Austrian Intel Supplier Banks on Hot Niche Market to Ease Chip Pain
(Bloomberg) -- Intel Corp. supplier Austria Technologie & Systemtechnik AG is plotting to become a top provider of a specialty material essential to the high-performance computing chips used in PCs and data centers to fuel growth.
The Austrian company wants to become one of the world’s three biggest makers of so-called Ajinomoto build-up film, or ABF, substrates within the next four years, according to Chief Executive Officer Andreas Gerstenmayer. To get there, AT&S is boosting investments, including in a new 500 million euro ($580 million) R&D center at its headquarters that will join a previously announced $2 billion factory in Malaysia.
Companies including Intel, Advanced Micro Devices Inc. and Nvidia Corp. are fighting over limited capacity for ABF substrates, which have become the latest bottleneck in the chip supply chain. Bloomberg News has reported that supply of the components are likely to remain constrained until at least 2025, an estimate Gerstenmayer agrees with.
“The gap is not closing until at least 2025,” Gerstenmayer, 56, said in an interview. “There’s a fight between big semiconductor companies to get the necessary substrates. We’ve seen it becoming more intensive over the last one-and-a-half years.”
The jostle by customers to lock in long-term supply guarantees has opened up new ways to pay for production. Project financing, capital-expenditure support and direct equity investments are all on the table, said Gerstenmayer, declining to disclose details.
“Our customers are really eager to get capacity reservations,” the CEO said. “It’s always better to get customers involved, so they show commitment, so you’re not sitting on huge capacities at the end with idle factories.”
Sales of ABF substrates surged in the early 2000s with the internet boom, then took a hit as smartphones began replacing PCs in the latter half of the decade. Manufacturers’ fortunes started to recover around 2018 as countries began to roll out fifth-generation wireless services, which led companies like Broadcom Inc. to adopt the material for use in routers, base stations and related applications. The advent of 5G also boosted demand for more powerful server chips to handle cloud computing, artificial intelligence and smart-driving technologies.
Major chipmakers like Intel, AMD and Nvidia all depend on ABF substrates to produce the most powerful semiconductors in the world. But substrate makers have been reluctant to invest aggressively in capacity, because of previous loss-making slumps. Supply is expected to rise at an annual rate of 16% through 2024, lagging behind the 18% to 19% growth in demand, Citigroup Inc. analysts Grant Chi and Takayuki Naito said in early July.
AT&S is predicting market growth of at least 12% a year through 2026. The component will play a bigger role in sales that are expected to more than double to 3 billion euros by 2025, as the company moves away from supplying commodities like printed circuit boards to providing customers including chip and automobile makers with integrated solutions for design, test and simulations.
At AT&S’s factory in Leoben, Austria, surrounded by steep mountains and Alpine rivers that supply plentiful water, hundreds of workers piece together a diverse mix of technologies catering to companies that operate everything from jetliners to satellites. Its high-end printed circuit boards contain as many as 38 layers -- far more than the six to eight layers contained in a typical notebook computer. With engineers hitting the limit of physics and upending Moore’s Law, figuring out new ways to package chips with substrates will be the key to unlocking more computing power.
“The substrate will play a much more important role in the future,” Gerstenmayer said. “Substrates will become larger, they will contain more functionality and they will have more layers. This is increasing their value.”
AT&S’s ABF substrate plant in Chongqing, China, is already running at full capacity, Gerstenmayer said, adding that the Malaysian factory will help the company diversify its operations. Skilled labor in Asia, where the market’s other key players are based, as well as investment incentives will be critical for the Austrian company to compete, he said. Taiwan’s Unimicron Technology Corp. and Japan’s Ibiden Co. are two top players in the field in terms of technology leadership.
“If it’s about high volume facilities, I don’t see an opportunity to build in Europe within the next five to 10 years,” said Gerstenmayer. “It’s not only about cheaper labor.” Other regions like the U.S. and Asia are providing significant subsidies but Europe’s competition law means subsidies for investments are typically not allowed, he added.
©2021 Bloomberg L.P.