Shenghong Technology Alleviates 'Second-Supplier Anxiety': Securing Its Position as NVIDIA's Primary PCB Supplier Through High-Yield Advanced Processes and Deep Integration | Discovering Quality Companies

Source: Times Business Research Institute Authors: Hao Wenran, Han Xun, Intern Yang Hongyang

Source | Times Business Research Institute

Authors | Hao Wenran, Han Xun, Intern Yang Hongyang

Edited by Han Xun

On July 13, Shenghong Technology (300476.SZ) issued a clarification announcement, firmly denying online rumors such as 'NVIDIA’s quality inspection and process validation failures.' The company emphasized that its advanced manufacturing processes are mature and shipments remain normal, and it disclosed for the first time that 'certain customers have already committed to long-term demand for 2027–2028.' Nevertheless, the company’s share price declined significantly in the subsequent trading days.

How could a single rumor trigger such severe market volatility? The underlying reasons are far from simple. Market concerns stem not merely from an isolated quality inspection incident but from escalating 'second-supplier anxiety': if NVIDIA were to introduce a second supplier due to Shenghong Technology falling behind technologically, would the company’s dominant 'half-the-market' share already be entering a countdown toward erosion?

As the undisputed market leader holding over 50% of the global AI server PCB market share (including approximately 70% of the UBB universal baseboard segment), Shenghong Technology reported revenue of RMB 19.292 billion in 2025 (up 79.77% year-over-year) and net profit attributable to shareholders of RMB 4.312 billion (up 273.52% year-over-year). Correspondingly, its stock price surged more than sevenfold during 2025 and reached a historic high of RMB 402.60 in May 2026. However, such elevated valuations have made the market hypersensitive to even the slightest hint of 'multi-sourcing.' A closer examination of the supply chain dynamics and underlying business logic reveals that the perceived 'second-supplier threat' has been significantly overstated.

The Limits of Manufacturing: Why Advanced HDI Is an Insurmountable Barrier for Latecomers?

Within the technological spectrum of the PCB industry, complexity rises exponentially—from through-hole boards and standard HDI to advanced HDI (six layers or more). The PCBs required for AI servers (such as the GB200/GB300 series and subsequent platforms) represent cutting-edge hardware, integrating large panel sizes, ultra-high layer counts (24+ layers), and ultra-advanced HDI technology (six or more sequential build-up layers with any-layer interconnect). This demands extreme precision, posing formidable physical challenges for manufacturers—including layer-to-layer alignment accuracy, reliability of high-aspect-ratio microvias, and dimensional stability control of ultra-low-loss materials under thermal stress.

Sunway Technology's core advantage lies precisely here. The company is among the few globally that have achieved mass production of 6-stack 24-layer, 8-stack 28-layer, and any-layer interconnect HDI boards. It also possesses the capability to manufacture PCBs with over 100 layers and is actively advancing R&D and certification for 10-stack 30-layer HDI technology. Currently, enterprises worldwide capable of mass-producing 6-stack 24-layer HDI boards remain extremely scarce, and Sunway Technology’s high-end HDI and high-multilayer products lead the market by two to three years in terms of mass production maturity.

An even more critical industry divergence lies in yield rates. The 15%–30% yield gap between Sunway Technology and its competitors translates directly into financial performance, determining whether a business model can be viable.

PCB manufacturing is a capital-intensive, high-depreciation industry where raw material costs account for over 60% of total costs. AI server PCBs use exceptionally expensive M7/M8-grade copper-clad laminates (CCL) and ultra-thin electronic glass fabric. In 2025, Sunway Technology reported revenue of RMB 19.292 billion and operating costs of RMB 12.497 billion, of which raw material costs amounted to RMB 8.237 billion, representing 65.91% of operating costs.

Below is a sensitivity analysis model based on industry yield data, designed to illustrate the nonlinear impact of yield rates on profitability: Assuming Sunway Technology achieves a gross margin of 35.22% at an 85% yield rate, with raw material costs fixed at 65.91% of operating costs. If the yield drops to 50%, raw material costs would need to increase by 1.7 times; considering fixed costs such as factory and equipment within non-material expenses, those costs are assumed to rise by 1.35 times. Under these assumptions, the gross margin would decline from 35.22% to -2.39%, turning negative.

This model uses Sunway Technology’s overall 2025 gross margin of 35.22% as the profit benchmark at an 85% yield rate. However, this actually understates the true profitability of its high-end HDI products—the reported margin is a company-wide weighted average, pulled down by lower-margin legacy businesses like consumer electronics, whereas gross margins for high-end AI server PCB models far exceed this level. Therefore, the actual margin gap is likely even wider than the model suggests.

