After computing power, the "sealing power" of AI chip packaging has come to the spotlight. Previously, AI

The supply of GPUs is in short supply, and the main bottleneck lies in CoWoS packaging. Driven by the demand from AI chip giants led by NVIDIA, the demand for advanced semiconductor packaging is soaring, and there is a potential for expansion. In the previous issue of "Advanced Packaging Special Research", we discussed the industry background and driving factors of advanced packaging in the market. This issue continues to study the market pattern and investment logic of advanced packaging.

01 | Market Pattern Advanced Semiconductor Packaging Market Pattern Advanced packaging is located at the intersection of wafer manufacturing and packaging testing processes, involving IDM, wafer foundry, and packaging testing manufacturers. Advanced packaging requires the integration of packaging process steps before wafer slicing, including the application of wafer grinding thinning, rewiring (RDL), bump making (bumping), and silicon via (TSV) technology, which involves processes similar to wafer manufacturing such as photolithography, development, etching, and peeling, resulting in the occurrence of intermediate crossing areas in the pre - and post process of wafer manufacturing and packaging. The competitive landscape of advanced packaging is relatively concentrated, with six major global manufacturers, including two IDM manufacturers (Intel, Samsung), one OEM manufacturer (TSMC), and the top three global packaging and testing manufacturers (Sunrise, Amkor, JCET), processing over 80% of advanced packaging wafers. According to Yole data, the total capital expenditure of industry leaders in the advanced packaging industry in 2021 was approximately 11.9 billion US dollars. In terms of the wafer fab camp, Intel ranks first with a capital expenditure of $3.5 billion, mainly used to support Foveros and EMI B technologies. TSMC and Samsung ranked second and fourth respectively with capital expenditures of $3.05 billion and $1.5 billion. In terms of the packaging and testing factory camp, SunMoon ranks third with a capital expenditure of $2 billion, making it the largest and only OSAT that can compete with contract factories and integrated equipment manufacturers. In terms of advanced packaging capital expenditure, Chinese Mainland's packaging and testing factory director Dian Technology and Tongfu Microelectronics ranked sixth and seventh respectively. Representative global advanced packaging solutions start from technologies such as WLP, SiP, 2.5D/3D, etc., and manufacturers further iterate deeper technologies based on application side requirements. Taking wafer level packaging (WLP) technology as an example, initially WLP technology adopted the Fan in form, but as the number of pins required increased, the Fan out form gradually became mainstream; Subsequently, with the goal of improving system performance, TSMC integrated multiple chip Fan out processes, giving birth to INFO technology; From the perspective of cost savings, the FOWLP technology for individual chips has further iterated into panel level packaging technology (FOPLP).

 In the 2022 Top Ten List of Outsourced Seals released by the idea of Changdian Technology Core, a representative company of advanced packaging in China, the market share of Chinese Mainland accounted for 24.55%, second only to Taiwan, China. Among the seal testing plants in Chinese Mainland, Changdian Technology City accounts for 44%, and is the leading enterprise in the domestic seal testing industry. Changdian Technology has a leading advantage in domestic packaging and testing factories, with a comprehensive layout of advanced packaging technology and backed by the SMIC series. The stock price of Changdian has gone through a complete cycle of ups and downs since 2020, and is currently in the early stage of the second round of growth. The representative company of advanced packaging in China, Tongfu Microelectronics, ranked fourth in the world in 2022 in terms of global packaging and testing factories, second only to Sun and Moon, Anqin, and Changdian Technology. Tongfu Microelectronics focuses on testing computing power chips and collaborates deeply with AMD. The company has a forward-looking layout in advanced packaging technologies such as multi chip components, integrated fanout packaging, and 2.5D/3D. It is able to provide diversified Chiplet packaging solutions and now has the ability to mass produce 7nm and Chiplet packaging technologies. In addition, Tongfu Microelectronics is AMD's largest packaging and testing supplier, accounting for over 80% of its total orders. Huatian Technology, a representative company of advanced packaging in China, is the third largest packaging and testing factory in China and the sixth largest in the world. It has now mastered advanced packaging technologies for integrated circuits such as SiP, FC, TSV, bumping, Fan Out, WLP, 3D, and has launched the 3D Matrix advanced packaging technology platform. Yongsi Electronics, a representative company of advanced packaging in China, was established in November 2017. Since its establishment, Yongsi Electronics has focused on the advanced packaging field in integrated circuit packaging and testing business, and adheres to the positioning of mid to high end advanced packaging business. Workshop cleanliness level, production equipment, production line layout, process route, technical research and development, business team, and customer introduction are all guided by advanced packaging business.

02 | Investment logic: Advanced packaging is an inevitable choice for the semiconductor industry in the post Moore era, and the industry trend is determined. The proportion of advanced packaging in China is significantly lower than that in the world. With the development of the domestic semiconductor industry, the proportion of advanced packaging is expected to accelerate. 1) Sealing and manufacturing end: directly benefiting, lacking investment opportunities in the primary market. The widely used 2.5D/3D packaging solution for computing chips is a significant upgrade to traditional packaging, but wafer manufacturers and packaging and testing manufacturers will still play an important role. But the current market pattern for manufacturing and packaging is relatively certain, and advanced packaging naturally requires high investment, with a huge advantage for leading companies. You can focus on the secondary market, as the primary market lacks investment opportunities. 

2) Design side: Chiplet design ideas drive IP, EDA, and chip design. Chiplet technology can improve the flexibility and reusability of chip design, reduce manufacturing costs, and is expected to become one of the mainstream methods for future chip design. Chiplet cutting into small chips adds value to IP and is also beneficial for EDA companies. Chiplet may bypass advanced processes and benefit chip design companies. 

