Against a backdrop of rising raw material costs and increasing demand from areas like AI and memory, we believe the current moment may mark the starting point of a new round of packaging price hikes. Furthermore, driven by domestic demand for computing power, market attention on advanced packaging is expected to increase. We recommend focusing investment strategies primarily on the advanced packaging and memory packaging segments.
We currently advise paying attention to the packaging sector, which has underperformed relative to the broader semiconductor segment but is showing marginal improvements in fundamentals. These changes primarily revolve around advancements in advanced packaging and price increases.
Regarding 2.5D CoWoS advanced packaging, we see several recent catalysts: 1) According to company announcements, the IPO of SJ Semiconductor was accepted for review by the Shanghai Stock Exchange's STAR Market on October 30, 2025, and is currently under review. A response to the first round of inquiry letters was submitted on January 7, 2026. As a leading domestic advanced packaging company, market focus on SJ Semiconductor has intensified recently. 2) TSMC's advanced packaging capacity remains fully utilized. According to TrendForce, TSMC is planning to convert 8-inch wafer fabs for advanced packaging use. Driven by AI demand, global advanced packaging capacity continues to be in a tight supply situation. 3) Advanced process capacity is a significant bottleneck for domestic computing chips. Recent active capacity expansion in domestic advanced processes is expected to boost the supply of domestic computing chips. Since wafer capacity needs to be matched with advanced packaging capacity, this is likely to simultaneously drive increased demand for advanced packaging.
The current period may signal the beginning of a new cycle of packaging price increases. The packaging and testing segment is being affected by price increases for upstream substrates and lead frames (driven by rising prices of metals like gold and copper), and these costs are beginning to be passed downstream. Currently, the primary trend is cost-pass-through, but some smaller manufacturers with high utilization rates possess greater pricing power, which could potentially lead to improved net profit margins. We view the current juncture as the possible starting point for a new round of price hikes in packaging and testing.
Price increases are emerging in memory packaging and testing. According to the Taiwan Economic Daily, Taiwanese manufacturers, facing a surge in memory packaging and testing orders, have begun to raise prices for these services, with increases of up to 30%. We believe the current rise in memory prices has a positive impact on the profit margins of the supporting packaging and testing segments.
Future opportunities should be monitored in packaging related to CPO (Co-packaged Optics). CPO is expected to become an important technological pathway for AI data centers. The core of its process involves the heterogeneous integration of photonic chips (PIC) and electronic chips (EIC), requiring packaging factories to possess D2W hybrid bonding capabilities.
Risk factors include: Industry景气度 falling short of expectations, intensifying market competition, slower-than-expected technological progress, and unexpectedly severe international trade frictions.
Investment Strategy: We believe the current environment may mark the start of a new round of packaging price increases, and market attention on advanced packaging is likely to grow, pulled by domestic demand for computing power. We recommend focusing investment strategies corely on the advanced packaging and memory packaging segments.
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