A 50% yield means half of the boards are scrapped outright during lamination and drilling stages, turning expensive raw materials into waste. For competitors, a 50% yield isn’t merely about earning less—it means falling into a financial meat grinder under the dual pressures of high depreciation and high scrap rates, where every board produced results in a loss. Until they achieve breakthrough improvements in process technology and yield rates, secondary suppliers—even if certified—will lack the capacity to capture meaningful market share from Sunway Technology.

Certification Cycles and 'Asymmetric Risk'

Capital markets often equate 'secondary supplier entry' with an immediate 50/50 split of market share, overlooking the 'asymmetric risk aversion' inherent in high-end computing supply chains.

In an AI computing cluster worth millions of dollars, PCB material costs typically account for less than 3% of total hardware value, yet the signal integrity and system reliability they support represent a core risk exposure for the entire hardware stack. Minor interlayer misalignment or blind via fractures in high-end HDI boards can trigger signal degradation or even electrical surges leading to physical damage and reputational loss. Given this trade-off—low cost sensitivity versus extreme risk sensitivity—major customers’ primary commercial logic inevitably prioritizes stability over procurement price competition.

According to Prismark data and industry research, NVIDIA currently has no large-scale backup suppliers in the high-end AI server PCB segment. Full certification cycles for new suppliers typically take 12–18 months, extending to 18–24 months in particularly stringent scenarios. Additionally, production capacity outside mainland China falls far short of meeting NVIDIA’s scale requirements. This certification timeline isn’t merely procedural—it reflects a trust barrier built through rigorous electrical surge testing, thermal stress cycling, and validation across millions of data transmission cycles. Sunway Technology has already shipped millions of units from the H100 era (with roughly 40% market share) through the GB200 era (holding approximately 70% of UBB share), establishing deep process co-development and data feedback loops with key customers. Potential secondary suppliers face at least 18 months of stringent qualification hurdles.

In the AI hardware industry, roughly 18 months equates to the lifecycle of one product generation. While secondary suppliers are still in the certification phase, Shenghong Technology has already secured approximately 50%–55% of the PCB share for NVIDIA’s next-generation Rubin platform (2026–2028). Its market share has shown a consistent upward trajectory—from H100 to GB200 and now to Rubin—unimpeded by expectations of 'secondary supplier substitution.' As JPMorgan noted in its June 2026 research report, the ultimate determinant of share allocation is not certification documentation, but the sustained validation of 'scalable, flawless delivery capability.'

Long-term orders anchor deep integration; gross margin validates pricing power

Against this backdrop, the more strategically significant incremental information in the July 13 announcement was Shenghong Technology’s first disclosure that 'certain customers have already committed long-term demand for 2027–2028.' The real implication of this signal is that Shenghong Technology is no longer merely an 'order-based manufacturer' but is now deeply embedded in major clients’ co-development ecosystems for next-generation—and even beyond—compute architectures, forming a structurally coupled relationship that is difficult to replace in the short term.

The pricing power derived from this deep integration has been strongly validated under recent cost pressure tests. In the first half of 2026, leading copper-clad laminate (CCL) producer KB Special Laminate implemented multiple rounds of price hikes, with cumulative increases exceeding 50% year-to-date. Prices for electronic glass fabric continued to climb, with G75 electronic yarn up approximately 61% cumulatively and 7628 electronic fabric rising about 78%. For traditional cyclical consumer electronics PCB manufacturers, such cost shocks would typically exert significant pressure on profitability.

Shenghong Technology, however, delivered markedly different results: in Q1 2026, the company reported revenue of RMB 5.519 billion, up 27.99% year-over-year; net profit attributable to shareholders reached RMB 1.288 billion, a 39.95% YoY increase; and gross margin stood at 34.46%, up 1.08 percentage points YoY and 0.95 percentage points QoQ. Excluding approximately RMB 900 million in negative impacts from foreign exchange losses and interest expenses from new borrowings related to capacity expansion in Q1, its gross margin would have further increased to approximately 34.9%.

The counter-cyclical rise in gross margin confirms a critical insight: Shenghong Technology’s earnings surge is not driven by 'price-led' fluctuations tied to traditional electronics cycles, but rather by a structural volume breakout in high-end HDI products—characterized by high average selling prices and high margins—that is propelling profitability. In a strong seller’s market, the initial premium pricing and yield advantages of high-end AI PCBs are sufficient to fully absorb substantial upstream raw material cost increases—this is precisely

the core logic enabling the company to navigate cyclical volatility and consistently deliver earnings growth.

Key View: The company’s high-end HDI yield barrier and deep client integration have solidified its position as the primary supplier; concerns over secondary supplier substitution are overstated.

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