AI’s Next Manufacturing Challenge
The AI server boom is creating significant opportunities for the PCB industry, provided manufacturing capacity can scale to meet growing demand.
The relentless and ongoing surge in demand for AI servers continues to drive a huge call for materials and components. The effects within the PCB industry are well known, and supply challenges are affecting components of all types from high-end processors and memory modules to commodity items like multi-layer ceramic capacitors (MLCCs). Tens of thousands of these tiny but essential devices are needed on every server to perform power-supply decoupling, and equipment manufacturers need to be smart and decisive to secure the supplies they require.
And while investors celebrate the market performance of premium semiconductor stocks, excitement is building around related technologies like high-speed optical modules; the only devices capable of feeding cutting-edge GPUs with data quickly enough to keep them properly busy. Optical modules represent a huge growth opportunity as AI compute hardware seeks ever-faster interconnects between GPU clusters to continue boosting performance. Sales are expected to more than double in the next two years, particularly among the fastest modules, as server makers upgrade their interconnects from 400Gbit/s to 1.6Tbit/s and even 3.2Tbit/s.
What’s interesting here, for the PCB industry, is that the substrates for these modules are becoming vastly more complex and expensive with each speed upgrade, now requiring as many as 50 layers featuring ultra-fine trace widths and very low-profile copper. While per-port data speeds are rising, and per-bit power efficiency is 30-40% greater, the overall power dissipation is increasing. In fact, 400Gbit/s modules typically dissipate 10-12W per unit, which scales to 320-384W for a fully loaded 32-port data center switch; dissipation is even greater at higher speeds. Realizing this is forcing thermal management back onto the table in high-speed board design.
In revenue terms, the market for optical module PCBs could potentially exceed $3.75 billion in the next couple of years, according to Morgan Stanley. However, manufacturing these PCBs depends on advanced modified semi-additive process (mSAP) technology, which currently happens at scale only in Asia. This is consistent with the widespread loss of large-volume PCB manufacturing in numerous important technologies, which has happened over the last three decades in the West.
During that time, much of the Western electronics sector has moved out of manufacturing as technology businesses have directed their energies towards IP creation, design and conceptualizing. The strategy has been to concentrate on these high-value, high-margin activities, regarding manufacturing as low-margin, less profitable, and economical to outsource. Moreover, globalization made supply chains cheaper, so scaling production was faster and easier in Asia. Those of us who were in the industry in the late 1990s and early 2000s can probably remember thought leadership comments from the time, confidently asserting that aspects like system architecture, chip design, software, standards and IP licensing would be directed from the West, while activities like chip fabrication, product assembly, and packaging would move to the East.
But the weakness in this model is that making things accumulates knowledge that provides the foundation for innovation. Making things teaches engineers how to improve them. Innovating only in aspects like design and intellectual property, but not in manufacturing, loses the feedback loops that sustain long-term competitiveness. Being close to where the manufacturing happens means being close to where the problems are. Solving these builds expertise and supports greater capability and capacity. It’s important for driving investment and sustaining the high-tech sector as a whole.
It’s now clear that outsourcing manufacturing has relinquished the power to generate wealth and shape the future of technology. Initiatives like the CHIPS Act, the EU Chips Act, onshoring incentives, and the drama over import tariffs and strategic export controls acknowledge this and are all part of the effort to rebuild high-tech manufacturing. Strong manufacturing depends on a diverse ecosystem that includes elements such as suppliers, sub-suppliers, logistics, and skills, which have also eroded with the loss of manufacturing. These cannot be legislated into existence and will take time to rebuild. Until that is achieved, reshored manufacturing will remain dependent on specialized materials, components and other services and supplies from abroad to deliver finished products.
The dominance historically held in the West is unlikely to return during this cycle. But there are opportunities to establish niches of excellence, perhaps in areas like photonics at the heart of the high-speed optical modules needed for AI servers. Success would depend on establishing a means to manufacture these technologies at scale, and the window for this opportunity is narrowing quickly.
I have commented on the importance of advanced technology for defense-related projects in previous columns here, and this remains topical amid prevailing conflicts and tensions worldwide. In this context, those initiatives to recapture high-tech manufacturing are also important to establish sovereignty of supply. There is a strong appetite for this in North America, including a recent significant investment in ultra HDI printed circuit board manufacturing in Syracuse. The partly government-funded initiative is among the first to establish purpose-built UHDI capabilities in the US and is expected to create up to 400 new jobs. The same company is also investing in PCB manufacturing in Europe by acquiring two existing SME board producers based in Switzerland and Germany. Europe, it must be said, is generally far behind in re-establishing large-scale indigenous high-tech electronics manufacturing.
Reshoring for any purposes, defense-related or commercial, needs to be viewed in the context of the current serious supply-chain squeeze driving basic materials into allocation. The main investments in new capacity to alleviate these shortages are happening in Asia. While conditions for doing business – prices, margins and payment terms – are simply more favorable there, the current cycle looks set to continue.End of article content
Alun Morgan is technology ambassador at Ventec International Group (venteclaminates.com); alun.morgan@ventec-europe.com. His column runs monthly.