Advanced packaging is entering the era of glass substrates, domestic display giants are rushing in, who is likely to emerge as the winner?

Advanced packaging is entering the era of glass substrates, domestic display giants are rushing in, who is likely to emerge as the winner?

Glass substrates are becoming the next major technology battleground in the advanced packaging field for AI chips, with panel manufacturers racing to extend their large-scale glass processing advantages into this emerging semiconductor packaging market. Morgan Stanley’s latest research points out that Innolux, BOE, and AUO are pursuing their own strategic paths, but mass production is expected to begin no earlier than 2028, and mainstream panel business will continue to dominate their fundamentals before then.

Regarding the latest developments, Morgan Stanley believes Innolux is currently in the leading position. Innolux has participated in a core glass substrate project with a wafer foundry, and the proof-of-concept (POC) work has been completed, with further validation tests planned for the coming quarters. BOE aims at the full-process manufacturing of glass core substrates including Through Glass Via (TGV) and multilayer circuits. If progress is smooth, it plans to invest about RMB 5 billion in 2027 to build a production line with a monthly capacity of 15,000 pieces, targeting mass production in 2028. Related news has driven a significant surge in panel stocks recently; Innolux’s share price has nearly tripled in the past two months, far surpassing the roughly 16% gain in the broader Taiwan stock market during the same period.

While Morgan Stanley has raised the target prices for all three companies, it remains cautious regarding current valuation levels. The bank introduces its first profit forecasts for 2028 for the three firms, believing that revenues related to advanced packaging will materialize no earlier than 2028, and, before then, the mainstream panel business will remain each company’s core driver.

Technical Advantages of Glass Substrates Drive Market Imagination

According to Morgan Stanley’s in-depth report released on June 29, 2026, glass substrates in advanced packaging offer several key advantages: Larger panel sizes bring significant cost scaling effects; better electrical properties reduce signal loss; smaller mismatch in thermal expansion coefficients (CTE) with heterogeneous materials helps alleviate warping issues; higher mechanical strength can resist deformation during manufacturing and use.

As AI chip packaging sizes continue to expand, the panel makers’ accumulated expertise in large-scale glass processing increasingly matches the technical needs of advanced packaging, leading to a repricing of panel stocks. Morgan Stanley also points out that the most realistic time window for mass production of glass substrates for high-performance computing (HPC) is 2028–2029.

Innolux Leads: TGV Proof-of-Concept Completed, Highest Visibility in Technical Path

Among the three manufacturers, Innolux has been the most aggressive in advocating and investing in advanced packaging over the past few years.

According to Morgan Stanley, Innolux has participated in a wafer foundry’s core glass substrate project, with proof-of-concept work completed and further validation to continue. In the division of labor, Innolux completes the TGV process on a 510mm × 515mm glass panel, then hands it off to Ibiden for ABF substrate processing, and finally the wafer foundry completes the advanced packaging.

Technical challenges are concentrated in two key steps: Using laser-induced etching to form TGV and subsequent copper plating—these processes are not part of Innolux’s conventional panel production. According to Morgan Stanley, Innolux will need to purchase specialized equipment for glass core processing, with initial capital expenditure estimated at NT$20–30 billion.

Morgan Stanley expects that in 2028, Innolux’s packaging-related business revenue will be around NT$20 billion, accounting for about 6% of total annual revenue. The bank also noted the possibility of other manufacturers joining the competition during mass production, with supply chain research indicating the earliest mass production being in 2028. The firm maintains a “hold/observe” rating for Innolux, raising its target price to NT$60, equivalent to 2.1x 2026e P/B; given the historic high valuation, analysts believe the risk-reward ratio is unattractive.

BOE: Pursuing Full-Process Manufacturing, Plans RMB 5 Billion Investment in 2027

As the world’s largest panel manufacturer, BOE’s approach is more ambitious in vertical integration—aiming to master full-process glass core substrate manufacturing, including TGV glass core and multilayer circuits, rather than focusing solely on one process as in Innolux's division of labor.

According to Morgan Stanley, BOE has been researching glass core substrate technology since 2020 and has a test line, with verification collaborations underway with domestic and foreign IC design companies. If progress goes well, the company plans to invest about RMB 5 billion in 2027 to build a production line producing about 15,000 (510mm × 515mm) substrates per month, targeting mass production in 2028. Morgan Stanley forecasts BOE’s advanced packaging revenue in 2028 to be about RMB 5 billion, accounting for about 5% of total revenue.

Morgan Stanley gives BOE an “overweight” rating, raising its target price sharply from RMB 5.20 to 9.30, equivalent to 2.5x 2026e P/B. Analysts believe that while BOE’s business visibility in advanced packaging is lower than Innolux’s, its current 2.1x P/B is still below the historical peak of 2.7x, and forecast ROE for 2026–2028 will be 5–8%, supporting its valuation as the best risk-reward candidate among the three.

AUO Takes a Different Path: Focusing on LEO Antennas and CPO Optical Modules

AUO’s approach to advanced packaging differs from the other two—its current focus is not on HPC but on low orbit satellite (LEO) antenna modules and co-packaged optics (CPO) modules.

For LEO antennas, AUO plans to use glass as the substrate, carrying antenna patterns and RF components, integrated into automotive sunroofs. Regarding CPO modules, AUO partners with Ennostar, Tyntek, etc., to advance a Micro LED-based CPO architecture aiming for lower cost and power consumption in short-distance data transmission, with glass again used as the substrate material. Company management says these businesses are ongoing, but has not provided a specific revenue contribution timetable.

Morgan Stanley believes that LEO antenna business is limited in its correlation with HPC advanced packaging, and market acceptance of Micro LED CPO modules is also unclear; thus, the advanced packaging income from AUO has not been included in their forecasting model, with business visibility being the lowest among the three. The bank raises AUO’s target price from NT$14 to NT$27, maintaining a “hold/observe” rating; its valuation is lowest among the three (1.4x P/B), but with the greatest uncertainty in the timetable for new business.

Mass Production in 2028, Valuations Have Fully Priced Future Expectations

Despite the broad technical prospects of glass substrate packaging, Morgan Stanley cautions that current market sentiment needs to be viewed alongside commercialization timelines. According to the bank's supply chain research, mass production will start no earlier than 2028; before then, mainstream panel business will continue to dominate revenue composition for the three companies—about 40–50% of Innolux and AUO’s revenue comes from mainstream panels, and the proportion is even higher for BOE at 70–80%.

Meanwhile, Morgan Stanley expects the current TV panel price cycle to be nearing its end, with prices expected to enter a downward trend from Q3 2026, although major panel makers are likely to maintain relatively disciplined capacity management. This means that, with the main commodity panel business facing price pressures, whether the three companies can advance mass production of advanced packaging as planned will become the critical variable in maintaining current high valuations.

 

 

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