The semiconductor industry is witnessing a significant transformation, driven by advancements in packaging technologies that play a critical role in enhancing the performance of chips, particularly those designed for artificial intelligence (AI) applicationsIn recent years, China has rapidly increased its share of advanced packaging output in the global marketDomestic manufacturers have made significant strides in developing essential equipment for 2.5D and 3D packaging technologies, achieving varying degrees of breakthroughs that have brought several products up to internationally competitive standards.

As technological revolutions unfold in the semiconductor sector, they act as catalysts for industry growth, ushering in new cyclical periods of prosperityWith consumer electronics demand stabilizing and the memory market showing signs of revival, the semiconductor market is forecasted to rebound in 2024, with research firms predicting a sales increase exceeding 10%. The resurgence in demand from new AI smartphones and AI PCs is particularly noteworthy, which makes the packaging and testing segment very sensitive to the recovery of downstream demand

In the first quarter of 2024, three major Chinese packaging and testing companies reported significant year-over-year profit increases.

Overall, packaging and testing firms are now positioned to utilize advanced technologies such as FCBGA and Chiplet designs to support the growing needs for AI computational power among downstream clientsThese companies are capable of producing multi-chip system integration products based on the 4nm process technology.

In the realm of AI chips, computational power and energy efficiency stand out as key performance indicatorsAs Moore’s Law slows down, the option of solely relying on advanced fabrication techniques to enhance the cost-performance ratio of chips is becoming less effectiveEnhanced packaging technologies can drastically improve the data transmission and computational speeds of chips and lead to overall gains in their performance

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Innovative packaging techniques facilitate high-density integration, miniaturization, and cost reduction, thus playing an increasingly crucial role in enhancing chip integration levels while shorting the distance between chips to optimize their overall performance.

The domestic production of advanced packaging equipment is progressing steadilyBy the first quarter of 2024, sales performance in semiconductor equipment manufacturing has continued its upward trend.

Companies like Minda and North Huachuang have recently launched series of advanced equipment tailored for etching and thin-film deposition processesMeanwhile, Tsinghua Unigroup has successfully gained customer acceptance for its wafer-to-wafer bonding products and has received repeat ordersIn the field of chemical mechanical polishing (CMP) and thinning equipment, Huahai Qingke has delivered batches of advanced CMP equipment to major production lines, while innovative technologies for an ultra-precision thinning machine have met client specifications.

2023 witnessed an overall decline in the global consumer electronics market, with the semiconductor market falling into a down-cycle, shrinking to an estimated size of $520 billion—a 9.4% decrease from the previous year.

The Chinese semiconductor industry has faced its own set of challenges due to industry cyclicality and shifts in trade environments

Nonetheless, the domestic market demonstrates robust resilience and potential for growth, with the scale of the industry steadily expandingIn 2023, the production of integrated circuits on the Chinese mainland reached 351.4 billion units, reflecting a growth of 6.9% year-on-year.

Since the latter half of 2023, global semiconductor sales have seen an uptick, with fourth-quarter shipments of personal computers and consumer electronics showing signs of bottoming out and a projected growth for 2024. Research institutions forecast that global smartphone shipments in 2024 will amount to 1.2 billion units, marking a 2.8% increase from the previous yearThe advancements in large-model AI technologies are expected to propel smartphones into the AI era, with estimates suggesting that AI smartphones will represent 15% of total shipmentsBy 2027, total global investments in AI are projected to reach $423.6 billion, with China accounting for approximately $38.1 billion or 9% of this total.

Rising demands from emerging sectors such as artificial intelligence, high-performance computing, and electric vehicles are driving wafer fabrication facilities to continue investing in capital expenditures and expanding their production capacities

Memory chips are anticipated to be a major stimulus for the semiconductor market's recovery in 2024, pushing China's integrated circuit production into an upward cycle.

In the first quarter of 2024, Changdian Technology reported a net profit of 108 million yuan after excluding non-recurring gains, indicating a staggering year-on-year increase of 91.33%. Huada Semiconductor has witnessed reductions in its net losses while Tongfu Microelectronics managed to turn a profit with a net income of 94.52 million yuan, a significant turnaround compared to the prior yearThe fixed asset investments of these three major packaging and testing firms remained high during this period, with ongoing investments in construction projectsTheir respective fixed asset states are substantial, with Huada Semiconductor and Tongfu Microelectronics each exceeding 15 billion yuan in scale, while Changdian Technology surpassed 18 billion yuan

Notably, the construction projects for Huada Semiconductor and Changdian Technology saw year-on-year growth of 48.91% and 35.97%, respectively, indicating enhanced operational capacity among the trio.

