In the rapidly evolving landscape of technology, the demand for artificial intelligence (AI) and high-performance computing is driving a significant surge in the need for intricate data processingWith this uptick comes an insatiable appetite for enhanced hardware, particularly in sectors like servers, switches, and data centersThe printed circuit board (PCB) industry finds itself at the core of this technological renaissance, as IC packaging substrates for high-end logic chips gain prominence, compelling material suppliers and PCB manufacturers alike to strategize accordingly.

Over the last three years, the massive expansion of cloud service providers has painted an optimistic picture for the industryHowever, amidst an economic downturn, these providers have adopted a more cautious approach to capital expenditure

This cautiousness reflects in the global data center capital spending that is expected to decelerate to single-digit growth rates in 2023. Companies are recalibrating their strategies to ensure sustainability amid fluctuating demand.

The emergence of applications centered around AI and the metaverse has further intensified the demand for computing power, providing a fertile ground for the growth of computational infrastructureThis expansion reflects a broader industry trend where data center capital expenditures are anticipated to continue their upward trajectory, infusing new energy into the upstream PCB sectorProjections indicate that global server shipments reached 15.16 million units in 2022, representing a year-on-year increase of 12%, thereby marking a substantial market value of $121.6 billionFurthermore, the global server PCB market is expected to scale up to $16 billion by 2026, with the AI server PCB segment alone potentially reaching $4.7 billion.

Despite the global PCB market experiencing a downturn, with a value of $73.9 billion in 2023—a decline of 15.6%—optimism for recovery prevails

Analysts forecast a rebound in PCB revenue to $78.2 billion in 2024, representing a growth of 6.3%. The focus of PCB development is anticipated to be on high-speed, high-frequency, and high system integration technologies as the industry adapts to new demandsBy 2026, the overall global IC packaging substrate market is predicted to reach $21.4 billion.

The PCB market remains relatively fragmented, with the top ten companies holding only 36% market share, suggesting a competitive landscape brimming with opportunityShifts within the PCB supply chain have steered manufacturing from developed nations to emerging markets, particularly in AsiaWithin this landscape, China maintains a stable production share of around 53.27%, expected to slightly decrease to 51.97% by 2027. However, there's a noticeable trend toward diversification, with other Asian countries increasingly vying for production dominance.

The direct supply chain to PCB manufacturing includes crucial materials such as copper-clad laminates

The costs of these substrates are primarily dictated by copper foil, resin, and fiberglass cloth, accounting for 42.1%, 26.1%, and 19.1% of costs, respectivelyFluctuations in the pricing of these raw materials tend to ripple through to PCB manufacturersNotably, since the second quarter of 2020, copper prices have seen a significant upward trend, remaining elevated through the first half of 2022. Concurrently, the prices of resin and fiberglass have shown a downward trajectory since September 2021, placing financial pressure on PCB companies, particularly during industry downturns.

Examining specific PCB categories, the annualized growth rate from 2021 to 2026 is projected to be particularly robust for packaging substrates at 11.60%. In contrast, high-density interconnect (HDI) boards and flexible circuit boards are forecasted to exhibit growth rates of 5.30% and 5.10%, respectively

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Among these, the most rapid growth has been observed in the automotive electronics sector, alongside servers and data centers.

Looking ahead, global server shipments could reach 18.85 million units by 2026, reflecting a compounded annual growth rate of 6.8%. The production value is projected to hit $166.5 billion, growing at an annual rate of 10.2%. Capital expenditures in global data centers are expected to grow year-on-year by 15%, 4%, and 11% from 2022 to 2024, culminating in an estimated total of $500 billion by 2027.

Automotive electronics represent a vital arena for PCB manufacturers, with electronics making up to 28% of the total cost in mid to high-end carsThis increases to 47% in hybrid vehicles and 65% in fully electric modelsResearch highlights that the significant divergence between electric and traditional fuel vehicles lies primarily in three electric systems: battery management systems (BMS), vehicle control units (VCU), and motor control units (MCU), which all require distinct PCBs

For instance, a Tesla Model 3 features a PCB value exceeding CNY 2,500, which is over six times that of conventional fuel vehiclesBy 2025, the market for PCBs in the new energy vehicle sector is expected to soar to $8.4 billion.

The journey of a company like Huadian Electronics exemplifies the overall shifts occurring in the PCB industryOnce benefiting from a booming 5G base station business that doubled its profits, the company had to adapt following the peak of 5G construction and the subsequent pressure from the US market on internal salesTheir time-consuming pivot from wireless base station manufacturing to the data communication sector enabled them to explore new avenuesThe trans-Pacific expansion facilitated by growing demand for automotive electronics, internet devices, cloud apparatus, and AI technologies led to a consistent uptick in export revenues.

Analyzing the first half of 2023, the contribution of AI servers and high-performance computing-related PCB products increased from 7.9% in 2022 to approximately 13.6% of Huadian's total communication business income

Owing to the structural demand for high-layered boards from emerging applications in AI and high computing, the company anticipates revenues from PCB ventures to reach around CNY 8.572 billion, marking an increase of approximately 8.09% year on year with a gross margin rising to around 32.46%.

With the rise of AI, a wealth of new market opportunities is unfoldingBy 2027, global data center capital expenditures are projected to exceed $500 billion, with over 20% of server deployments likely to lean toward acceleration typesFurthermore, edge computing is expected to account for nearly 8% of the total spending on data center infrastructureAs such, the PCB sector will adapt alongside hardware upgrades in data centersNotably, the evolution in PCIE bus standards, vital for high-speed connections between memory, CPU, and GPU components, will inherently demand an increase in PCB layers.

Despite a forecasted decline in global server shipments by 5.9% in 2023 due to weak downstream demand and ongoing inventory adjustments, experts project that normalizing inventory levels in 2024 and the rapid growth of AI servers will help rejuvenate overall server shipment growth

AI is increasingly becoming the leading force behind global technological innovation, fueling exponential growth in computing power, thus expediting iterations in AI server and switch products and accelerating the expansion of high-end data communication PCBs.

Research from Guojin Securities indicates that the expansion of AI servers will significantly elevate the value of PCBsAnalyzing the architectures of notable AI servers such as Huawei's 2288H, NVIDIA's DGXA100, and DGXH100 reveals that the value of an ordinary server's PCB is around CNY 1,125, while for AI servers, this value surges to an impressive range of CNY 7,000 to 10,000. The projected growth in AI server shipments exceeding 38% year on year in 2023 further underscores significant market momentum for PCB values.

The shift in demand for computing resources from text and images to video signifies the tremendous bandwidth consumption associated with training and deploying AI models

This presents a ripe opportunity for the switch market, where the demand for 800G switches is expected to accelerateMajor cloud computing and internet companies are the primary buyers of computing hardware, indicating a burgeoning need for high-performance switches in data centersBy 2027, it is expected that switches rated at 400G or higher will encompass over 70% of the market, with 800G switches emerging as the dominant players in this evolving landscape.

As advancements in package substrates continue, the transformation of IC packaging materials is crucial for supporting the performance of chipsThese substrates play multifunctional roles—protecting, fixing, supporting the chips while enhancing their heat dissipation abilities and facilitating vital electrical and physical connectionsAs new technologies arise, the market for IC substrates, which accounted for a staggering $17.4 billion in 2022, is poised to reach upwards of $21.4 billion by 2026. The continued evolution of the PCB and IC packaging substrate landscape reflects the unstoppable march of technological innovation and its far-reaching implications for multiple sectors in the near future.