8 September 2023 | 8:20PM CST

Taiwan PCB/CCL: L40S started to drive market demand from 3Q, while
the 800G switch demand momentum will start from late 4Q23

Key takeaways from our recent PCB/CCL industry channel checks and updates with Chao Wang
+886(2)2730-4195 | kuan-
ITEQ and TUC include: [email protected]
Goldman Sachs (Asia) L.L.C., Taipei
Branch
(1) ITEQ confirmed its revised 3Q23 revenue guidance to +20-30% QoQ from flat to Allen Chang
+852-2978-2930 |
slightly up QoQ given the strong demand from L40S mainboard and OAM demand [email protected]
Goldman Sachs (Asia) L.L.C.
which started from early to mid 3Q23, and that the new CSP self-designed ASIC
based AI server will start shipment in September/October.

(2) For TUC, the company expects its revenue MoM growth rate to further accelerate
in September with more AI server projects starting to contribute revenue, and also
expects its revenue to grow MoM in rest of the year.

(3) In terms of L40S server CCL content, ITEQ believes it is US$200-300 higher than
traditional server (assuming 8 L40S GPUs per server), with higher spec mainboard
(2-4 additional layers) and 8 additional OAMs, while we believe both ITEQ and TUC
are the key suppliers for the L40S server CCL.

(4) For 800G switch, the demand could start from late 4Q23 and grow QoQ every
quarter from 1Q24, while we see TUC has the fastest progress in key US switch
supplier qualification, and believe its market share could recover from the low level in
400G switch (10-20% per GSe) to higher level.

(5) For CSP self-designed ASIC based AI server, the CCL content is similar or a bit
higher than GPU based AI server and be ~US$500 higher than traditional server. Our

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channel checks indicate Google’s demand on PCB/CCL increased significantly from
3Q23 and that Amazon’s demand on PCB/CCL will also start accelerating in coming
quarters.

(6) For CSP self-designed GPU based AI server, CCL/PCB supply chain players see
fast progress on Amazon/Microsoft projects, whose demand could accelerate in
4Q23 and grow more significant in 2024.

(7) Based on our supply chain check, NE Glass is the key material to produce Super
Low Loss + grade products, which makes NE Glass a key strategic component for all
suppliers who want to expand capacity in the high end market. As such, we continue
to see CCL suppliers trying to secure more NE Glass supply from 2Q23, while EMC
could have the most NE Glass supply from Japanese players, followed by TUC, as

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Goldman Sachs Taiwan PCB/CCL

per our supply chain check.

(8) We continue to see very strong PCB/CCL demand from the automotive market,
driven mainly by the ADAS/Autonomous driving level upgrade demand, while some
automotive PCB/CCL suppliers believe the related revenue contribution will increase at
least 100%+ YoY in 2024.

We continue to see the high-end CCL market expanding from H100/A100 AI server
demand which started from 2Q23, followed by the L40S AI server demand (started from
3Q23), and we believe the CSP self-designed ASIC based AI server will further drive
Taiwan CCL suppliers’ revenue from September/October as US CSPs continue to
allocate more order to Taiwan suppliers. Moreover, we believe the 800G switch related
suppliers will see better growth from late 4Q23 and 2024, considering the 100%+ more
CCL content per 800G switch (vs. 400G switch). We expect the players who can gain
better 800G market share to enjoy stronger bottom line growth in 2024 and beyond, as
the 800G switch will become the most high-end product for high-speed CCL industry
that could have much higher GM/OPM than other products.

We started to see EMC outperform all other suppliers from 2Q23 (Exhibit 1) given its
sole supplier position in Nvidia AI server supply chain, and ITEQ/TUC’s strong
performance since 3Q23 is mainly driven by their solid position in the L40S server
market. Going into 4Q23, we expect TUC will start to outperform other players given
more CSP self-designed AI server coming on stream where TUC could have better
market share. We also believe both TUC and EMC should see better revenue/profit
contribution from 800G switch demand from 4Q23 to 2024, as we believe both
companies will each have 20-30%+ market share in the new products.

