Kenanga Research said Monday that advanced packaging will become the next battleground in semiconductor value chain and benefit Malaysia’s technology players.

The research house said in a note that advanced packaging has emerged as a critical enabler of next-generation semiconductor performance, particularly as Moore’s Law slows and artificial intelligence (AI)/ high performance computing (HPC) workloads become increasingly constrained by memory bandwidth, latency, power efficiency and thermal management.

“No longer merely a back-end assembly process, advanced packaging is now a strategic technology layer that determines how efficiently logic, memory, radio frequency (RF), sensors and power components work together within a system,” it explained.

For investors, it opined that the strongest value creation is likely to be concentrated in AI/HPC-related technologies such as FCBGA, 2.5D/3D integration, HBM, hybrid bonding, high-end substrates and eventually glass substrates.

According to the research house, the market outlook for advanced packaging is attractive.

Cited Yole’s study, it said the advanced packaging market is expected to grow from around $54 billion in 2025 to $109 billion by 2031, implying a 14 percent of compound annual growth rate (CAGR).

This growth is underpinned by rising semiconductor content across AI, HPC, automotive, mobile, networking and consumer electronics.

“Importantly, growth is not only volume-driven, but also value-driven, as packages become more complex and command higher value per unit,” said Kenanga.

Within the market, 2.5D/3D stacked packaging appears to be the most structurally attractive segment, with Yole indicating a CAGR of around 21 percent. This is mainly driven by AI/HPC and HBM integration.

As AI models become larger and more data intensive, processors also need faster access to memory. This increases the need for 2.5D interposers, high-end substrates, fine pitch interconnects and advanced bonding technologies.

“The implication for investors is that advanced packaging growth will be uneven across segments. Mature technologies such as WLCSP and some SiP applications will continue to benefit from mobile and consumer volumes, but the strongest value creation is likely to come from AI/HPC-related packaging,

“This is where performance requirements are highest, package complexity is greatest, and pricing power is likely to be stronger,” said Kenanga.

For Malaysia, the research house highlighted that the advanced packaging read-through is positive but selective.

It said the country’s established outsourced semiconductor assembly and test (OSAT) and semiconductor support ecosystem provides a strong base, but the bigger opportunity lies in moving beyond conventional assembly and test into higher-value areas such as advanced test, precision automation, photonics packaging, process infrastructure and chiplet-related design support.

Other than OSAT, automation and test equipment players could also be among the clearer beneficiaries, given that advanced packaging requires higher precision in die placement, handling, inspection, alignment, bonding and testing.

Precision engineering and process infrastructure players may also benefit indirectly from rising advanced packaging capital expenditure (capex).

Longer term, photonics and chiplet-related opportunities could also benefit.

“Overall, Malaysia’s advanced packaging opportunity should be viewed as an ecosystem theme rather than a broad-based sector uplift,

“The key beneficiaries are likely to be companies with credible exposure to advanced test, automation, precision engineering, photonics packaging, process infrastructure and higher-complexity semiconductor programs,” said Kenanga.

It is noted that Malaysia had recently forming Malaysia Advanced Packaging Consortium (MAPC) through collaboration among five local companies (namely, Skyechip, FusionAP, Inari, Pentamaster, and NSW Automation) to help upgrade the country’s semicondoctor industry into a higher-value sector.

The government has approved a MYR 92 million research and development (R&D) grant over 24 months for the program, while industry is contributing MYR 93 million, bringing the total to MYR 185 million.

The main objective of the initiative is to strengthen Malaysia’s position in high-value semiconductor manufacturing, as the country aims to capture 7 percent of the global advanced packaging market by 2035.

“From an investment perspective, the initiative is strategically positive but still early-stage. The near-term impact is likely to be capability-building rather than immediate earnings contribution,

“However, the read-through is positive for companies with exposure to advanced packaging, ATE, automation, OSAT process development and high-precision engineering,” said Kenanga.

It is noted that MAPC believes Malaysia’s attractiveness as an advanced packaging base, citing the country’s experienced semiconductor talent pool, long-established industry-government collaboration and existing ecosystem as key reasons for locating the business in Malaysia.

MAPC has also laid out a phased roadmap to build Malaysia’s advanced packaging capability. In 2026, the focus is on early engineering and pilot validation.

By 2027, MAPC aims to establish a C4 bumping line in Malaysia.

While not a new technology, Kenanga noted C4 bumping remains a key interconnect process for flip-chip and advanced packaging, supporting higher-value applications in AI, data centers, networking, automotive and advanced consumer electronics.

By 2028, MAPC also plans to move into 2.5D die-on-silicon-substrate/interposer packaging, positioning Malaysia closer to next generation AI and high-performance computing packaging.

Longer term, MAPC is also looking at co-packaged optics, optical chip integration and finer-pitch interconnects, potentially scaling from today’s 30–40 micron range towards 10 microns before hybrid bonding becomes necessary.

“Overall, the roadmap suggests a gradual move from engineering services and pilot-line validation in 2026, to C4 bumping in 2027, and 2.5D advanced packaging capability by 2028, supporting Malaysia’s ambition to move beyond conventional backend assembly into higher-value semiconductor packaging,” said Kenanga.

Overall, Kenanga continues to remain constructive on the technology sector’s medium-to-longer term outlook, underpinned by resilient AI infrastructure spending and continued global fab expansion.

It is noted that SEMI expects global installed capacity to grow by 4.7 percent to 5 percent in 2026, and for front-end equipment spending to hit a record $133 billion (18 percent year on year), signaling a shift from fab construction in 2025 towards equipment installation and capacity ramp-up in 2026.

Meanwhile, capex guidance by Magnificent 7 now adds up to roughly $720 billion to $750 billion, reinforcing demand visibility for AI-related beneficiaries.

AI platform race is tightening across Asia’s startup ecosystem, Aspire data shows