Advanced packaging moves towards the glass substrate era, domestic panel giants are rushing in, who is expected to become the winner?

Glass substrates are becoming the next technology battleground for advanced packaging of AI chips, and panel manufacturers are racing to extend their advantages in large-size glass processing to this emerging semiconductor packaging market. A recent study by Morgan Stanley points out that Innolux, BOE, and AUO are advancing their respective strategies, but mass production is not expected until 2028 at the earliest, and the commodity panel business will continue to dominate the fundamentals of all three companies before then.

On the latest developments, Morgan Stanley believes Innolux is currently in the lead. Innolux has participated in a glass core substrate project for a foundry, with proof of concept (POC) work already completed, and will continue validation testing over the next few quarters. BOE, on the other hand, is targeting full-process glass core substrate manufacturing, including through-glass via (TGV) and build-up layers. If progress goes smoothly, it plans to invest approximately RMB 5 billion in 2027 to build a production line with a monthly capacity of 15k panels, targeting mass production in 2028. These developments have driven a significant recent rise in panel stocks, with Innolux’s share price gaining nearly threefold over the past two months, far outpacing the Taiwan stock market’s roughly 16% increase over the same period.

While raising target prices for the three companies, Morgan Stanley remains cautious about current valuation levels. The bank has introduced 2028 earnings forecasts for the three companies for the first time, believing that revenue contributions from advanced packaging will not materialize until at least 2028, and until then, commodity panels will remain the core driver of each company’s fundamentals.

Technical advantages of glass substrates drive market imagination

According to a deep-dive report by Morgan Stanley released on June 29, 2026, glass substrates offer several core advantages in advanced packaging: Larger panel sizes bring significant economies of scale; superior electrical properties reduce signal loss; a smaller coefficient of thermal expansion (CTE) mismatch with heterogeneous materials helps mitigate warpage; and higher mechanical strength resists deformation during manufacturing and use.

As AI chip packaging sizes continue to increase, the process expertise of panel makers in large-size glass processing is increasingly aligned with the technical requirements of advanced packaging, triggering a market revaluation of panel stocks. Morgan Stanley also clearly states that a more realistic timeframe for mass production of glass substrates for high-performance computing (HPC) is between 2028 and 2029.

Innolux leads: TGV proof of concept completed, highest visibility in technology pathway

Among the three companies, Innolux has been the most active advocate and investor in advanced packaging over the past few years.

According to Morgan Stanley, Innolux has participated in a glass core substrate project for a foundry, with proof of concept work completed, and will continue with more validation tests. In terms of division of labor, Innolux is responsible for completing the TGV process on 510mm×515mm glass panels, which are then handed over to Ibiden for ABF substrate processing, and finally to the foundry for advanced packaging.

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

Morgan Stanley expects Innolux’s revenue from packaging-related businesses in 2028 to be approximately NT$15k, accounting for about 6% of total revenue that year. The bank also notes that other players may enter the competition during the mass production phase, and based on supply chain research, the earliest mass production timeline is 2028. Innolux maintains an "Equal-weight" rating, with a target price raised to NT$60, corresponding to 2.1 times estimated 2026 P/B. Given that the current valuation has hit an all-time high, analysts believe the risk-reward ratio is unfavorable.

BOE: Pursuing full-process manufacturing, plans to invest RMB 5 billion in 2027 to build production line

As the world’s largest panel manufacturer, BOE’s entry path shows greater vertical integration ambition—its goal is to master full-process glass core substrate manufacturing capabilities covering TGV glass core and build-up layers, rather than focusing solely on a single process step, which differs from Innolux’s division-of-labor model.

According to Morgan Stanley, BOE began researching glass core substrate technology as early as 2020, has already built a pilot line, and is advancing validation collaborations with domestic and international IC design companies. If progress goes smoothly, the company plans to invest approximately RMB 5 billion in 2027 to build a production line with a monthly capacity of about 15k panels (510mm×515mm), targeting mass production in 2028. Morgan Stanley expects BOE’s revenue from advanced packaging in 2028 to be approximately RMB 5 billion, accounting for about 5% of total revenue.

Morgan Stanley gives BOE an "Overweight" rating, with a target price substantially raised from RMB 5.20 to RMB 9.30, corresponding to 2.5 times estimated 2026 P/B. Analysts believe that although BOE’s business visibility in advanced packaging is lower than that of Innolux, its current P/B of 2.1 times is still below the historical peak of 2.7 times, and with an expected ROE of 5% to 8% from 2026 to 2028, the valuation is reasonably supported, making it the best risk-reward option among the three.

AUO takes a different path: Focusing on LEO antennas and CPO optical modules

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

For LEO antennas, AUO plans to use glass as the substrate to carry antenna patterns and RF components, integrating them into automotive sunroofs. For CPO modules, AUO is collaborating with partners such as Ennostar and Tyntek to advance a Micro LED-based CPO architecture, aiming for short-distance data transmission at lower cost and power, with glass again serving as the substrate material. Company management stated that these businesses are still progressing, but did not provide a specific timeline for revenue contributions.

Morgan Stanley believes that the LEO antenna business has limited relevance to HPC advanced packaging, and market acceptance of Micro LED CPO modules is currently unclear. Therefore, the bank has not included AUO’s advanced packaging revenue in its forecast model, considering its business timeline to have the lowest visibility among the three. The bank raised AUO’s target price from NT$14 to NT$27, maintaining an "Equal-weight" rating, with the lowest valuation among the three (1.4 times P/B), but also the highest uncertainty regarding the timing of new business monetization.

Mass production arrives in 2028, valuations already price in future expectations

Despite the broad technological prospects of glass substrate packaging, Morgan Stanley cautions that current market sentiment should be weighed against the commercialization timeline. According to the bank’s supply chain research, mass production will begin no earlier than 2028; before then, the commodity panel business will continue to dominate the revenue structure of all three companies—Innolux and AUO derive about 40% to 50% of their revenue from commodity panels, while for BOE, that ratio is as high as 70% to 80%.

Meanwhile, Morgan Stanley judges that the current TV panel price upcycle is nearing its end, with prices expected to enter a downtrend starting from the third quarter of 2026, even though major panel makers are likely to maintain relatively disciplined capacity management. This means that, against a backdrop of price pressure on the core commodity panel business, whether the three companies can advance their advanced packaging mass production plans on schedule will become a key variable in sustaining current high valuations.

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