What's Happening?
Japanese chemical maker Ajinomoto has reportedly informed its customers in mainland China of a 30% reduction in the supply of ABF (Ajinomoto Build-up Film), a crucial insulating film used in nearly all high-end processor packages. This information comes
from the Chinese outlet JW Insights, which cited unnamed supply chain sources. Ajinomoto holds an estimated 95% global market share for ABF, while China's self-sufficiency in this material is believed to be below 5%. The reported cut is attributed to Ajinomoto prioritizing Japanese customers and key overseas accounts that supply FC-BGA substrates for accelerators from companies like Nvidia, AMD, and Intel, over mainland Chinese buyers. This development follows a confirmed 30% price hike on ABF materials, which took effect this quarter, two months after activist fund Palliser Capital publicly demanded such an increase.
Why It's Important?
This reported reduction in ABF supply could significantly impact China's semiconductor industry, particularly its ability to produce high-end processors and advanced chips. Given Ajinomoto's dominant market share, Chinese firms like Shennan Circuits, Xingsen Technology, and Shenghong Electronics, which rely heavily on ABF, would face substantial challenges. The move could exacerbate China's existing reliance on foreign technology for critical components and potentially hinder its progress in areas like artificial intelligence and supercomputing. The situation highlights the strategic importance of materials like ABF in the global technology supply chain and underscores the vulnerabilities of nations with low self-sufficiency in such critical components. The price hike also means increased costs for chip packaging, which will likely be passed down the supply chain.
What's Next?
China's response to this reported supply cut will likely involve an accelerated push for domestic substitutes for ABF. Currently, China has three films in qualification: Huazheng New Material's CBF, Shenzhen Newface's NBF (developed by a company 51% acquired by Lotus Holdings), and Hongchang Electronics' GBF. Huazheng's CBF is reportedly the most mature, with mass-production yields above 85% and validation underway at Chinese firms. However, the qualification process for these domestic films is lengthy, typically taking one to three years for reliability testing. Until these domestic alternatives achieve mass production and full qualification, Chinese chip manufacturers will face continued pressure. The long-term solution for China may also involve further investment in glass substrates, though this technology is not yet in mass production and still requires insulating films.
Beyond the Headlines
The reported ABF supply cut, alongside China's earlier export curbs on rare earths to Japan, suggests a potential escalation in technological and trade tensions between the two nations. While Ajinomoto attributes the cut to capacity allocation driven by AI demand, the timing and context lend themselves to interpretations of retaliatory optics. This situation underscores the broader geopolitical competition for technological supremacy, where control over critical materials and manufacturing processes becomes a powerful leverage point. The development could also spur greater innovation in alternative packaging technologies, such as Huawei's Ascend architecture, which reportedly reduces dependence on high layer-count ABF-based FC-BGA substrates, potentially reshaping future chip design and manufacturing strategies.
