Starting from June 1, the chip industry giant ST’s products will increase prices across the board. A few days ago, Gartner released a report saying that chip price increases and supply shortages will continue throughout 2021 and will not return to normal levels until the second quarter of 2022. The agency’s chief research analyst Kanishka Chauhan said the shortage will restrict the production of a variety of Electronic equipment, and foundries and chip companies will raise prices.
The “congestion” of the chip industry chain continues. Different from the initial supply shortage of chips that were concentrated on traditional node manufacturing in 8-inch chip foundries, the problem has now been extended to more equipment, such as substrates, bonding wires, passive components, materials and testing, and other supply outside the chip foundries. The chain links have also successively encountered the problems of limited production capacity and shortage of supply.
Earlier, at an IDC China event, the agency analyst Wang Xi also gave a new point of view. Geopolitics and natural disasters in some foundries have also become the main factors causing semiconductor shortages.
Out of stock will lead to an increase in prices. Research organization Counterpoint predicts that the continued imbalance between supply and demand will cause chip quotations to rise by at least 10% to 20%, and the prices of some products from 8-inch foundries have increased by 30% to 40% compared to the second half of 2020.
Facing the booming market, foundries such as TSMC and SMIC have successively announced to increase investment and expansion, but the problem is that the long-term investment in the chip industry cannot solve the demand problem in the short term.
Semiconductor giants increase prices, other manufacturers may follow up
There are “triple contradictions” behind the chip shortage
STMicroelectronics announced a price increase, stating: “Although the company has made a lot of investment, it still faces major challenges in meeting orders. Many suppliers are struggling to meet the supply of scarce materials, and this has led to a further increase in material costs. In view of this , Starting from June 1, the company will increase the price of all product lines.”
STMicroelectronics is the second largest chip manufacturer in Europe and one of the largest semiconductor manufacturers in the world, with a global market share of 8% for its single-chip microcomputer (MCU). This price increase is likely to be followed by other manufacturers.
Previously, since April, the foundry prices of companies such as UMC, SMIC, and Power Semiconductor Manufacturing Co., Ltd. have increased by about 10% to 30%. Although TSMC announced that it has not increased prices, its suspension of price reductions is equivalent to “disguised price increases.” . Other links in the industry chain, such as internal micro-control chip manufacturers Smart Microelectronics and Rockchip, have also announced that they will increase the price of chip products to varying degrees from April 1. At the same time, manufacturers such as Renajie Semiconductors, Minsil Microelectronics, and Huiman Microelectronics have also issued notices of product price increases.
Since May, according to incomplete statistics, four domestic semiconductor manufacturers, namely Fuhong Chuangxin, Shanghai Xinlong Semiconductor, Depu Microelectronics, and Biyiwei, have issued comprehensive price increases notices, and some products have increased by as much as 30%.
IDC China analyst Wang Xi believes that there are three main contradictions in the current semiconductor market. First of all, terminal manufacturers’ demand plans are too aggressive, and it takes a lot of time for the upstream supply chain and terminal manufacturers to reach a consensus. Even after the adjustment, the opacity of information between the two parties still exists. “Everyone has a margin for themselves, and everyone has their own account.”
Second, the contradiction between the industrial cycle and adjustment space. Due to the characteristics of the industry, it takes about 100 days for the chip foundry from order acceptance to final delivery under normal circumstances, so once there is a short-term demand fluctuation, there is very little room for adjustment.
Third, the contradiction between the lack of core substrates and the increase in production capacity. This is embodied in the 8-inch production line, which not only has to bear its own capacity requirements, but also accepts the conversion of the 6, 7-inch production line.
However, as far as the manufacturing link is concerned, whether it is the input-output ratio of the additional 8-inch production line, or the sustainability of future technology, there is a situation of drinking poison to quench thirst. However, even if you choose to invest more, this will not be solved overnight. Therefore, Wang Xi pointed out that based on these three levels of contradictions, the problem of production capacity can only be controlled or optimized from an angle.
