The “first half” of 2022 has passed, and the semiconductor industry is moving forward with full strength. What should we do in the future?
In the first half of 2022, both domestically and globally, the semiconductor industry has ushered in an inflection point, and the global supply chain shortage has initially ushered in the dawn. The market pattern, capacity, demand, and application of the domestic semiconductor industry have also changed greatly from last year. As the upstream of the electronic information industry, the semiconductor has a very cornerstone and strategic significance, and the importance of comprehensive development can be seen.
Let’s take a look at some of the new life and change in 2022.
Gathering new dynamic energy and breaking new ground
➡️”All hands on deck” Chip Making
In the first half of 2022, the “CHIP” track is for everyone. The “lack of CHIP” tide hit the domestic chip industry chain, but also exposed its “neck” weakness. Whether it is to jump out of the lack of core dilemma through self-research or targeting this industrial dividend, “CHIP making” is no longer the exclusive field of chip companies, cell phones, Internet, car companies, home appliances, and other industry enterprises have entered the game one after another.
This year’s Chip-making process is most representative of the electric car field. Due to the “shortage” of automotive chips in the past two years, many car companies have been “making chips” in the field. There are emerging companies specializing in automotive chips, such as Horizon, Xinchi Technology, and Yixing Intelligence, as well as auto manufacturers directly in the chip field, including Guangzhou Auto and BYD. Products include not only the current shortage of MCU, and IGBT, but also includes more difficult chip such as autonomous driving, some of which have been mass production of automotive chips “on board”, and some chip products have completed the design phase, and is waiting for manufacturing and automotive verification.
After two years of effort finally in the first half of 2022 see the results of the car production volume. According to CCA data, from January to June, domestic passenger car production was 10.434 million units, up 6% year-on-year, ending the downward trend. Among them, domestic passenger car production in June was 2.239 million units up 43.6% year-on-year.
In addition, in the field of consumer electronics, according to the Asia IC 50 2022 ranking released by DIGITIMES, mainland China already has 10 companies on the IC 50 list, which also reflects the overall competitiveness of mainland semiconductor companies. These ten companies are SMIC (11), Changdian (14), Weir Semiconductor (17), Tongfu Microelectronics (23), Wintel Technology (27), Tianshui Huatian (32), Hua Hong Semiconductor (35), China Resources Microelectronics (44), and Zhaoyi Innovation (46).
➡️Fab plant construction is at an all-time high
Under the extreme pull of tight production capacity and strong demand, fabs have actively responded to market demand by increasing capital investment and capacity construction.
According to statistics, there are currently 23 12-inch fabs in production in China, with a total monthly capacity of about 1.042 million. However, compared with the total planned monthly capacity of 1.565 million, the capacity loading rate of these fabs is only 66.58%, which still leaves much room for expansion. To complement capacity, 25 new 12-inch fabs are expected to be built over the next five years, with a combined planned monthly capacity of more than 1.6 million wafers. By the end of 2026, China’s 12-inch fabs will have a total monthly capacity of more than 2.763 million wafers, up 165.1% from the current level.
The largest number of 12-inch fabs will come on stream in 2022, with six coming on stream by the end of the year. However, two of the six fabs are in Shanghai, one of which was delayed until the following year due to the Shanghai pandemic.
According to the data, with the rapid development of domestic foundry chip enterprises, in the first half of this year, the mainland’s chip production capacity was up to 139.9 billion, which soared by 48.3% compared with 2020. On this basis, more than 28.3 billion imported chips were ordered. The chip production capacity in May directly broke the historical record of domestic chip production capacity in a single month. In addition, SEMI recently released data also said that mainland China will lead in 8-inch capacity, accounting for 21% of all 8-inch capacity by 2022.
Although advanced chip manufacturing in China is still limited, according to the global chip market size and demand, the 28nm to 14nm process can meet about 90% of the market’s manufacturing demand. And Chinese chip manufacturers adopt the strategy of exploiting advantages and circumventing disadvantages, playing to the advantages of mature process chips, expanding the capacity scale is also wise.
➡️Chiplet transforms complexity into simplicity
Chiplet as an important application of advanced packaging technology, can reduce the complexity of the miniature design and design cost, with their respective circuit integral small chip, strengthen corresponding function, process technology, size, finally together, become a miniature close to the limit and the manufacturing cost of another can achieve high-performance upgrade path. It is known as one of the breakthroughs in China’s semiconductor industry when the development of advanced manufacturing processes is limited.
