Advanced Packaging Growth: AI, Automotive, and Geopolitical Drivers

The following are expert opinions：

Q&A

What is the overall opportunity for advanced packaging in 2026, and how does it compare to the consensus estimate of $1 billion? Additionally, what are the main drivers behind this growth, and how do other sectors such as automotive contribute to this dynamic?

The advanced packaging opportunity in 2026 is a complex picture with multiple contributing factors. There is a clear continuation of growth in this area, primarily driven by AI-related demand. Key components such as power chips, memory, CPUs, and GPUs are maintaining strong momentum. Beyond AI, there is increasing interest from sectors like consumer electronics, automotive, and industrial applications. These industries are showing more activity in new product introductions (NPI) and a growing focus on advanced packaging technologies.

In the automotive sector specifically, the outlook is mixed. While electric vehicles (EVs) have been experiencing a downturn due to the expiration of subsidies in the U.S., internal combustion engine (ICE) vehicles appear more robust. Advanced applications within automotive—such as infotainment systems, security features, sensors (including cameras, radar, lidar), and ADAS (advanced driver-assistance systems)—are driving significant activity. Automotive revenue contribution from advanced packaging is expected to be around 5% to 10% for 2026. However, EV recovery may not occur until mid-2026 (Q2 or Q3).

What is the expected growth rate for the automotive sector in 2026, and what factors could influence this projection?

The projected growth rate for the automotive sector in 2026 is estimated to be within a range of 5% to 7%. The lower end of this range, approximately 5%, represents a conservative scenario based on current planning assumptions. Factors that could positively influence this projection include continued growth in electric vehicle (EV) adoption, particularly in China, and increased market penetration in other regions. However, these outcomes are contingent on broader market dynamics and regional trends.

How has the communications sector performed over the past few years, and what is its outlook for 2026?

Over the past 18 months, the communications sector has experienced a steady return to pre-pandemic baseline levels observed around late 2019 or early 2020. This recovery follows a significant decline during COVID-19. For handsets specifically, growth is expected to remain modest at approximately 3% to 4% for the entirety of 2026. The replacement cycle for Apple devices remains predictable; however, Android's replacement cycle is less clear due to its fragmented market structure. Overall, these dynamics have resulted in a relatively stable handset market with limited growth potential.

What are the expectations for consumer electronics segments such as wearables and gaming devices in 2026?

In consumer electronics, wearables such as fitness bands and smartwatches (e.g., Fitbit and iWatch) are expected to perform better than smartphones with projected growth rates around or slightly above 5%. Conversely, gaming devices are anticipated to experience another flat year in terms of demand during 2026. This stagnation can be attributed partly to Nvidia's focus on other priorities and insufficient production capacity from key players like PSC to meet existing pent-up demand.

What is the anticipated performance of CPUs across various applications in 2026?

CPU demand is expected to grow within a range of approximately 5% to 7% during 2026. While consumer PC demand may remain subdued due to an absence of major refresh cycles since previous peaks, enterprise applications—including data centers—are driving higher-end CPU adoption. Additionally, CPUs are increasingly being utilized in industrial automation and embedded automotive applications. High-performance chips designed for data centers (e.g., Cerebras processors) are likely to contribute significantly toward overall segment growth.

What trends are shaping industrial semiconductor demand, and what level of growth can be expected in this segment during 2026?

Industrial semiconductor demand is being driven by widespread infrastructure development initiatives across regions such as North America and Europe. These efforts aim at achieving greater self-sufficiency through factory automation aligned with Industry 4.0 principles—incorporating advanced semiconductors into automated systems for material handling and production processes. a

How significant is advanced packaging technology as an opportunity within semiconductor manufacturing over the next five years?

Advanced packaging represents a substantial opportunity driven by strategic investments from major U.S.-based companies such as NVIDIA, Apple, and Tesla under pressure from government initiatives like the CHIPS Act promoting domestic supply chain development. For instance, TSMC’s new Arizona facility will focus on producing advanced nodes (e.g., downscaled below three nanometers), with its entire capacity already pre-purchased by key customers including NVIDIA—a clear indication of robust demand projections tied primarily initially toward AI-driven applications like GPUs but potentially expanding into broader use cases such as AI-enabled mobile processors developed by Apple over time.

