TSMC 3nm Chip Outsourced Testing Orders Surge!

TSMC is experiencing a surge in 3nm orders, driven by its collaboration with Apple, which is incorporating the new A18 series processors into its iPhone 16 lineup. Following Apple's lead, major companies like MediaTek, Qualcomm, NVIDIA, and AMD are set to utilize TSMC's 3nm process for their upcoming flagship chips, creating a significant increase in demand for outsourced testing services.

ASE Technology Holding Co. and King Yuan Electronics Co., Ltd. are poised to benefit from this trend, as they secure outsourcing contracts for testing chips from leading firms such as MediaTek, Qualcomm, and NVIDIA. Notably, orders from NVIDIA's new products are expected to double in the fourth quarter, marking ASE Technology and King Yuan Electronics as key winners in this sector. Additionally, companies like Powertech Technology Inc. and Siliconware Precision Industries Co., Ltd. are also expected to gain from this increased demand.

Currently, Apple is TSMC's largest customer for 3nm technology, but Apple’s testing services are managed entirely by TSMC itself. This means that the outsourced testing sector has yet to see a share of these opportunities. However, with new 3nm chips from MediaTek, Qualcomm, NVIDIA, and AMD coming to market, the outsourced testing industry is set to experience a significant boost.

Starting in October, MediaTek and Qualcomm will launch their latest 5G flagship chips: MediaTek's "Dimensity 9400" and Qualcomm's "Snapdragon 8 Gen4." Both companies emphasize improvements in AI performance and energy efficiency with their new releases.

As TSMC transitions to producing the latest 5G flagship chips for MediaTek and Qualcomm, the main outsourced testing partners will be ASE Technology, King Yuan Electronics, and Siliconware. Due to the advanced requirements for these new chips, including higher efficiency and lower energy consumption, the testing process will be more rigorous, leading to increased testing times and higher hourly rates. This surge in demand will significantly boost the operational capacity and profitability of specialized testing facilities like King Yuan Electronics and Siliconware.

Moreover, NVIDIA's AI chips will gradually expand production. While these chips predominantly use TSMC's CoWoS packaging, the demand for TSMC's advanced packaging services is exceeding supply, leading to a growth in outsourced testing. ASE Technology and King Yuan Electronics will be key beneficiaries.

NVIDIA’s new Blackwell architecture-based GB200 and B-series AI chips are experiencing strong demand, with supply struggling to keep up. Following substantial increases in TSMC’s advanced process volume, the impact is now felt in the testing sector, leading to a significant upturn in ASE Technology and King Yuan Electronics' operations. Orders for the fourth quarter are expected to see a 100% increase.

ASE Technology anticipates that its packaging and testing capacity utilization will continue to rise, from approximately 60% in Q2 to 65% in Q3, with expectations to exceed 70% in Q4.

King Yuan Electronics, a major testing partner, will see a two- to three-fold increase in testing times for new chip models, providing substantial operational support for this and next quarter. Analysts forecast that AI chips will contribute over 30% to King Yuan Electronics' revenue next year. The company is also expanding its high-end testing and burn-in equipment to capitalize on the growing AI market.

Powertech Technology Inc. has also secured outsourced testing orders from major foundries, joining the supply chains of NVIDIA and AMD. With the gradual ramp-up of NVIDIA's next-generation Blackwell platform AI chips, Powertech Technology is seeing a significant increase in its wafer testing and bumping processes.