AI server cooling drives packaging-material upgrades; Goldman Sachs sees profit growth at Sumitomo Bakelite
Goldman Sachs expects Sumitomo Bakelite’s semiconductor materials business profit to grow at an annualized rate of 43% over the three years ending March 2029. Upgrades to high-thermal-conductivity products, satellite applications and the proposed acquisition of Kyocera’s chemicals business are the main drivers.
Original source：Goldman SachsFirst published on Unhidea：Original source date：
Key takeaway
Goldman Sachs believes increased use of power devices in AI servers and upgrades to packaging materials, together with the acquisition and satellite applications, will drive profit growth at Sumitomo Bakelite, though some new businesses are still in the early stages of scaling up.
How much higher are Goldman Sachs’ earnings forecasts than the market’s?
Goldman Sachs initiated coverage of Sumitomo Bakelite with a Buy rating and a 12-month price target of 11760 yen, implying 50% upside from the 7839 yen share price listed in the report.
The bank forecasts operating profit of 55.7 billion, 71.4 billion and 85.4 billion yen for the three fiscal years ending in 2027, 2028 and March 2029, respectively, exceeding Bloomberg consensus estimates by 15%, 26% and 38%.
Growth will come mainly from semiconductor materials: Goldman Sachs expects the segment’s business profit to grow at an annualized rate of 43% over the three years ending March 2029, driving annualized growth of about 35% in the company’s consolidated business profit.
Why are AI servers increasing both usage volumes and changing the material mix?
Sumitomo Bakelite’s packaging materials are mainly used in power devices on GPU boards and in power-supply equipment. The company estimates that a 1-gigawatt-class AI data center has about 5000 AI servers, using roughly 50 million power devices in total.
As GPU board power has risen from 600 watts in older models to 3000 watts today, the number of power devices per board has increased from about 50 to 200, and packaging materials have shifted from standard products to high-thermal-conductivity products. Goldman Sachs expects next-generation 6000-watt boards to use about 400 devices.
High-thermal-conductivity materials have higher raw-material costs, but also higher selling prices and incremental profit margins. Assuming the company maintains its existing high market share and increases the proportion of high-thermal-conductivity products, Goldman Sachs forecasts annualized revenue growth of about 87% for packaging materials used in AI server power devices over the three years ending March 2029.
This growth depends on AI server demand and the company’s market share: Goldman Sachs assumes AI server demand by value will rise year on year by 86%, 84% and 44% in 2026 through 2028, respectively. If investment falls short of expectations, both sales volume growth and improvements in the product mix could slow.
How far have satellite applications and new packaging materials progressed?
Low-Earth-orbit satellite receiving terminals require large numbers of radio-frequency chips. Large-panel packaging facilitates low-cost mass production, while Sumitomo Bakelite’s granular material can be molded uniformly over large panels and control warpage.
The company has signed a long-term supply agreement with a major US aerospace company. Adoption for low-Earth-orbit satellite applications began in the fiscal year ending March 2026. The company expects large-scale mass production to begin in the second half of the following fiscal year and full-year sales of the related granular material to roughly double year on year; Goldman Sachs notes that the near-term profit contribution remains limited.
Capacity is also being expanded for molded underfill materials used in AI PCs and memory. Samples of liquid encapsulation material for HBM have begun to be shipped, but customer evaluation only began in April 2026 and current usage is limited.
What can the acquisition of Kyocera’s chemicals business add?
The transaction price is approximately 30 billion yen, with completion expected by the end of October 2026. The target had revenue of approximately 23.2 billion yen in the fiscal year ending March 2026. Sumitomo Bakelite had 128.4 billion yen in cash and equivalents at the end of the same period, and Goldman Sachs believes it can pay with its own funds.
The acquisition will bring memory customer relationships, high-thermal-conductivity technology and silver sintering paste, as well as additional capacity. Goldman Sachs expects the company’s global packaging-materials share to rise from above 40% to above 45% after integration, with a more noticeable earnings contribution beginning in the fiscal year ending March 2028.
What other factors constrain profit growth?
Material market share faces competition: Goldman Sachs believes that if competing products penetrate low-end applications faster than expected, pricing pressure and changes in market share will affect earnings. Yen appreciation is also unfavorable for profits; the bank’s model uses an exchange rate of 160 yen per dollar from the second quarter of the fiscal year ending March 2027.
Other businesses support earnings. Goldman Sachs expects high-performance plastics to benefit from aerospace demand and structural reforms, while the quality-of-life products business continues to contribute stable profits. However, sales of semiconductor bonding materials are also affected by silver prices; the bank estimates that the segment’s revenue more than doubled year on year in the first quarter of the fiscal year ending March 2027, with a substantial part of the increase coming from higher silver prices.