The planned ramp-up includes building capacity capable of producing dedicated exclusively toward advanced packaging solutions targeting high-performance computing needs across sectors including artificial intelligence (AI), data centers & enterprise workloads while supporting emerging innovations integrating AI capabilities directly into consumer products like smartphones via specialized application processors featuring enhanced AI engines or standalone chips tailored specifically towards machine learning tasks.

What is the projected investment horizon and expected return for the advanced packaging facility, and what are the key factors driving this opportunity?

The investment in the advanced packaging facility is projected to pay out over a seven-year horizon, assuming no significant disruptions such as an AI bubble burst or geopolitical conflicts. The opportunity is driven by geopolitical factors, including efforts to reduce dependency on Taiwan and Far East Asia by establishing a domestic supply chain for advanced packaging in North America. The focus will be on 2.5D type of packaging, which aligns with what TSMC refers to under its terminology. While there are no binding contracts currently in place, there are sufficient guarantees to suggest that this opportunity is viable. Contracts from major players typically span two years at most; however, once the facility achieves operational capacity for one to one-and-a-half years, it opens up opportunities to engage with a broader ecosystem of companies involved in advanced packaging.

What potential customer base exists for this advanced packaging facility beyond initial engagements with major players?

Beyond initial engagements with major players such as Microsoft, Google, Amazon, and Meta—who are all developing their own chips for data centers focused on AI workloads like training large language models (LLMs), inference tasks, and generative AI—the customer base extends further. These hyperscalers have expressed interest in domestic flows for advanced packaging due to geopolitical considerations. Once established, additional opportunities may arise from smaller companies and startups working on chip development as well as sectors like automotive manufacturing. For example, Tesla has showcased its use of advanced packaging in AI chips at CES events. This broad spectrum of potential customers provides momentum for sustained growth beyond initial operations.

How does this facility position itself within the competitive landscape of North American back-end services?

While this facility aims to be the largest provider of back-end services—assembly and testing—in North America with a $7 billion factory occupying approximately 50% market share in its segment, it will not be the sole provider. Other significant players include Intel, which offers foundry services and has been gaining traction over recent years; Intel's offerings could account for another 20-30% market share. Additionally, medium-sized and smaller players such as IBM Bromont (Canada), Micros Integra, and others also contribute to the landscape by serving niche markets or medium-sized companies like Marvell or FPGA developers.

What specific types of packaging will this new facility focus on producing?

The primary focus of this facility will be on high-value segments within advanced packaging due to cost considerations associated with operating in a high-labor-cost market like the United States. This includes technologies such as flip-chip BGA (Ball Grid Array) and wafer-level final processes but excludes lower-margin options like CSP (Chip Scale Packaging) or standard types of packages that cannot compete economically with Asian manufacturers.

What is the estimated size of the U.S. advanced packaging market based on current known demand?

Considering demand from established major players such as Nvidia, AMD, Apple, and others—with volume assumptions based only on known entities—the U.S. advanced packaging market could generate annual revenues between $1 billion to $1.5 billion if facilities operate at 80% utilization capacity post-construction (e.g., Arizona fab). This estimate excludes potential business from startups or international regions like Europe or Japan but reflects conservative planning assumptions tied primarily to existing large-scale customers.

What risks could impact revenue generation if utilization targets are not met?

Achieving 80% utilization is critical; failure would result in underutilized expensive equipment leading to financial strain due to depreciation costs without corresponding revenue generation. Risks include delays in readiness from upstream foundries such as TSMC’s production nodes or Intel’s progress on its 14A node technology—as well as GlobalFoundries scaling its photonics-related capacities at 12nm nodes—all integral components supporting downstream demand for advanced packaging services.

What is the expected growth rate for the full year, and what factors influence this projection?

The expected growth rate for the full year is projected to be slightly below 5%. This estimate is based on current forecasts, customer feedback, and market trends. While a flat growth assumption might be more conservative and likely accurate by year-end, available data suggests modest positive growth in the low single digits. However, this projection could be significantly impacted by external factors such as potential memory chip shortages.

How does the current market environment for DRAM and NAND impact your business, particularly in light of HBM's growing prominence?

The overall market environment for DRAM and NAND is challenging. Unit volumes are declining as major players prioritize High Bandwidth Memory (HBM) production due to its profitability. For example, some NAND production lines are being converted to support HBM manufacturing. This shift has led to reduced availability of DRAM (e.g., DDR, LPDDR) and NAND units. While HBM demand is strong, it primarily benefits companies like Samsung, SK Hynix, and Micron that...