Following Saudi Arabia’s $13 billion investment, the UK government is dedicating £100 million (about $130 million) to acquire thousands of NVIDIA AI chips, aiming to establish a strong global AI foothold. Potential beneficiaries include Wistron, GIGABYTE, Asia Vital Components, and Supermicro.

Projections foresee a $150 billion AI application opportunity within 3-5 years, propelling the semiconductor market to $1 trillion by 2030. Taiwan covers the full industry value chain. Players like TSMC, Alchip, GUC, Auras, Asia Vital Components, SUNON, EMC, Unimicron, Delta, and Lite-On are poised to gain.

Reports suggest the UK is in advanced talks with NVIDIA for up to 5,000 GPU chips, but models remain undisclosed. The UK government recently engaged with chip giants NVIDIA, Supermicro, Intel, and others through the UK Research and Innovation (UKRI) to swiftly acquire necessary resources for Prime Minister Sunak’s AI development initiative. Critics question the adequacy of the £100 million investment in NVIDIA chips, urging Chancellor Jeremy Hunt to allocate more funds to support the AI project.

NVIDIA’s high-performance GPU chips have gained widespread use in AI fields. Notably, the AI chatbot ChatGPT relies heavily on NVIDIA chips to meet substantial computational demands. The latest iteration of AI language model, GPT-4, requires a whopping 25,000 NVIDIA chips for training. Consequently, experts contend that the quantity of chips procured by the UK government is notably insufficient.

Of the UK’s £1 billion investment in supercomputing and AI, £900 million is for traditional supercomputers, leaving £50 million for AI chip procurement. The budget recently increased from £70 million to £100 million due to global chip demand.

Saudi Arabia and the UAE also ordered thousands of NVIDIA AI chips, and Saudi Arabia’s order includes at least 3,000 of the latest H100 chips. Prime Minister Sunak’s AI initiative begins next summer, aiming for a UK AI chatbot like ChatGPT and AI tools for healthcare and public services.

As emerging AI applications proliferate, countries are actively competing in the race to bolster AI data centers, turning the acquisition of AI-related chips into an alternative arms race. Compal said, “An anticipate significant growth in the AI server sector in 2024, primarily within hyperscale data centers, with a focus on European expansion in the first half of the year and a shift toward the US market in the latter half.”

In response to the demands of high-performance computing, AI, 5G, and other applications, the shift towards chiplet and the incorporation of HBM memory has become inevitable for advanced chips. As a result, packaging has transitioned from 2D to 2.5D and 3D formats.

With chip manufacturing advancing towards more advanced process nodes, the model of directly packaging chips using advanced packaging technology from wafer foundries has emerged. However, this approach also signifies that wafer foundries will encroach upon certain aspects of traditional assembly and testing, leading to ongoing discussions about the ‘threat’ to traditional assembly and test firms since TSMC’s entry into advanced packaging in 2011.

But is this perspective accurate?

In fact, traditional assembly and test firms remain competitively positioned. Firstly, numerous electronic products still rely on their diverse traditional packaging techniques. Particularly, with the rapid growth of AIoT, electric vehicles, and drones, the required electronic components often still adopt traditional packaging methods. Secondly, faced with wafer foundries actively entering the advanced packaging domain, traditional assembly and test firms have not been idle, presenting concrete solutions to the challenge.

Advanced Packaging Innovations by Traditional Assembly and Test Firms

Since 2023, AI and AI server trends have rapidly emerged, driving the demand for AI chips. TSMC’s 2.5D advanced packaging technology, known as CoWoS, has played a pivotal role. However, the sudden surge in demand stretched TSMC’s capacity. In response, major traditional assembly and test firms such as ASE and Amkor have demonstrated their technical prowess and have no intention of being absent from this field.

For instance, ASE’s FOCoS technology enables the integration of HBM and ASIC. It restructures multiple chips into a fan-out module, which is then placed on the substrate, achieving the integration of multiple chips. Their FOCoS-Bridge technology, unveiled in May this year, utilizes silicon bridges (Si Bridge) to accomplish 2.5D packaging, bolstering the creation of advanced chips required for applications like AI, data centers, and servers.

Additionally, SPIL, a subsidiary of ASE, offers the FO-EB technology, a powerful integration of logic IC and HBM. As depicted below, this technology eschews silicon interposers, utilizing silicon bridges and redistribution layers (RDL) for connections, similarly capable of 2.5D packaging.

Another major player, Amkor, has not only collaborated with Samsung to develop the H-Cube advanced packaging solution but has also long been involved in ‘CoWoS-like technology.’ Through intermediary layers and through-silicon via (TSV) technology, Amkor can interconnect different chips, also possessing 2.5D advanced packaging capabilities.

China’s major assembly and test firm, Jiangsu Changjiang Electronics Technology (JCET), employs the XDFOI technology, integrating logic ICs with HBM through TSV, RDL, and microbump techniques, aimed at high-performance computing.

Given the recent surge in demand for high-end GPU chips, TSMC’s CoWoS capacity has fallen short, and NVIDIA is actively seeking support from second or even third suppliers. The ASE Group and Amkor have secured partial orders through their packaging technologies. This clearly illustrates that traditional assembly and test firms, even when faced with the entry of wafer foundries into the advanced packaging domain, still possess the capability to compete.

In terms of product types, wafer foundries focus on advanced packaging technology for major players like NVIDIA and AMD. Meanwhile, other products not in the highest-end category still opt for traditional assembly and test firms like ASE, Amkor, and JCET for manufacturing. Overall, with their presence in advanced packaging, as well as a hold on the expanding existing packaging market, traditional assembly and test firms continue to maintain their market competitiveness.

