand have led to automotive electronics, data centers, and servers becoming the rapid growth sectors for PCB applications.

Estimates suggest that global server shipments may reach 18.85 million units by 2026, reflecting a compound annual growth rate of 6.8%, driving a projected market value of $166.5 billion, which would represent a 10.2% increase over the five-year period

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Between 2022 and 2024, worldwide data center capital expenditures are expected to rise by 15%, 4%, and 11% respectively, likely peaking at $500 billion by 2027.

Furthermore, the automotive sector has emerged as a battleground for PCB manufacturers, seeking to capitalize on the rising costs associated with automotive electronicsIn mid to high-end vehicles, the cost attributed to automotive electronics now constitutes approximately 28%, soaring to 47% for hybrid vehicles and 65% for fully electric vehiclesResearch indicates that the crucial differences between new energy vehicles and traditional internal combustion engine vehicles lie predominantly in their three electrical systems: the Battery Management System (BMS), Vehicle Control Unit (VCU), and Motor Control Unit (MCU). The PCB requirements for BMS involve a main control circuit PCB and a single cell management unit PCB, with respective usage of around 0.15 square meters and 3-5 square metersVCU and MCU, while crucial, consume less PCB area, at roughly 0.03 square meters and 0.15 square meters, respectivelyA case in point is the Tesla Model 3, where the PCB value exceeds ¥2500 (approximately $375), which is more than six times that of a traditional fuel-based vehicleProjections suggest that by 2025, the PCB value required for global new energy vehicles could reach $8.4 billion.

The trajectory of HUIDE Electronics exemplifies the transformative wave within the PCB industry, where the 5G base station segment once propelled the company’s profits to doubleHowever, post the peak period of 5G infrastructure, the firm faced a significant downturn in domestic revenue due to pressure from the United States, compelling a pivot from wireless base stations to the data communication market over three yearsA burgeoning demand for automotive electronics, internet devices, cloud computing hardware, and AI components led to a steady increase in their export revenue

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In light of the industry’s downturn in 2022, HUIDE made the strategic decision to establish a factory in Thailand, aiming to cultivate new overseas customers.

In the first half of 2023, the share of HUIDE’s PCB products related to AI servers and high-performance computing in the corporate communications market revenue rose from approximately 7.9% in 2022 to about 13.6%. The company’s PCB operations are poised to achieve revenue of approximately ¥8.572 billion (around $1.29 billion), signifying a year-over-year growth of around 8.09% and an increase in gross margin to around 32.46%.

With AI unlocking new avenues for market expansion, the trajectory looks promising.

Projected capital expenditures for global data centers are expected to hit $500 billion by 2027, with over 20% of server deployments likely to take on an accelerated natureEdge computing is anticipated to claim nearly 8% of total expenditures within data center infrastructure, compelling PCB manufacturers to continuously adapt alongside upgrading hardwareThe PCIE bus standard has become pivotal for enabling high-speed connections between memory and CPUs, as well as GPUs and CPUs, resulting in increased layers in PCBs with upgraded standards.

Despite predictions of a 5.9% decrease in global server shipments for 2023 due to sluggish demand and ongoing inventory adjustments, a normalization of inventory levels in 2024 coupled with the rapid growth of AI servers is expected to catalyze a resurgence in overall shipment volumesAI stands at the forefront of global technological innovation, facilitating an exponential growth in compute power which, in turn, propels rapid advances in AI servers, switches, and high-end communication PCBs.

According to reports from Guojin Securities, the growth of AI servers will significantly elevate the value of PCBs

An analysis of the PCB architecture of Huawei’s 2288H, NVIDIA’s DGXA100, and DGXH100 substantiates that a standard server PCB holds a value of ¥1125 (around $168), while that of AI servers escalates to between ¥7000-10,000 (approximately $1045-1550). The ongoing evolution of AI server products suggests a projected year-over-year growth exceeding 38% in shipment volumes for AI servers in 2023, proving to be a robust driver for the value of PCBs.

The transition from text to images and then to video formats results in increased bandwidth consumption for AI large modelsAs a result, Huachuang Securities anticipates the switch market to mirror the accelerated growth forecasted for AI servers, particularly with a heightened adoption of 800G switchesAnalyzing the demand from end-customers, it becomes evident that cloud computing and internet firms are taking the lead in procuring compute hardware, with capital expenditures from North American cloud providers demonstrating quarter-over-quarter growth in the latter half of 2024. By 2027, it is expected that more than 70% of switch deployments will exceed 400G, with 800G becoming the normThe surge in compute power demanded by AI is also expected to expedite the transition of data center switches towards 800G, with some companies already launching their products into the market.

As advancements in packaging substrates continue to evolve, the core materials associated with chip packaging are of utmost importanceThese substrates serve dual purposes: they protect, secure, and support chips while enhancing thermal management and prevent physical damageAdditionally, they facilitate connections between the upper substrate and the chip, and the lower substrate with the PCB, which ultimately allow for electrical, physical connections, power distribution, and signal distribution in tandem with external circuits.

The interrelationship between IC substrates and chips is highly significant; specialized IC substrates are crucial in accommodating the distinct requirements of varying chip designs

In mid to low-end packaging, IC substrates constitute around 40-50% of the material costs, while their proportion climbs higher in high-end packagingAccording to industry data, the global IC packaging substrate market scaled at $17.4 billion in 2022, with an impressive growth rate of 20.9%, and is predicted to reach $21.4 billion by 2026.

When compared to standard PCBs, IC packaging substrates necessitate stringent technical specifications regarding line width, line spacing, and thicknessWhile PCB lines typically range from 50-100μm and thickness between 0.3-7mm, these parameters fall short in meeting the requirements for chip encapsulationIn contrast, HDI (High-Density Interconnect) substrates operate within 40-60μm line width and 0.25-2mm thickness, while IC packaging substrates demand even finer specifications of line width between 8-40μm and thickness from 0.1-1.5mm.

IC packaging substrates can be categorized into three main materials: rigid, flexible, and ceramic, with rigid substrates enjoying the broadest application baseWithin rigid substrates, three primary material types exist: BT, ABF, and MISBT substrates are utilized in MEMS (Micro-Electro-Mechanical Systems), memory chips, and LED chips, while ABF substrates cater to high-end chips such as CPUs (Central Processing Units), GPUs (Graphics Processing Units), and FPGAs (Field Programmable Gate Arrays). MIS substrates are geared towards analog and power chips as well as cryptocurrenciesAs we enter a compute-driven era, advancements in high-performance computing and AI present a strong growth impetus for ABF substratesNotably, while personal computers continue to be the largest market for ABF substrates, the demand surge from servers, converters, AI chips, and 5G base station chips marks a rapidly growing segmentIn 2021, the global ABF substrate market stood at about $7 billion, projected to rise to approximately $12.1 billion by 2026.

Domestic manufacturers are now actively investing in the IC substrate sector

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