Japanese chemical manufacturer Ajinomoto has reportedly informed customers in mainland China that it will reduce supply of ABF (acrylate-based film), a critical insulating build-up material used in high-end processor packaging, by 30%, according to reporting from Chinese outlet JW Insights citing unnamed supply chain sources. This reduction carries significant implications for Chinese substrate manufacturers including Shennan Circuits, Xingsen Technology, and Shenghong Electronics, which depend heavily on Ajinomoto's commanding market position. Ajinomoto holds approximately 95% of the global ABF market share, while China's domestic self-sufficiency rate remains below 5%.
The company has attributed the supply cut to prioritization of Japanese customers and core overseas accounts that supply FC-BGA substrates for processors from Nvidia, AMD, and Intel, effectively deprioritizing mainland Chinese buyers. Ajinomoto's ABF production operated at roughly 2 million square meters per month at full capacity in the second quarter. The supply constraint occurs alongside confirmed pricing pressures.
Ajinomoto notified substrate manufacturers in May of a 30% price increase taking effect in the current quarter. This price hike followed public pressure from UK activist fund Palliser Capital, which disclosed a top-25 shareholding and demanded price increases exceeding 30%. Since ABF material represents approximately 30% of a substrate's bill of materials, these increases directly impact production costs for every FC-BGA package manufactured using the material.
Market analysts project widening supply-demand gaps. According to Goldman Sachs research, the gap between ABF substrate supply and demand will expand from approximately 10% in the second half of 2026 to 21% in 2027 and 42% in 2028. In its fiscal year ended March 31, Ajinomoto reported that ABF sales grew 25% with margins exceeding 50%.
The company allocated approximately 2.5 billion yen (around $156 million USD) since 2023 toward capacity expansion of roughly 50% by 2030, though expansion timelines remain extended. China is pursuing multiple domestic alternatives as supply pressures intensify. Huazheng New Material's CBF film, developed with the Shenzhen Institute of Advanced Electronic Materials, represents the most mature domestic option.
The film uses modified epoxy resin with spherical silica filler, circumventing Ajinomoto's intellectual property. Mass-production yields reportedly exceed 85%, with reliability testing completed in Huawei Ascend systems and validation underway at Xingsen and Shennan Circuits. Huazheng's first production line produces 3 million square meters annually at full utilization, with a second line doubling capacity targeted for end-2026.
Lotus Holdings acquired 51% of Shenzhen Newface, developer of NBF film, in April for approximately 103 million yen. Newface has qualified products with nine build-up layers or fewer, with nine- to 11-layer films in development and validation proceeding at Taiwanese substrate manufacturers. Hongchang Electronics' GBF film, co-developed with Taiwan's Jinghua Technology, has undergone validation at a leading domestic outsourced semiconductor assembly and test provider and entered small-volume trial production, with scale-up targeted for the fourth quarter.
All three domestic alternatives face significant qualification challenges. Downstream reliability validation requires one to three years of thermal cycling, damp-heat aging, and electrical testing, often exceeding R&D timelines themselves. High layer-count films required by flagship AI accelerators remain unmatched domestically, and upstream inputs including specialty resins and spherical silica fillers demonstrate partial import dependence.
Huawei's Ascend 910C architecture partially mitigates ABF dependency through a design approach that connects two compute dies on separate silicon interposers via organic substrate, trading die-to-die bandwidth for yield and cost benefits. This packaging strategy reduces reliance on high layer-count ABF-based FC-BGA substrates compared to Nvidia's CoWoS approach. However, Cambricon, Biren, Moore Threads, and Alibaba's T-Head, which employ conventional FC-BGA packaging, face direct exposure to mainland ABF supply disruptions.
Geopolitical context frames the supply reduction. China implemented dual-use export restrictions on rare earth materials to Japan in January through Ministry of Commerce Announcement No. 1, following Prime Minister Sanae Takaichi's November remarks regarding Taiwan contingency planning.
Chinese rare earth exports to Japan declined approximately 51% year-over-year in the first half of 2026, with Japan importing only 13 tons of dysprosium during the period, representing an 82% decline from two years earlier according to TrendForce. Ajinomoto's ABF supply cut to China eight months later carries retaliatory implications, though all reported accounts attribute it to capacity allocation under AI demand. China pursues longer-term alternatives through glass substrate development.
BOE signed a three-year glass substrate agreement with Corning in May and designated glass-core packaging as a strategic business in July. Lens Technology announced a through-glass-via collaboration with Intel the same month. However, glass-core packaging still requires insulating film on either side, meaning glass substrates do not eliminate the requirement for ABF or its substitutes.
None of China's glass substrate projects has reached mass production status. Source: Tom's Hardware, citing JW Insights and supply chain sources. Additional data sources: Goldman Sachs, Nikkei Asia, TrendForce, SemiAnalysis.
Source: tomshardware.com