AI server CPU demand widens the ABF substrate shortage, accelerating the industry's shift toward a seller's market

Overview

The report updates the ABF substrate industry supply-demand model, earnings forecasts for three suppliers in Taiwan, China, and the 2030 scenario analysis. BofA believes the upward revision to server CPU demand will further deepen the industry shortage, driving price increases, gross margin improvement, and supplier earnings growth. It therefore reiterates Buy ratings on Unimicron, NYPCB, and Kinsus and raises their target prices.

Core views

Regarding industry supply and demand, BofA widened its forecast ABF substrate shortages for 2026—2028 from the previous 4%/10%/16% to 7%/14%/19%. The key change stems from another upward revision to the server CPU serviceable addressable market: server CPUs are now expected to account for 17%/21%/21% of ABF substrate demand, versus 13%/14%/14% in the previous June 2026 forecast, which itself had been raised from lower levels. On the supply side, after incorporating Unimicron's capacity relocation and NYPCB's debottlenecking, supply is expected to grow 12%/22%/19% in 2026—2028. Due to differences in substrate structure, the model excludes EMIB-T data from Ibiden's Gama plant. The report also cites AT&S's raised FY2026/27 revenue and margin guidance and SEMCO's positive commentary as evidence of industry strength, noting that server CPU capacity expansion will also benefit Ibiden. Overall, demand revisions are outpacing supply additions, moving the industry toward conditions more favorable to seller pricing. Unimicron is the most aggressive capacity expander among the suppliers covered in the report, with ABF substrate capacity expected to grow by more than 30% in both 2027 and 2028. BofA believes that faster expansion amid tight supply and demand for high-end products will support accelerated market-share gains. “High-value” projects with gross margins above 50% are expected to account for more than 50% of its ABF substrate revenue in the second half of 2026, and the company is placing greater emphasis on selling customers the value of products incorporating upfront R&D investment and advanced manufacturing capabilities. After incorporating stronger revenue growth and gross margins, the report raised its 2028E EPS by 21%, increased the valuation multiple from 33x to 35x, and lifted the target price from NT$1,200 to NT$1,400, retaining the valuation period of the second half of 2027 through the first half of 2028. The earnings table shows that BofA expects the company to achieve gross margins of 35%—40% in 2027—2028 and a revenue CAGR above 40%. However, due to more conservative operating leverage assumptions and higher expected expenses, its 2027 and 2028 operating profit forecasts remain 9% and 6% below consensus, respectively. The 35x P/E is approximately one standard deviation above the historical average of 20x since 2017, with the report supporting this premium through high-end technology products and more resilient end-market demand. For NYPCB, the report believes its BT substrate share will increase as peers relocate capacity or gradually exit. In high-end network switch ABF substrates, the company is expected to sustainably maintain a share above 50%, supported by strong customer relationships and limited competition. Its gross margin expanded 890 basis points quarter over quarter in the second quarter of 2026, above Unimicron's 680 basis points and Kinsus's 490 basis points, and exceeded both BofA and consensus expectations by 330 basis points. It is therefore viewed as the most visible beneficiary of price increases among the three companies. After incorporating higher gross margins and operating leverage, BofA raised its 2026—2028 EPS forecasts by 18%—21%. It expects revenue