Strong demand for mobile phones, PCs, tablets, and wearable devices
Use more aggressive strategies to compete for chip supply in an atmosphere of shortage
IDC believes that in addition to the automobile industry’s sales volume reduction of 10 million in 2020, and the industry chain plan tends to be conservative in 2021, mobile phones, PCs, tablets and other consumer electronics products including wearable devices and smart speakers with screens The market demand is very strong.
The agency’s survey results show that the forecast plans submitted by major Chinese mobile phone manufacturers to the upstream have increased by nearly 50% on average compared to 2020, which means that there is an increase of more than 200 million units. According to data from Canalys, in the Chinese market in the first quarter of 2021, Huawei reduced shipments of 15.2 million units compared with last year. The year-on-year growth rates of vivo, OPPO, and Xiaomi all exceeded 60%, and cumulatively increased shipments. The volume has also filled the vacancy of Huawei.
From a global perspective, the mobile phone industry fully recovered in the first quarter. IDC’s global report shows that Samsung, Apple, Xiaomi, OPPO and vivo all have positive year-on-year growth, and the total market share of the five companies is also increasing, and the overall shipments in the “other” camp have dropped by 8.7% year-on-year. .
Similar to mobile phones, there are also PCs and tablets in the terminal categories driven by competitive factors. Adopting more aggressive strategies to compete for chip supply, or actively increasing component inventory has become the main strategy of manufacturers. For PCs, the demand for high-end graphics cards driven by high-end game consoles and mining machines continues to increase, and the shortage of chips due to tablet PCs and mobile phones has increased the tension. The continued growth of screen-type terminals in other consumer electronics has also driven the growth of demand for panels and touch chips, because they can be regarded as a combination of “tablets” and traditional terminals.
For automobiles, although global sales have fallen by about 15% in the short term, with the development of automobile intelligence, especially smart cockpits and autonomous driving technology, the requirements for on-board sensors and on-board computing power have increased exponentially. At present, automotive semiconductors account for nearly 10% of the chip industry. Wang Xi said that with the transformation of automobiles from “functional terminals” to “intelligent terminals”, a large amount of data computing and human-computer interaction needs are generated.
“Foundry” is not short-season ushered in revenue carnival
Investment boom generally targets mature processes such as 28 nanometers
The semiconductor industry chain can be roughly divided into three parts, namely design, manufacturing and packaging and testing. Business models can be divided into two types, namely IDM (Vertical Integrated Manufacturing) and vertical division of labor. In the IDM mode, the semiconductor company will complete the above three links by itself, representing companies including Intel, Texas Instruments, Samsung Electronics, etc. In the vertical division of labor, design companies are often called Fabs because they do not have factories, and Qualcomm and Huawei are among them.
OEM manufacturing is the core of the current vertical division of labor. Since the demand for production capacity has never been as strong as it is now, almost the whole line is in a state of short supply from mature process to advanced process, so this link also has the most say in the supply of the industrial chain. From the current global ranking, the top five generation plants are TSMC, Samsung Electronics, UMC, GF and SMIC. These companies all have mature and advanced process production lines, but their proportions are different. The industry usually uses 28 nanometers as the dividing line. If it is smaller, it is an advanced process, and vice versa is a mature process.
In the past month, several companies have successively disclosed their first-quarter performance reports, and the data has shown a not-to-be-season off-season. TSMC’s performance showed that revenue in the first quarter increased by 16.7% year-on-year to NT$362.41 billion, a new high. President Wei Zhejia said that the capacity utilization rate remains high-end. UMC also increased its first-quarter revenue by 11.4% year-on-year to 47.10 billion Taiwan dollars when all factories were fully loaded.
