AI Demand Boosts OSAT Pricing Power as Petrochemical Supply Risks Ripple Through Packaging Materials
Taylor Wilson
Cloud-AI orders have kept OSAT capacity tight from H2 2025 through 2027, with price hikes outpacing even foundry increases. This means → packaging and testing is shifting from back-end afterthought to the single biggest cost pressure point for chip designers.
How tight is OSAT capacity right now?
Since H2 2025, outsourced semiconductor assembly and test (OSAT) capacity has been consistently strained. New capacity added in 2026 was booked almost immediately.
Multiple IC design firms have locked in slots, with order visibility stretching beyond 2027.
This means → a finished chip design does not guarantee a shipped product — without a packaging slot, the die simply waits on the wafer.
Who is raising prices, and why can they?
The current cycle started with a memory super-cycle: rush orders flooded Powertech Technology and ChipMOS in H2 2025, triggering the first wave of hikes. A second round followed in early 2026.
Pricing pressure then broadened: GPU, CPU, and ASIC shipments grew at advanced nodes, while data-center networking peripherals and industrial chips restocked. ASE Holdings and Sigurd Microelectronics have both signaled further increases.
Input costs are rising in parallel — IC substrates and lead frames (the metal bases that carry a chip) have posted cumulative double-digit percentage gains, giving OSATs additional justification to raise fees.
How are OSATs turning capacity into a strategic asset?
ChipMOS disclosed that memory clients have signed three-year agreements to lock in capex-backed expansion.
Sigurd's silicon-photonics customers went further: they reserved capacity before the cleanroom was even built.
To accelerate expansion, packaging firms are actively acquiring ready-made buildings in Taiwan, bypassing land preparation and construction timelines. In plain terms = the race for capacity has escalated from "queuing for orders" to "funding the factory for your supplier."
How does petrochemical risk connect to chips?
The US–Iran conflict has pushed up crude oil prices, affecting naphtha — a refinery by-product. Naphtha is cracked into ethylene, propylene, and other base chemicals that ultimately become photoresist, cleaning solvents, and rubber used in semiconductor manufacturing.
Japan's Shin-Etsu Chemical announced in April 2026 that it would raise prices on all silicone products by 10% or more, citing higher crude, naphtha, and logistics costs driven by Middle East tensions.
This means → input costs for certain thermal interface materials (TIM — thin layers placed between a chip and its heat sink to conduct heat) and specific packaging materials will rise, but no supply shortage has appeared so far.
How long can the AI supply chain absorb this?
Semiconductor and IT firms have relatively strong balance sheets, so the direct impact of tighter naphtha supply is expected to hit them later than other industries.
Yet this reflects a deeper structural issue: with geopolitical shocks recurring, stockpiling critical raw materials and diversifying supply chains is no longer optional — it is unavoidable.
On balance, double-digit year-on-year revenue and profit growth for Taiwan's OSAT sector in 2026 is now the baseline expectation. Whether petrochemical cost pressure feeds through further into packaging prices is the variable to watch in the next phase.
Content is for reference only, not financial advice.