to grow at a CAGR of approximately 40% in 2026—2028 and gross margins to reach 35%—40% in 2027—2028. Nevertheless, because BofA is more conservative on revenue growth, its 2027 and 2028 EPS forecasts remain 15% and 29% below consensus, respectively. The target price was raised from NT$1,430 to NT$1,700, based on a 35x P/E for the second half of 2027 through the first half of 2028. The report expects its ROE and operating margin to both reach 37% in 2027—2028, versus 13% and 29%, respectively, in 2025—2026. Kinsus has more diversified growth drivers. The report expects increased revenue contributions from AI CPU/GPU and ASIC projects, which carry gross margins above 35%. AI CPU revenue is expected to rise from approximately 5% of total revenue in 2026 to approximately 15% in 2027. Gross margin for the ABF substrate business is expected to reach 35%—40% in 2027 and 40%—45% in 2028, primarily driven by two factors: ASP is expected to increase by approximately 10% quarter over quarter throughout 2027, and customers are funding NT$6 billion—8 billion in equipment purchases, with the latter expected to provide a 7—8 percentage-point gross margin benefit from 2028. The BT substrate business also has incremental optical module opportunities, with key customers including Lumentum and Applied Optoelectronics. Benefiting from finer line-width/spacing capabilities, the company can support specification upgrades from 800G to 1.6T and 3.2T, and optical modules are expected to account for 20% of its BT substrate revenue in 2027. The main text lists the 2027/28 EPS forecast increases as 12%/26%, while the subsequent earnings forecast table lists them as 12%/25%; both reflect improved assumptions for revenue, pricing, gross margins, and operating leverage. BofA expects the company's overall revenue CAGR to exceed 40%, with overall gross margins reaching above 30%/35% in 2027/28, and its EPS forecasts for the same period are 6% above consensus. The target price was raised from NT$1,070 to NT$1,250, based on a 35x P/E for the second half of 2027 through the first half of 2028. This multiple is in the mid-to-high end of the historical 8x—40x range since 2013, supported by the expected recovery in ROE and operating margin from 9% and 10% in 2025—2026 to 35% and 25% in 2027—2028. The 2030 earnings sensitivity analysis uses both top-down and bottom-up approaches, conservatively holding 2030 gross margins and expense ratios constant at fourth-quarter 2028 or full-year 2028 levels. The top-down analysis fixes ASP per unit area at US$0.0008 and varies demand CAGR from 10%—30% and the market shares of Unimicron, NYPCB, and Kinsus at 20%—24%, 6%—10%, and 8%—12%, respectively. In the base case, the three companies' 2030 net profits are 39%/27%/96% above the original 2028 forecasts, respectively, while the bull case implies 80%/83%/155%. The corresponding base/bull 2030 EPS figures are NT$67.0/NT$86.6 for Unimicron, NT$64.0/NT$92.0 for NYPCB, and NT$74.3/NT$97.0 for Kinsus. The bottom-up analysis fixes demand or shipment CAGR at 15% and varies ASP CAGR from 5%—25%. In the base case, the 2030 net profits of Unimicron, NYPCB, and Kinsus rise 78%/71%/39%, respectively, relative to the original 2028 forecasts, while the bull case implies increases of 112%/101%/55%. The corresponding base-case EPS figures are NT$86.0/NT$86.1/NT$52.7, and bull-case EPS figures are NT$102.1/NT$101.1/NT$58.9. BofA believes holding margins and expense ratios constant at 2028 levels is itself conservative because substrate structures may continue to become more complex and operating leverage may strengthen further. The two analyses are therefore intended to show how changes in demand, market share, and pricing translate into long-term earnings sensitivity rather than to provide a single-point forecast.