The SMIC performance report shows that the revenue and gross profit margin in the first quarter were higher than the guidance, with revenue of approximately US$1.104 billion, a year-on-year increase of 22%. The main reason for the higher than the guideline is that price adjustments and product mix optimization have caused wafer unit prices to rise by 5% month-on-month and shipments by 10% month-on-month. In the Q&A session of the conference call, the company’s executives stated that production capacity in the second quarter would increase by 10% as in the first quarter, contributing to total revenue. However, Samsung Electronics’ foundry revenue declined in the first quarter due to production interruptions caused by power outages in US factories.
Unlike TSMC and Samsung Electronics in the advanced manufacturing process, in order to solve the current shortage in the industry chain, foundries have generally chosen to increase investment in mature processes.
In April 2021, TSMC announced a three-year investment of 100 billion U.S. dollars to increase production capacity. Before that, a letter from Wei Zhejia to customers was circulating in the industry. In the letter, he revealed that the capacity utilization rate has exceeded 100% in the past 12 months, but the supply is still in short supply. He also added that thousands of new employees are hiring, and a number of new factories are under construction, and starting from 2022, TSMC will suspend wafer price cuts for one year.
Just a few days later, TSMC convened an interim board of directors to approve a capital expenditure of US$2.89 billion to increase the production capacity of mature processes, but did not elaborate on the details. Some industry sources told the Beijing News Shell Finance reporter that the funds may help alleviate their customers’ concerns about supply disruptions, but they will also be affected by external factors.
However, TSMC is still investing heavily in advanced manufacturing processes and will further expand its 2021 capital expenditure plan to US$30 billion. The company’s Chief Financial Officer Huang Renzhao said that 80% of it will be used for advanced manufacturing processes including 3nm, 5nm and 7nm. .
The shortage of goods causes the 40-nanometer node to be tight
SMIC did not shy away from price increases
On the SMIC side, due to the purchase of related products and technologies, as well as the impact of uncertain factors, the company’s chief financial officer Gao Yonggang stated in a conference call after the release of the earnings report that most of the capital expenditure of US$4.3 billion will be used for maturity. Craft. From the perspective of financial reports, SMIC’s 14nm and 28nm revenue accounted for 6.9% in the first quarter, slightly lower than 7.8% in the same period in 20220. The company said that the mature process will continue to be fully loaded by the end of the year, and the new capacity will be formed in the second half of the year.
Regarding the shortage, Zhao Haijun, the co-CEO of SMIC, said that since SMIC has a relatively small share in the industry, the problems faced by SMIC may not be exactly the same as those of the entire industry, but he still admits that there are shortcomings in various product segments. In the case of goods, this includes power management, radio frequency circuits, driver chips, and so on.
Specifically, SMIC’s production capacity is particularly tight at 40 nanometers and 0.15/0.18 micrometers (μm). From the perspective of its first quarter performance, 0.15/0.18 micrometers and 55/65 nanometers are its main sources of revenue, accounting for The ratio is 30.3% and 32.8%. For SMIC, in order to satisfy customers, it had to use 40-nanometer production lines to support 55-nanometer customers, which also led to a very large 40-nanometer gap.
Zhao Haijun said that the procurement capacity will be prioritized at the 40-nanometer node, and its 28-nanometer and 40-nanometer production lines are in the same factory, and most of the equipment and processes are the same, so the capacity conversion can be more flexible.
Prior to this, SMIC disclosed that in 2021, the monthly production capacity of the 12-inch production line of the mature process will be expanded by 10,000 pieces, and the 8-inch production line will be expanded by 45,000 pieces. At the same time, the company has invested in new production capacity in Beijing, Shenzhen and other places with a number of institutions, but Zhao Shuhai said that considering some of the impact of the entity list, there may be some delays in reaching production equipment. At present, SMIC has reached some consensus with the supply chain and foreign governments that “there is a process to go.”
But for price adjustments, SMIC did not shy away from price increases. Zhao Shuhai said that the existing orders are still to be completed, the next price must be sustainable, the price difference of the same factory must be smoothed, and market factors must be taken into consideration.