In 2023, the automotive electronics segment continued to surge, achieving revenues of $42.2 billion, representing a year-on-year growth of 23.7%. The global shift in energy structure has spurred sustained demand for power semiconductors and large power modulesChangdian Technology established a manufacturing facility for automotive electronic chips focused on high-performance computing and storage applications, power devices, energy systems, and upgrades for conventional packaging formatsAlso, Tongfu Microelectronics’ established production lines for memory and display driver technologies have entered mass production phases, reflecting a 200% year-on-year increase in automotive product projects.

As Moore's Law begins to plateau, the cost-effectiveness of increasing chip density via process upgrades increasingly diminishes, further highlighting the importance of advanced packaging technologies

Advanced packaging encompasses techniques that integrate various systems within a single package for enhanced systemic efficiencyUnlike traditional packaging, which primarily offers electrical connections while protecting semiconductor chips from environmental damage, advanced packaging significantly boosts integration and communication speeds between chips.

AI companies, such as OpenAI, have accelerated their updates, driving an increased demand for computational and memory chipsThe convergence of AI and consumer electronic devices is maturing at an accelerated pace, with the AI wave significantly impacting the development of advanced packaging technologies.

The achievement of high-performance chip manufacturing through stacked chip methods has emerged as a vital direction in semiconductor technology amidst the deceleration of Moore's Law

Advanced packaging encompasses numerous methodologies, including flip-chip bonding, bumping, wafer-level packaging, 2.5D, and 3D packaging, with pivotal processes for 2.5D and 3D packaging relying on Through-Silicon-Via (TSV) technologyThe Chiplet architecture subdivides chips into smaller components, breaking down complex functionalities into simpler tasks through the development of various bare dies, each serving a single functionThis modular assembly from different functionalities and technology nodes can ultimately culminate in a fully integrated chip solutionUtilizing Chiplet and 2.5D/3D packaging methods enables vertical stacking of chiplets, effectively overcoming the "memory wall" limitations and becoming a mainstream solution amid rising demands for AI and high-performance computing capabilities.

Tongfu Microelectronics, being AMD's largest packaging and testing supplier, has seen its sales to its top customer rise from 54.15% to 59.38% in 2023. The company has successfully validated its technologies in ultra-large 2D+ packaging, 3D stacking, and large-size multi-chip “chip last” packaging solutions

Tongfu continues to invest in researching and developing new technologies and products, particularly in the realm of ultra-large-size flip-chip and 2.5D solutions, while pushing forward advancements in 5nm, 4nm, and 3nm products.

In 2023, Changdian Technology recorded a 68% year-over-year increase in revenue from the automotive business and has committed additional investments to construct advanced packaging bases for automotive-grade chipsDuring the same period, the company has developed new-generation millimeter-wave AiP solutions and launched WiFi and 5G RF modules into productionIn the 2.5D high-performance packaging space, Changdian has positioned itself firmly, becoming a player in the mainstream 2.5D Chiplet offerings currently available on the market, with various subsidiaries commencing productionIts XDFOI® Chiplet series, which includes high-density multi-dimensional heterogeneous integration, has smoothly transitioned into stable mass production stages

Furthermore, the XDFOI™ 2.5D pilot line managed by its wholly-owned subsidiary has also achieved stable production.

Predictive analyses suggest that the market for advanced packaging will expand from $44.3 billion in 2022 to approximately $78.6 billion by 2028, reflecting a growth rate significantly faster than that of traditional packaging methodsIn recent years, domestic manufacturers have rapidly developed their advanced packaging technologies, steadily increasing their share in the global marketChina's advanced packaging output has expanded from 10.9% of the global total in 2016 to 16.8% in 2022, with expectations of continued growth in the foreseeable future prospects.

As demand escalates, the global semiconductor wafer production capacity is expected to rise by 6.4% in 2024, surpassing 30 million wafers per month for the first time

Furthermore, it's anticipated that 18 new chip manufacturing projects will come online on the Chinese mainland in the same year, leading to a 13% year-over-year increase in production capacity, amounting to 8.6 million wafers each month, effectively elevating China’s share of the global semiconductor manufacturing landscape.

In tandem with this growth, investments in 300mm wafer fabrication equipment are projected to surge by 20% to reach $116.5 billion by 2025, exhibiting considerable upward trends in upcoming yearsChina is expected to maintain an investment scale exceeding $30 billion each year over the next four years; meanwhile, sales of semiconductor manufacturing equipment globally are likely to climb to $124 billion by 2025.