Analysis framework

The report first updates the ABF substrate industry supply-demand model, translating changes in server CPU demand share, supplier capacity expansion, and debottlenecking into the 2026—2028 supply-demand gap. It then analyzes each company's capacity, product mix, pricing, gross margins, and operating leverage and adjusts earnings forecasts accordingly. Finally, it applies top-down and bottom-up 2030 scenario analyses to test long-term earnings sensitivity and derives target prices using expected P/E multiples for the second half of 2027 through the first half of 2028.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  ABF Substrate Supply-Demand Model

  The report separately forecasts demand and supply growth and measures industry tightness by the degree to which supply falls short of demand. The upward revision to server CPU demand widened the forecast shortages for 2026—2028 to 7%/14%/19%.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Decomposition of Shipment Growth and ASP Growth

  The 2030 bottom-up analysis fixes demand or shipment CAGR and then varies ASP CAGR, thereby separating the contributions of volume and pricing to earnings growth.

• Company Fundamentals and Financial FrameworkOperating/Financial Leverage Analysis

  Gross Margin and Operating Leverage Analysis

  The report maps price increases, the share of high-value products, customer-funded equipment, and revenue expansion to gross margins and expense absorption, explaining the adjustments to the three companies' EPS forecasts and their differences from consensus.

• Valuation MethodPE/PEG valuation

  Target Price Based on Forward P/E

  The target prices for all three companies are calculated using a 35x forward P/E for the second half of 2027 through the first half of 2028, with historical valuation ranges, ROE, operating margins, and earnings resilience supporting the selected multiple.

• (Out-of-Vocabulary Method)

  2030 Top-Down and Bottom-Up Scenario Sensitivity Analysis

  The top-down approach varies demand growth and market share, while the bottom-up approach varies ASP growth. Both hold certain margin assumptions constant and use base and bull cases to show the effects of key variables on 2030 EPS and net profit.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Unimicron (3037TT; UMCRF)

  A beneficiary of tight ABF substrate supply and demand, high-end capacity expansion, and a rising share of high-value products.

  Strengths

  Capacity is expected to grow by more than 30% in both 2027 and 2028; high-value projects are expected to account for more than 50% of ABF substrate revenue in the second half of 2026; end-market demand for high-end technology products is more resilient.

  Weaknesses

  BofA is cautious on operating leverage and expenses, with its 2027/28 operating profit forecasts 9%/6% below consensus, respectively.

  Comparison

  Its capacity expansion is the most aggressive among the suppliers covered in the report; gross margin improved by 680 basis points quarter over quarter in the second quarter of 2026, below NYPCB's 890 basis points but above Kinsus's 490 basis points.

  Risks

  Peer ABF capacity expansion, lower-than-expected increases in AI server ASP content, and a sharper decline in consumer electronics demand.

• NYPCB (8046TT; NANYF)

  Benefits from peers' BT substrate capacity relocation, its dominant share in high-end network switches, and ABF substrate price increases.

  Strengths

  Its share of high-end network switch ABF substrates is expected to remain above 50%; gross margin expanded 890 basis points quarter over quarter in the second quarter of 2026 and exceeded both BofA and consensus expectations by 330 basis points.

  Weaknesses

  BofA is more conservative on revenue growth, with its 2027/28 EPS forecasts 15%/29% below consensus, respectively.

  Comparison

  The report views it as the major beneficiary of price increases among the three companies, with its second-quarter gross margin improvement exceeding those of Unimicron and Kinsus.

  Risks

  Peer ABF capacity expansion, weaker-than-expected SiP/AiP adoption, and intensifying competition in the PCB business.

• Kinsus (3189TT; KNSUF)

  Benefits from AI CPUs/GPUs, ASICs, high-speed optical modules, and customer-funded equipment capex.

  Strengths

  AI CPU revenue share is expected to rise from approximately 5% to approximately 15%; ABF business gross margin is expected to reach 40%—45% in 2028; customer-funded equipment is expected to provide a 7—8 percentage-point gross margin benefit.

  Weaknesses

  Earnings improvement depends on sustained price increases, the implementation of customer-funded equipment, and the migration of high-speed optical module specifications.

  Comparison

  Its 2027/28 EPS forecasts are 6% above consensus; its earnings sensitivity in the 2030 top-down base case is higher than those of the other two companies.

  Risks

  Peer ABF capacity expansion, weak SiP/AiP adoption, intensifying competition, and adverse developments in alternative technologies.

