EB SECURITIES: PCB drilling needle industry may be in high prosperity. It is recommended to focus on core manufacturing equipment producers.

EB SECURITIES released a research report stating that the global demand for AI computing power continues to grow rapidly, while the demand for low-latency AI inference is increasing. The heterogeneous architecture of GPU+LPU is expected to accelerate implementation, and the industry's prosperity is expected to extend to the PCB equipment sector. PCB drill bits may be in short supply, leading to a high level of prosperity and price increases. It is recommended to focus on equipment manufacturers in the core manufacturing process of PCB: 1) high-precision drilling and exposure; 2) high-precision PCB assembly equipment; 3) high-end PCB drill bits; 4) advanced plating process. EB SECURITIES' main points are as follows: Introduction and application plan of NVIDIA's Orthogonal Backplane Solution In March 2025, NVIDIA announced its product roadmap at the GTC conference, expecting to introduce the Orthogonal Backplane Solution in its Rubin Ultra NVL576 architecture planned for mass production in the second half of 2027 to replace traditional copper cable connections. The application of this solution is still in the verification process. NVIDIA's Orthogonal Backplane architecture achieves vertical connection between the computing board and switching board through high-performance PCB - the two are arranged orthogonally at 90 degrees in space. Compared to traditional copper cable connections, this technology demonstrates better engineering characteristics in terms of signal rate, wiring density, and heat dissipation. PCB substrate requirements and solutions for Orthogonal Backplanes 1) Requirements for Orthogonal Backplane PCB substrates: The board is expected to have up to 78 layers, made by laminating three PCBs with 26 layers each; line width and spacing need to be 25m, much lower than the standard line width of about 50m for traditional PCBs; dielectric constant (Dk) 3.0, dielectric loss (Df) 0.0007, coefficient of thermal expansion (CTE) 7ppm/. 2) PCB material solution for Orthogonal Backplanes: The RubinUltra Orthogonal Backplane is intended to use M9-grade copper foil. Currently, the specific material plan for M9 composites is still being determined by the industry chain. The core promoted solution is currently "78-layer M9 resin + HVLP3/4 copper foil + Q cloth". In the future, a mixed stacking solution with M9 and PTFE materials may be used. The dielectric constant (Dk) of Q cloth is only 2.2-2.3, much lower than traditional E-glass cloth (Dk4.8-4.9) and second-generation low-dielectric cloth (Dk4.2-4.3). The dielectric loss (Df) is as low as 0.0005-0.0007, which is 1/10 of the traditional fiberglass cloth. The coefficient of thermal expansion (CTE) is as low as 0.5ppm/, perfectly matching the requirements of Orthogonal Backplanes. 3) High production process requirements for Orthogonal Backplanes: High-precision lamination: Laser positioning technology is used to accurately stack PCBs with 30 layers or more, with lamination temperature controlled at 1605 and pressure stable at 20-25kg/cm2 to avoid layer displacement; Micro hole drilling technology: Orthogonal Backplanes require drilling micro holes with a diameter below 0.1mm, often using laser drilling followed by plasma desmearing; High-speed differential line routing: Differential line spacing is controlled at 2.5 times the line width to effectively prevent crosstalk; Full inspection testing: After production, ICT (in-circuit testing), flying probe testing, and signal integrity analysis are required, with some tests ensuring impedance deviation of <5%. Impact of using Q cloth in the M9 material on PCB drill bit processing 1) Significant increase in drill bit consumption: Using M9 material with Q cloth significantly increases hardness, leading to a sharp reduction in the lifespan of traditional tungsten-cobalt alloy drill bits from approximately 12000 holes per processing on FR-4 material to only about 200-300 holes per processing. Additionally, drill bits are prone to skew or break during deep hole operations when using Q cloth, requiring drilling machines to adopt a "multi-pass cutting" mode, with the common practice being dividing processing into 3-4 stages. This will significantly increase the consumption of PCB drill bits, prompting PCB manufacturers to experiment with coating drill bits with TAC to increase lifespan, or consider using diamond drill bits with higher hardness, which are still in the commercial verification stage for leading companies in the industry. 2) Increased demand for high aspect ratio drill bits: The thickness of Orthogonal Backplanes can reach 1-2cm, resulting in a aspect ratio of the drill bit of over 100, which significantly increases the production difficulty when the aspect ratio of the drill bit exceeds 50 times. This will decrease the production efficiency of drill bits, impacting the supply speed and increasing the price level of drill bits. 3) Stringent back drilling process increases demand for drill bits: To maintain the signal integrity of Orthogonal Backplane PCBs, precise back drilling processes are required to remove any unused parts in the through-hole (referred to as "stubs"). This will further increase the demand for PCB drill bits. Back drilling drill bits typically require a flat drill tip angle to ensure a smooth cutting surface and need to be combined with a CCD high-precision controlled-depth drilling machine, with depth tolerances controlled within 50m. Risk Warning: Increased industry competition, technological iteration, industrial transfer, and unexpected terminal demand, among other risks.