In early 2026, ASE Technology Holding (ASE), the world’s largest outsourced semiconductor assembly and test (OSAT) provider, is preparing to raise backend wafer packaging prices by 5%–20%, according to Morgan Stanley. This increase exceeds prior market expectations and highlights a fundamental shift in the semiconductor value chain driven by AI demand.

Key Drivers Behind the Price Increase

Explosive AI Demand

AI servers require significantly more chips than traditional servers, including GPUs, CPUs, HBM, and networking processors. This has sharply increased demand for advanced packaging technologies such as 2.5D and heterogeneous integration, particularly from major customers like NVIDIA, AMD, and Broadcom.

Tight Capacity and Strong Pricing Power

ASE’s capacity utilization reached around 90% in 2025, effectively near full load. Advanced packaging capacity is difficult to expand quickly due to long equipment lead times and complex qualification processes, giving ASE strong pricing power in 2026 negotiations.

Rising Manufacturing Costs

Higher prices for IC substrates, precious metals, bonding materials, and electricity continue to pressure margins. The 2026 price increase allows ASE to partially pass these costs downstream while optimizing its order mix.

Strategic Focus on Advanced Packaging

ASE is prioritizing high-margin AI customers and accelerating deployment of its proprietary FoCoS advanced packaging technology. The company is also absorbing overflow demand from TSMC’s CoWoS capacity and expects its advanced packaging output to grow significantly in 2026.

Industry Impact

ASE's move is likely to trigger follow-on price increases across the OSAT industry. For AI chip designers and server manufacturers, advanced packaging will represent a growing share of total system cost. Downstream electronics markets may gradually see cost pressure, especially in high-end products.

Conclusion

ASE's 2026 price increase signals that advanced packaging has become a core competitive factor in the AI era. With demand continuing to outpace capacity, pricing power is shifting toward leading OSAT players, reshaping the semiconductor industry in 2026 and beyond.