AI Boom Drives 770% Jump in Asia’s Lesser-Known Chip Supplier

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AI Boom Drives 770% Jump in Asia’s Lesser-Known Chip Supplier.

stock :: 3hrs ago :: source - bloomberg

By Sangmi Cha

(Bloomberg) -- The artificial intelligence rally exploding across Asia is now spreading deeper into the supply chain.

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For much of the past year, the spotlight has been on chipmakers such as Taiwan Semiconductor Manufacturing Co., Samsung Electronics Co. and SK Hynix Inc. — all critical suppliers to Nvidia Corp. A global chip shortage has sent those stocks skyrocketing to record highs.

Now, investors are looking further into the AI supply ecosystem as even the most powerful processors cannot work without the lesser-known components that support them. That growing awareness — combined with rising demand and prices — is helping a new group of companies rally.

They fall into three main categories. Multi-layer ceramic capacitors (MLCCs) regulate power inside electronic systems. Advanced chip substrates connect semiconductors to the rest of the hardware. And thermal compression bonding (TCB) is the precision process that fuses everything together.

“Think of the printed circuit-board as a dining table. Then the plate on the dining table, you can call it a substrate — and the food inside the plate is the chips,” said Kieron Poon, investment director of Asian equities at Aberdeen Investments.

Within this group, substrate makers such as Unimicron Technology Corp. and Ibiden Co. have surged around 770% and 530% respectively over the past 12 months. MLCC producers Samsung Electro-Mechanics Co. and Murata Manufacturing Co. climbed to record highs this month. TCB leader Hanmi Semiconductor Co. also hit an all-time high. Much of this supply chain is concentrated in Asia, mainly South Korea, Taiwan, Japan and China.

What’s driving this is the intensity of AI infrastructure buildouts. AI servers consume far more power than conventional ones, and that has a cascading effect. More power means more components to manage and stabilize it.

An AI server can use 10 to 15 times more MLCCs than a standard server, and about 30 times more than a smartphone, according to Young Jae Lee, senior investment manager at Pictet Asset Management.

This surge in demand is tightening supply and pushing up prices for those components. Samsung Electro-Mechanics said this week it’s considering raising MLCC product prices by as much as 10%. Citigroup Inc. analyst Takayuki Naito also highlighted growing expectations for price increases across components like MLCCs, aluminum capacitors and package substrates.

Naito sees this as a potential support for Japanese manufacturers such as Murata Manufacturing and Taiyo Yuden Co., which may take a more aggressive approach to pricing. JPMorgan Chase & Co. analysts raised their price targets for Murata and Yuden last week, saying supply and demand are likely to stay tight for an extended period.

Production lines for MLCCs and substrates are already running at more than 90% capacity, said Simon Woo, head of Korea research at BofA Global Research. “If AI demand ramps up even slightly from here, capacity for conventional use will shrink sharply,” he said.

The ripple effects are spreading further across the ecosystem. Optical component makers have also been pulled into the rally, as investors pay closer attention to the role these technologies play in data centers, especially as rising use of AI drives the need for ever more bandwidth.

Supply of capacitors, substrates and TCB remains concentrated and the firms serve a rapidly expanding pool of customers, said Aberdeen’s Poon. This means pricing power will “definitely still be in the hands of the supplier,” he said.