As of the end of last week, the TAIEX and the TPEX had rallied 10.98 percent and 14.34 percent respectively since the beginning of this year, outperforming tumbling US markets, buoyed by trading of local semiconductor supply chain stocks, in particular Taiwan Semiconductor Manufacturing Co (TSMC) and its major local suppliers of advanced packaging equipment.
The stock price of TSMC, a major artificial intelligence (AI) chip supplier to Nvidia Corp, had risen 14.2 percent so far this year as of Thursday last week, with the world’s largest contract chipmaker a major beneficiary as an escalating infrastructure deployment race drives overwhelming demand for cutting-edge chips.
The world’s eight largest cloud service providers — Google, Amazon Web Services, Meta, Microsoft, Oracle and Chinese firms — are stepping up combined capital expenditure by about 61 percent annually this year to about US$710 billion to pay for AI servers and related infrastructure deployment, market researcher TrendForce Corp estimated. The dramatic increases in infrastructure investment are boosting demand for AI chips and manufacturing equipment, especially for advanced packaging equipment, due to supply constraints.
From Jan. 2 to Thursday last week, the stocks of Taiwan’s major advanced semiconductor equipment suppliers — Grand Process Technology Corp, Scientech Corp, All Ring Technology Co and Gallant Micro Machining Co — soared 92 percent, 36 percent, 140 percent and 110 percent to NT$3,090, NT$461, NT$895 and NT$1,375 respectively. Grand Process Technology and Scientech supply a wide range of semiconductor wet-processing equipment used in advanced chip-on-wafer-on-substrate (CoWoS) packaging technology, including wet benches, wet cleaning and single-wafer set processing systems. The two firms count ASE Technology Holding Co, the world’s largest chip packager and tester, and TSMC among their major customers.
All Ring supplies precision dispensing systems and wafer-level underfill dispensing machines used in CoWoS. Gallant makes die bonders used during the back-end phase of the fabrication process to complete semiconductor devices.
It is unusual for the shares of advanced packaging equipment suppliers to stage a rally exceeding their major customers, reflecting an industry trend that advanced chip packaging technology is taking on greater importance and pushing the semiconductor industry forward even as chip geometry seems to be approaching its physical limits.
Such a performance by such firms is rare because local semiconductor equipment suppliers are normally not an option for the nation’s large-scale chipmakers, given their smaller scale and weaker technology capability compared with global rivals such as ASML NV or Applied Materials Inc.
More than a decade ago, only 10 percent of capital spending by local chipmakers was going to local equipment suppliers, an industry insider said.
Few local equipment suppliers were capable of tapping into such an advanced semiconductor equipment market. Front-end chip manufacturing equipment was the center of demand at the time. There is a high threshold to enter the market due to the requirement of extremely advanced technology capabilities, as well as long-term research-and-development investments. Even today, that market dynamic has not changed dramatically, with a few leading companies dominating the global space.
However, the rise of advanced packaging technology and Taiwan’s vital role in the world’s semiconductor industry are reshaping the global semiconductor equipment market and opening a window of opportunity for local semiconductor equipment companies. Advanced packaging equipment does not require technology as advanced as manufacturing equipment, but the market scale is expanding rapidly and is delivering decent margins of up to about 50 percent.
Additionally, local suppliers have an advantage over their global rivals, as localized supply and operational flexibility become pivotal for customers to enhance supply chain resilience. The agility of local manufacturers is also an advantage: They can swiftly respond to demand by redesigning tools in as quickly as seven days, while foreign rivals spend six months on such a move, if they respond at all.
The advantages give local equipment makers a good chance to replace foreign suppliers.
This represents a golden age for local advanced packaging equipment suppliers to grow alongside the nation’s major chipmakers, industry insiders said.
Local manufacturers have to be well-prepared and jump at the opportunity, or the chance would vanish in a flash after foreign equipment suppliers enter the market, which they had ignored due to its previous small scale.
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