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Ibiden and Shinko Electric optimistic about AI, but standard server demand remains weak

Chiang, Jen-Chieh, Taipei; Jack Wu, DIGITIMES Asia 0

Credit: Ibiden

Japanese IC substrate manufacturer Ibiden has lowered its overall performance forecast for the fiscal year 2024 (April 2024 to March 2025). Similarly, another IC substrate company, Shinko Electric Industries, also announced a downward revision of its 2024 financial outlook before releasing its earnings report. Both companies noted that despite the surge in generative AI, the demand for standard servers in non-AI data centers continues to be sluggish, which is the primary reason for their disappointing performance.

According to reports from Nikkei and information on the company's official website, Ibiden has reduced its revenue forecast for fiscal year 2024 by 5.1%, bringing it down to JPY370 billion (approx. US$2.43 billion). Operating profit was also revised downwards by 4.8% to JPY40 billion, widening the year-over-year decrease.

The demand recovery speed of Ibiden's main product, IC packaging substrates, has been slower than expected, particularly in the PC and standard server sectors. The growth of AI servers has not compensated for this shortcoming, leading to lower performance compared to the forecast made three months ago.

Since October 2022, the PC market has seen a rapid decrease in demand for semiconductors and electronic components. Although inventory adjustments have been completed, the demand recovery speed has been slower than anticipated, leaving overall performance lacking strong support.

Ibiden

During the earnings call, Ibiden president Koji Kawashima stated that demand in the PC and standard server markets appears to have bottomed out. However, he also believes that restoring stability in supply and demand may take until the second half of fiscal year 2025 (October 2025 to March 2026).

He also emphasized that the demand for AI servers is strong and has exceeded expectations. Revenue from AI server-related products in fiscal year 2024 is projected to be approximately three times that of fiscal year 2023. In the IC substrate sector, high-value-added products like AI servers are driving profitability. Additionally, profits from automotive components have increased due to the currency depreciation effect of the yen. However, these gains couldn't offset the weak performance of standard servers.

Shinko Electric Industries

Shinko Electric Industries has also announced a downward revision to its fiscal year 2024 forecasts, with revenue reduced by 2.7% and operating profit reduced by 7.5%, now standing at JPY243.3 billion and JPY40.7 billion, respectively. This adjustment is primarily due to weak demand for key products such as flip-chip packaging, coupled with foreign exchange losses resulting from the appreciation of the yen.

Shinko Electric Industries board member Akihiko Ito mentioned during the earnings call that while AI-related demand is increasing, the recovery in the standard server market, where the company excels, is progressing slowly. He stressed that this does not indicate an overall market downturn, as demand for standard products could gradually rebound.

From April to September 2024, the semiconductor industry's AI demand is expanding, and the semiconductor equipment market focused on AI is performing steadily. However, demand related to PCs, standard servers, and automotive applications remains weak, affected by prolonged inventory adjustments. This indicates that the semiconductor industry has not fully recovered.

In this context, Shinko Electric has seen an increase in orders for ceramic electrostatic chucks used in semiconductor manufacturing equipment. Sales of plastic BGA substrates and IC assembly have also grown due to demand from high-end smartphones. On the other hand, flip chip packaging faces sluggish orders due to delayed recovery in PC and server demand, alongside intensified competition.