(Photo credit: Amkor)

According to Taiwan’s Economic Daily, the consumer market is experiencing starkly low demand, causing IC design firms primarily relying on mature processes, such as those in driver ICs, power management ICs, CMOS image sensors (CIS), and microcontrollers (MCUs), to adopt a notably cautious approach in placing orders. Some manufacturers are hesitating to place orders due to persistently high inventory levels.

The industry consensus is that IC design companies are expected to increase their orders in mature processes, with the earliest effects possibly emerging by 2024, implying that the mature process market conditions might not improve significantly until the end of this year.

The consumer market entered a period of economic downturn in the latter half of last year, which in turn affected industries such as PCs, smartphones, and networking. This not only led to a surge in inventory levels for IC design firms but also significantly curtailed the momentum for chip tape-out. Looking ahead to the second half of this year, while inventory levels across various sectors have largely returned to normal, chip tape-out for Q3 have notably declined compared to Q2.

In particular, demand for high-speed I/O in the PC sector and Board Management Controller for data centers remains notably weak. The supply chain indicates that PC demand for the second quarter, driven by advanced stocking, has dampened the typical peak season effect for the latter half of the year. This trend is evident across desktop PCs, laptops, and Chromebooks.”

As for the smartphone sector, after various research institutions revised down this year’s smartphone market size, the supply chain’s chip tape-out momentum has cooled down significantly. Only Qualcomm has increased its tape-out momentum to semiconductor foundries in the first half of the year, while MediaTek continues to adhere to a conservative strategy as of now.

(Photo credit: SMIC)

According to Taiwan’s Commercial Times, TSMC continues to face challenges from ongoing price undercutting and competitive bidding in mature semiconductor manufacturing processes. Concerns arise about the company’s ability to offset these challenges with AI-related orders. Reports from the market suggest that on July 20th, TSMC revised down its fiscal forecast for the year for the second time, slashing its annual revenue target (in USD) from an anticipated decline of 1% to 6% to a significant reduction of 10%. However, given the persistent sluggish economic conditions of late, there is speculation of a potential third adjustment that could lead to a year-on-year revenue decline of 12%.

In the current investment landscape, artificial intelligence has become a focal point this year. Additionally, the strong demand for CoWoS packaging has contributed to a positive outlook for TSMC. However, it’s important to note that AI’s contribution to TSMC’s overall revenue is not substantial.

Using the popular H100 model from NVIDIA as an example, it only impacts TSMC’s performance in the N4 manufacturing process. This limited contribution falls short of countering the downward trend in consumer product demand utilizing the N3 and N7 manufacturing processes.

Market Speculations Emerge About TSMC’s Performance and Challenges

Market sources indicate that TSMC’s performance in mature processes (7nm and above) accounted for 47% of its output in the second quarter. While prices managed to hold steady in the first half of the year, ongoing softness in end-user demand has prompted Chinese manufacturers to engage in aggressive expansion, price reduction, and competition for orders, which inevitably impacts TSMC. There are even reports circulating about a potential loosening of 7nm production capacity.

In response, TSMC stated that its perspective and outlook on market demand align with the contents of its July press conference. As of now, no new updates are available. Furthermore, TSMC refrains from commenting on market speculations or shifts in customer business dynamics.

(Photo credit: TSMC)

In just a short span of six months, AI has evolved from generating text, images, music, and code to automating tasks and producing agents, showcasing astonishing capabilities. TrendForce has issued a new report titled “Surge in AIGC Applications to Drive Long-Term Demand for AI Servers.” Beyond highlighting the latest developments in AI, the report also delves into strategies adopted by governments and industries to ensure the positive trajectory of AI’s development. It analyzes the projected timeline for the widespread implementation of AIGC applications and their impact on the demand for AI servers.

• AIGC Application Wave Expected to Arrive by 2025 Once Rules are Set

While the AIGC application frenzy in the first half of 2023 has raised concerns, it has also prompted governments and industries to actively address potential risks and issues stemming from AIGC applications, along with devising corresponding solutions. Currently, both the government and industries have strategies in place to regulate AIGC applications in terms of legal oversight, privacy protection, identity establishment, reliability enhancement, security augmentation, and copyright maintenance.

Considering the time required for governments to draft legislation and industries to enhance AI’s reliability, security, and copyright protection, it is estimated that the rules of the AIGC application will gradually solidify by late 2024 to early 2025, paving the way for the AIGC application surge around 2025.

Beyond the five major categories of AIGC applications—text generation, image generation, music generation, video generation, and code generation—AIGC technology-based applications like AI customer service, personalized AI assistants, AI search, and AI productivity tools are also gaining prominence. In the realm of gaming, whether in VR or open-world games, AIGC technology is set to significantly enhance immersion and freedom, ushering in revolutionary experiences.

• Long-Term Demand for AI Servers to Benefit Server Brands and ODMs

To secure a dominant position in the AI technology industry and embrace the upcoming AIGC application wave, application service providers, tech giants, national institutions, and startups are competing to bolster their AI computing resources. As core computing components experience increased shipments, the shipment volume of AI servers, which serve as foundational computing units, is also expected to surge.

In the proactive year of 2023, where institutions and enterprises are aggressively building computing resources, the AI server shipment volume is projected to grow substantially. Given the limited upstream semiconductor capacity, this momentum is likely to extend into 2024.

By 2025, propelled by the AIGC application frenzy, AI server shipments are poised for further stimulation. Consequently, due to institutions and businesses preemptively establishing computing resources and the projected timeline for large-scale AIGC application implementation, the AI server market is anticipated to witness a sustained demand surge. Given the intricate manufacturing of AI servers and their higher degree of customization, their profitability exceeds that of general servers. With the continual growth in AI server shipments, relevant server brands and ODM manufacturers are poised to reap significant benefits.