Maintain Buy (on CL) on TUC with unchanged TP of NT$170 considering the company’s
better market share gain position in the AI server market and its high possibility to
become one of the key 800G switch CCL suppliers given its best in class high-speed

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CCL technology skillset and much lower than peers product pricing (20-30%+ lower
than peers for extreme low loss products). Maintain Neutral / Sell rating on EMC (TP
unchanged at NT$420) / ITEQ (TP unchanged at NT$82.5) on sector relative basis (our
EMC/ITEQ TP now imply 6/11% downside, which is lower than our Buy/overall covered
companies average upside at 22%/5%).

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Exhibit 1: Taiwan key CCL suppliers’ monthly revenue trend - EMC Exhibit 2: High-end CCL market should grow by 21% 2023-25E CAGR,
the strongest given its high Nvidia market share, while we believe close to the growth seen in 2018-20
TUC should soon catch up with EMC US$mn
Indexed Aug 2021 revenue as 100

Source: Company data 2023-25 based on GSe

Source: Company data, Goldman Sachs Global Investment Research

Exhibit 3: Overall CCL market will likely remain oversupplied in Exhibit 4: Server and switch should lead market growth in coming
2023E, and start to recover in 2024/25E years (2023-25E CAGR)

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Source: Company data, Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research

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Goldman Sachs Taiwan PCB/CCL

Exhibit 5: AI server CCL market size could account for up to 20% of Exhibit 6: CCL content per AI server will also increase due to
total cloud CCL TAM in 2025 in our Bull case platform upgrade
2025E

Bear, Base, Bull cases based on our Semi analyst Bruce Lu’s 10 July report - Generative AI - Part Source: Company data, Goldman Sachs Global Investment Research
IV: Will GenAI be a game changer? Assessing the AI opportunity for TSMC; reiterate Buy; TP up
to NT$700

Source: Company data, Goldman Sachs Global Investment Research

Exhibit 7: We expect EMC will maintain its leading market share

position in the AI server CCL market, while TUC could be the key
share gainer

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2023-25 based on GSe

Source: Goldman Sachs Global Investment Research

TUC investment thesis and price target

TUC is a key high-end global CCL supplier with 20%-25%+ market share in the past two
years that focuses on high-end switch (100G+) and base station computing material. The
company continues to expect its unit market share in the server industry to increase
from 15% in Whitley and Purley to higher in the Eagle Stream generation, given it plans
to launch two types of products for low-end and high-end customers (T2A and T2C) to
gain market share. Also, strong growing 400G switch shipment (100%+ YoY in 2022)
and new 800G switch shipment which is scheduled for launch in 2024/25 should
continue to be the key demand driver for TUC, in our view. On the other hand, the
company is also working on high-end AI projects with CSP and Enterprise players which
we believe should drive revenue momentum in the long term. We believe it is

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Goldman Sachs Taiwan PCB/CCL

undervalued and thus have a Buy rating (on Conviction List). Key risks include: (1)
slower-than-expected share gains in the low-loss CCL segment; (2) rising trade tensions,
which could lead to weaker server and switch shipments globally; and (3) rising
competition from mainland China peers.

Our 12m TP of NT$170 is based on 17.5x 2024E P/E (in line with past 10-year average
early upcycle valuation). Key downside risks include: (1) slower-than-expected share
gains in the low-loss CCL segment; (2) rising trade tensions, which may lead to weaker
server and switch shipments globally; and (3) rising competition from mainland China
peers.