Key data

• ABF Substrate Supply Shortage2026/27/28: 7%/14%/19%The previous forecast was 4%/10%/16%.
• Server CPU Share of Demand2026/27/28: 17%/21%/21%The forecast in June 2026 was 13%/14%/14%.
• ABF Substrate Supply Growth2026/27/28: 12%/22%/19%Includes Unimicron's capacity relocation and NYPCB's debottlenecking but excludes EMIB-T data from Ibiden's Gama plant.
• Unimicron Capacity ExpansionGrowth above 30% in both 2027 and 2028The report considers it the most aggressive supplier in expanding ABF substrate capacity.
• Unimicron High-Value Product ShareMore than 50% of ABF substrate revenue in the second half of 2026The related projects have gross margins above 50%.
• Unimicron Earnings and Target Price Revision2028E EPS raised by 21%; target price NT$1,400The previous target price was NT$1,200, and the valuation multiple was raised from 33x to 35x.
• NYPCB High-End Switch Market ShareAbove 50%The report expects it to maintain its dominant position through customer relationships and limited competition.
• NYPCB Second-Quarter Gross Margin ChangeExpanded 890 basis points quarter over quarter in the second quarter of 2026Unimicron and Kinsus expanded by 680 and 490 basis points, respectively, during the same period, while NYPCB exceeded BofA and consensus expectations by 330 basis points.
• NYPCB Earnings and Target Price Revision2026—2028E EPS raised by 18%—21%; target price NT$1,700The previous target price was NT$1,430, and the shares remain valued at a 35x forward P/E.
• Kinsus AI CPU Revenue ShareApproximately 5% in 2026 and approximately 15% in 2027AI CPU/GPU and ASIC projects have gross margins above 35%.
• Kinsus Customer-Funded Equipment CapexNT$6 billion—8 billionExpected to provide a 7—8 percentage-point gross margin benefit from 2028.
• Kinsus ABF Business Gross Margin35%—40% in 2027; 40%—45% in 2028Supported by an approximately 10% quarter-over-quarter ASP increase in 2027 and customer-funded equipment.
• Kinsus Optical Module Revenue Contribution20% of BT substrate revenue in 2027Benefiting from the migration from 800G to 1.6T and 3.2T specifications.
• Kinsus Earnings and Target Price Revision2027/28E EPS raised by 12%/26% (12%/25% in the earnings table); target price NT$1,250The previous target price was NT$1,070, based on a 35x forward P/E.
• 2030 Top-Down Net Profit UpsideBase: 39%/27%/96%; bull: 80%/83%/155%Corresponding to Unimicron, NYPCB, and Kinsus, respectively, all relative to the original 2028 forecasts.
• 2030 Bottom-Up Net Profit UpsideBase: 78%/71%/39%; bull: 112%/101%/55%Corresponding to Unimicron, NYPCB, and Kinsus, respectively, assuming demand or shipment CAGR is fixed at 15%.

Impact & implications

The report believes the upward revision to AI server CPU demand means ABF substrate supply additions will remain insufficient to bridge demand growth, shifting industry pricing power toward suppliers. Unimicron primarily benefits from high-end capacity expansion and its high-value product mix, NYPCB benefits from its dominant share in high-end switches and more pronounced pass-through of price increases, while Kinsus benefits simultaneously from AI computing, customer-funded capacity expansion, and high-speed optical module upgrades. The resulting improvements in pricing and margins form the common basis for the earnings forecast and target price increases for all three companies.

Risks

• Downside risks for Unimicron include peers expanding ABF capacity, lower-than-expected increases in AI server ASP content, and a sharper decline in consumer electronics demand.
• Downside risks for NYPCB include peers expanding ABF capacity, weaker-than-expected SiP/AiP adoption, and more intense competition in the PCB business.
• Downside risks for Kinsus include peers expanding ABF capacity, weaker-than-expected SiP/AiP adoption, intensifying competition, and adverse developments in alternative technologies.

What to watch

• Track whether server CPUs' share of ABF substrate demand can reach 17%/21%/21% in 2026—2028.
• Monitor whether the industry shortage widens along the forecast path of 7%/14%/19% and whether peer capacity expansion changes the supply-demand gap.
• Monitor Unimicron's annual capacity expansion of more than 30% in 2027—2028 and the revenue share of high-value projects.
• Monitor NYPCB's share above 50% in high-end network switches, shifts in BT substrate share, and margin performance following price increases.
• Monitor Kinsus's approximately 10% quarter-over-quarter ASP increases in 2027, the implementation of NT$6 billion—8 billion in customer-funded equipment, and the 7—8 percentage-point gross margin benefit in 2028.
• Track whether optical modules can contribute 20% of Kinsus's BT substrate revenue in 2027 following upgrades from 800G to 1.6T/3.2T.
• Monitor SiP/AiP adoption, PCB competitive intensity, alternative technology development, and changes in consumer electronics demand.