Packaging equipment primarily covers die bonding machines, wire bonders, plating equipment, molding machines, inspection equipment, dicing machines, and thinning machines

The array of packaging materials includes package substrates, lead frames, bonding wires, encapsulation materials, ceramic packaging components, and chip bonding adhesivesBy 2022, the global packaging equipment market had reached $5.8 billion, with die bonding and wire bonding machines representing 24% each, followed by packaging machines accounting for 15%.

To maintain a competitive edge, semiconductor manufacturing exceeds the pace of electronic systems development in terms of new generation processes, while semiconductor equipment must advance ahead of semiconductor production in crafting new-generation productsThe capital expenditures by wafer fabricators drive market demand for semiconductor equipment, conversely allowing domestic companies in the semiconductor equipment sector to progressively enhance their technological research and development capabilities and catalyze product upgrades and innovative developments.

Furthermore, Shengmei Technology in Shanghai has pioneered the SAPS/TEBO ultrasonic wave cleaning technology alongside single-wafer combination cleaning technology

Presently, its semiconductor cleaning equipment is primarily employed in the 12-inch wafer manufacturing sector, achieving coverage of approximately 90-95% of the cleaning steps involved.

Tuoji Technology’s wafer-to-wafer bonding technology and surface pre-treatment products for chip-to-wafer bonding have successfully cleared customer validationTheir hybrid bonding equipment finds application within three-dimensional integration fields across memory and logic chips, advanced packaging, and image sensors, indicating substantial potential for future market expansionIn 2023, the sales figures for their hybrid bonding machines reached three units.

Jingsheng Electromechanical has developed thinning, epitaxial, LPCVD, and ALD equipment tailored for applications involving 8-12 inch wafers and packaging ends, including silicon carbide epitaxial tools and optical measuring equipment for power semiconductors.

Autowei has been producing aluminum wire bonders used during the semiconductor packaging process, continuously obtaining small batch orders from various customers

The company’s semiconductor bonders initiated client validation activities in 2021, securing several small-scale orders while successfully developing a silicon carbide copper wire bonder for semiconductors.

The first quarter of 2024 marked an ongoing growth pattern for semiconductor equipment manufacturers, aligning closely with the demands of packaging and testing firmsHowever, some products require longer debugging cycles, resulting in a significant discrepancy between net cash flows from operating activities and net profitsAs product lifecycles advance towards maturity, operating cash flows are expected to improve significantly.

Continuous breakthroughs in advanced packaging equipment are noted, as the associated processes gradually permeate wafer manufacturing stages, encompassing lithography, etching, deposition, polishing, and more

The critical technology involved in TSV processes includes via etching, via film deposition, via filling, and chemical mechanical polishing (CMP). Essential equipment comprises lithography machines, etchers, wafer thinning machines, mask equipment, coating machines, and plating toolsCMP and thinning machinery stand out as central equipment pivotal to chip stacking and advanced packaging techniques.

As Chiplet technology advances, thinning of wafers gains momentumHowever, the ultra-thin wafers present challenges such as high flexibility, brittleness, warping, and waviness, which expose them to defects like cracking or deformation during the thinning processes, ultimately leading to low production yieldsTo mitigate these challenges and ensure quality, temporary bonding and debonding technologies are utilized; for example, wafers are temporarily bonded onto carriers to provide support during thinning, followed by debonding upon completion of back-end processing steps.

Huahai Qing Science has successfully developed equipment to slice the edges of 12-inch wafers suited for integrated circuits and advanced packaging manufacturing, with validation slated for a leading storage manufacturer in the first half of 2024. The first 12-inch single-wafer cleaning machine, HSC-F3400, has been dispatched to a leading domestic silicon wafer enterprise for validation, meeting core technical specifications stipulated by clients

Notably, several chemical supply systems providing slurries and cleaning chemicals for wet-process equipment have secured bulk orders, showcasing applications across various domestic integrated circuit clients, including logic, advanced packaging, and MEMS sectorsFilm thickness measurement devices exhibit small batch shipments, with some units already passing acceptance testsAdditionally, the project to upgrade mechanical polishing systems at Huahai Qing's Tianjin Phase II project is anticipated for completion by the end of 2024, aimed at bolstering the company's capacity via enhanced supporting services.

In the domain of TSV technology, Zhongwei's deep silicon etching equipment, including 8-inch and 12-inch deep silicon etchers Primo TSV 200E and Primo TSV 300E, have become increasingly utilized in advanced packaging and MEMS device production