EMC investment thesis and price target

EMC, as a key high-end HDI material (70%+ market share) and SLP material (90%+
market share) supplier, has been focusing on the high-speed switch/server CCL market
for 3+ years. We are positive on EMC’s market share trend in the server industry in the
coming quarters/years and expect its market share to increase from <10% in the Purley
generation to 15-20/20+% in the Whitley/Eagle Stream platform. Also, EMC is
proactively expanding share in the switch market (10%-15% in 1H22 vs. <5% before
2019, per our estimate), with an expanding customer base (only 1 400G customer in
3Q20 and expanding rapidly in 2021/22), which should continue to benefit the
company’s top/bottom line growth in the long term. On the other hand, we believe the
company’s leading position in the AI server CCL market should drive strong revenue
growth and GM/OPM expansion in the long term. However, with a forward P/E multiple
above the industry average and low potential for earnings upside surprise, we are
Neutral rated on the stock.

Key upside risks include: (1) much stronger AI server investment trend than our
expectation, (2) faster than expected Eagle Stream/Genoa penetrating into the market,

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and (3) better high-end smartphone shipment in coming quarters.

Key downside risks include: (1) RCC to replace all high-end smartphone HDI design; (2)
rising trade tensions, which could lead to weaker smartphone and server shipments;
and (3) rising competition from mainland China peers.

Our 12m TP of NT$420 is based on 18x 2024E P/E (in line with past 10-year upcycle
average PE multiple).

Key upside risks include: (1) much stronger AI server investment trend than our
expectation, (2) faster than expected Eagle Stream/Genoa penetrating into the market,
and (3) better high-end smartphone shipment in coming quarters.

Key downside risks include: (1) RCC to replace all high-end smartphone HDI design; (2)
rising trade tensions, which could lead to weaker smartphone and server shipments;
and (3) rising competition from mainland China peers.

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Goldman Sachs Taiwan PCB/CCL

ITEQ investment thesis and price target

ITEQ is a key high-end CCL player globally, mainly focusing on the server market
(25-30% share globally). Although we remain positive on ITEQ’s long-term outlook given
strong growth in the server CCL and automotive high-speed CCL markets, we continue
to see revenue and GM downside in the near-to-mid terms, given the rising inflation and
recession risks which we expect to continue to weigh on the company’s
consumer-related product demand. Also, we believe the mid- to low-end CCL market
oversupply issue will remain in coming years, which together with the decreasing
copper cost, is likely to push CCL pricing even lower. Earnings growth rate is modest
(9% 2023-25E CAGR). We are Sell-rated. Key upside risks include: (1)
stronger-than-expected demand from server/switch in the coming years; (2)
stronger-than-expected CCL pricing hikes in the coming quarters without component
cost increase; and (3) stronger-than-expected 5G BTS demand globally in the coming
quarters.

Our 12m TP of NT$82.5 is based on a 13.5x 2024E P/E multiple (in line with past 10-year
average late downcycle valuation). Key upside risks include: (1) stronger-than-expected
demand from server/switch in coming years; (2) stronger-than-expected CCL pricing
hikes in coming quarters without component cost increases; and (3)
stronger-than-expected 5G BTS demand globally in the coming quarters.

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Goldman Sachs Taiwan PCB/CCL

Disclosure Appendix
Reg AC
We, Chao Wang and Allen Chang, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject
company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the
specific recommendations or views expressed in this report.
Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs’ Global Investment Research division.

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Disclosures
Rating and pricing information
TSMC (Buy, NT$542.00) and TSMC (ADR) (Buy, $90.05)
The rating(s) for Elite Material, ITEQ Corp and Taiwan Union Technology Corp. is/are relative to the other companies in its/their coverage
universe: Airtac International Group, Elite Material, GCE, Hiwin Corp., ITEQ Corp, Kinsus, NYPCB, Taiwan Union Technology Corp., Unimicron

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Technology, Yageo Corp.

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The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, “Goldman Sachs”) and companies covered
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Goldman Sachs beneficially owned 1% or more of common equity (excluding positions managed by affiliates and business units not required to be
aggregated under US securities law) as of the second most recent month end: Elite Material (NT$446.50) and Taiwan Union Technology Corp.
(NT$129.00)
There are no company-specific disclosures for: ITEQ Corp (NT$90.60)

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Goldman Sachs Taiwan PCB/CCL

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