3) Equipment side: Advanced packaging capacity drives growth in wafer manufacturing and packaging testing equipment. Chiplet technology not only increases the demand for packaging and testing equipment, but also increases the demand for wafer level packaging, leading to an increase in demand for many wafer manufacturing equipment. Including front-end lithography machines, adhesive development equipment, film equipment, electroplating equipment, etching equipment, cleaning equipment, measurement equipment, etc; Thinning machines, slicing machines, SMT machines, inspection equipment, packaging equipment, etc. with higher precision and requirements in the later stage. 

4) Material end: The packaging substrate is the core. The increasing demand for high-speed interconnection of chips through Chiplet technology has brought about a demand for high-speed packaging substrates. In addition, the usage of high-end packaging consumables will also increase. The future pattern: The traditional semiconductor industry chain may be reshaped. Yunxiu Capital believes that the Chiplet industry will first go through a transition period of independent operation, and then form a truly complete era of "transistor level reuse". Design investment logic and target IP industry: Chiplet turns IP into small chips, increasing added value and benefiting IP manufacturers, but it also brings huge challenges, after all, IP and chips are two types of products. Representative enterprises include Saifang Technology, Xin Yaohui, Hexin Microelectronics, Xinlai Technology, Canxin Semiconductor, Orange Microelectronics, Xindong Technology, Huaxia Xin, Pingtouge, Ruicheng Xin Micro, etc. EDA industry: Chiplet is a new design concept that naturally brings innovative opportunities to the original EDA tools. Representative enterprises include Xinhuazhang, Hejian Industrial Software, Akasi, XinVision, Lixin Technology, Xinruiwei, etc. The third approach is to design large chips using Chiplet's design philosophy, such as CPU, GPU, and AI chips, representing GPU manufacturers such as Mu Xi, Bi Ren Technology, Deng Lin Technology, and Tian Tian Zhi Xin, as well as ultra motorcycle technology for CPUs and Xinli Intelligence for automotive large computing chips. The fourth is to create a platform: to assist other companies in designing Chiplets and provide some reusable Dies (IO, power supply, etc.) to support the development of Chiplets. Representative companies include Arctic Xiongxin, Qiqimo, Qipule, Julu Chuangxin, Ruijie Micro, Haixin Micro, etc. Investment logic: 

1) Compound development trend, high industry ceiling and fast growth rate; 

2) The risk lies in high uncertainty, as most companies lack or do not have customer validation, but valuations are generally high. Core focus points: 1) Technical team and technical reserves; 2) Resource integration ability, production, testing, and client security; 

3) Shareholder support and continuous financing ability, which essentially require chasing celebrity teams and startups. Star companies are highly sought after by capital, with funds and people, and a greater likelihood of running out. But we have to bear high valuation risks. The investment logic on the equipment side and the development of advanced packaging for the target directly benefit the following equipment in the field of advanced packaging materials. Currently, the main players in the world are still manufacturers from Japan, Europe and America, while China, due to its late start and weak foundation, has not yet emerged as a competitive player. Specifically, there are several key materials: domestic breakthrough and replacement of logic ABF carrier boards (as intermediate materials connecting chips and circuit boards in chip packaging): ABF carrier board raw materials are completely monopolized by Japan's Weizhisu (100%); The core core board is monopolized by Hitachi and MGC in Japan, while the prepreg, PI/PBO polyimide/para benzene polymer, and solder mask are completely monopolized by a few Japanese companies. Domestic enterprises that produce ABF packaging substrates include Shennan Circuit, Xin'ai, Xincheng, etc. TIM1 (Thermal Interface Material, Internal Cooling of Chips): Led by Japan, with breakthroughs made by Shinetsu Chemical, Dow Corning, Honeywell, and other companies, while China's Comet Crystal New Materials (B+) have made some progress. PSPI (photosensitive polyimide, used for photoresists and electronic packaging adhesives, etc.): led by Japan, including Dongli and Asahi Chemical. Local enterprises that focus on PSPI research and production include Ruihuatai (688323) and Times New Materials (600458). Underfill: Basically monopolized by Japanese companies led by Namex. TBDB materials (temporary bonding and debonding, thermoplastic polymer and other temporary bonding materials): led by American manufacturer 3M, it is also a breakthrough field in current localization. 

TBDB materials developed by Shenzhen Advanced Technology Research Institute of the Chinese Academy of Sciences now account for 7% of the global market, making it the fourth largest supplier after 3M, Brewer and TOK in Japan. The situation of advanced packaging related listed companies - Based on the performance in 2022, the average PE and PS excluding outliers at the current stock price of advanced packaging related companies are 51x and 4.32x, respectively. Among them, advanced packaging such as Yongsi Technology, Jingfang Technology, and Huicheng Shares account for a relatively high proportion and are more representative. The current reasonable PE is around 50x and PS is between 6-8x. The situation of advanced packaging related listed companies - The number of advanced packaging related design companies listed is not large, and it is difficult to make profits in the short term. Valuation based on relative valuation methods such as PE and PS is relatively limited. The situation of listed companies related to advanced packaging - Based on the performance in 2022, the average PE and PS excluding outliers at the current stock price are 80x and 15x, respectively. The situation of listed companies related to advanced packaging - Based on the performance in 2022, the average of PE and PS excluding outliers at the current stock price for materials related to advanced packaging is 44.63x and 4.06x, respectively.