Packaging economics look different from foundry economics. Understanding this matters for valuation and expectations. **Foundries (TSMC, Samsung):** - High gross margins (50-60%+) driven by technology leadership and scale - Massive capex but also massive pricing power on leading nodes - Customer lock-in through IP and process optimization - Trade at premium multiples reflecting oligopoly position **[[OSATs - Outsourced Semiconductor Assembly and Test]]:** - Lower gross margins (15-25%) due to more competitive market - Still capital intensive but less extreme than foundries - Pricing power limited by competition among OSATs - Trade like cyclical industrials despite growth in advanced packaging **Why this creates opportunity:** The market often treats OSATs as commodity assemblers, even as [[What Is Advanced Packaging|Advanced Packaging]] becomes more sophisticated and capacity-constrained. **The shift:** As packaging captures more system value (bandwidth, latency, thermal management), the economics slowly improve. [[Packaging Capacity Bottleneck]] tightens the supply-demand balance, supporting utilization and pricing. **The limit:** OSATs face structural margin caps. They won't achieve foundry-like economics. But they don't need to for the investment to work. Mid-cycle cash flow generation at reasonable valuations is sufficient. **Equipment makers sit between:** [[Advanced Packaging Equipment]] companies have better gross margins than OSATs (40-50%+) but face [[Equipment Tools Cyclicality]]. Their economics swing more violently. **Investment implication:** Don't expect OSAT multiples to reach foundry levels. Instead, look for mismatch between cyclical valuations and structural demand growth. Links: [[Advanced Packaging MOC]], [[OSAT Value Investing Framework]], [[Amkor - AMKR]], [[ASE Technology - ASX]] --- #investing #semiconductors