Due to the different interconnect interfaces and protocols between dies produced by different architectures and manufacturers, designers must consider many complex factors such as process, packaging technology, system integration, and expansion. At the same time, it has to meet the requirements of information transmission speed and power consumption in different fields and scenarios, which makes the design process of Chiplet extremely difficult. The biggest challenge to solve these problems is the lack of a unified interconnection standard protocol.
Therefore, in March this year, Intel, AMD, Arm, and other technology giants formally established the Universal Core Interconnection Industry Alliance (UCle), and the Chinese mainland core Yuan, Chomo technology, and other enterprises also joined it. In terms of the domestic Chiplet standard, the Technical Requirements for Small Chip Interface Bus jointly formulated by the Institute of Computing Technology of the Chinese Academy of Sciences, the Fourth Institute of Electronics of the Ministry of Industry and Information Technology, and many domestic chip manufacturers, is also in full progress. It is reported that the draft of the Technical Requirements for Small Chip Interface Bus has been completed. Technical validation and standard texts will be completed and the first available version of the Chiplet protocol will be released by the end of 2022.
Chiplet enables system manufacturers to compete with differentiated, customized chips. But at the same time, adding more pressure to the already competitive chip design circuit, chip companies will become more diverse, not just Fabless and IDM, but also the smaller, snappy Chiplet supplier. Therefore, Chiplet not only brings opportunities to the domestic chip industry but also brings more profit models to the industry.
The high boom in semiconductor equipment and materials
In the context of the overall semiconductor industry growth, equipment is one of the most logical segments of the current semiconductor industry. According to SEMI’s Mid-year Total Semiconductor Equipment Forecast Report, it is predicted that the total global sales of semiconductor manufacturing equipment by equipment manufacturers will reach a record of US $117.5 billion in 2022. That’s up 14.7% from $102.5 billion in 2021.
Recently, a number of semiconductor equipment-listed companies have released the 2022 half-year performance forecast, profits have achieved significant growth. The demand for chip manufacturing and closed testing remained high, driving the performance of the semiconductor equipment industry. At the same time, local fabs continue to expand production, driving the domestic demand for semiconductor equipment continues to flourish.
According to the half-year performance report, in the first half of pure technology new orders have exceeded the revenue of the whole year last year; The order volume of micro and medium companies is also comparable with last year’s revenue; New Lai should be the first half of the net profit forecast to the parent has been close to the level of last year, the company’s semiconductor business in full order. In addition, among the companies that did not announce their performance, many order demands are also optimistic. For example, the new Q2 orders of Xinyuan Micro are still growing at a high speed, and the previous products have been imported by Silan Micro, China Resources Micro, and other companies; Huahai Qingke’s demand for some products was even “more optimistic than the company’s own estimates”. And Nahua Chuang, Shengmei Shanghai, Tuojing technology, and other equipment companies, without exception, have made it clear that the order in hand is sufficient.
In semiconductor materials, most companies have yet to announce their half-year results or orders, but there are some signs of a positive trend in the announcements. Dinglong Shares announced on Tuesday that it expects its net profit for the first half of the year to be between 177 million CNY and 198 million CNY, up 93 percent to 116 percent year on year and close to its full-year net profit of 214 million CNY last year. In addition, from Q4 in 2020 to Q1 this year, Anji Technology has achieved sequential revenue growth for six consecutive quarters. The company recently revealed that its sales in the first half of the year were not affected by the pandemic; At the same time, with the continuous iteration and upgrading of customer technology, the company’s product consumption will continue to grow.
In addition, on the basis of the third generation of semiconductor materials of emerging technology is rapidly rising, by SiC, GAN wide band gap compound represented by the third generation of semiconductor materials because of its high frequency, high efficiency, high power, high-pressure resistance, high temperature resistant, radiation resistant capability is strong, such as superior performance, show huge market prospects, has become the focus of global semiconductor market competition.
The market is changing in the face of new challenges
➡️Multinational companies are divesting
Recently, the news about the withdrawal of high-tech foreign factories from China is frequently seen in the news. In 2022, just over half of the year, NXP, Texas Instruments, Micron, Anson Mae, and other semiconductor companies moved out of China.
Micron said in a statement in January that its entire Shanghai research and development center remained open, but that the chip design team would be disbanded, involving more than 100 employees. Micron’s move is widely seen as an attempt to prevent technology leakage and prevent Chinese companies from acquiring more of the core technology for chip design.
In April, automotive chip giant Anson Semiconductor announced it was forced to close its global distribution center in Shanghai and move related operations to Singapore due to the pandemic lockdown, which affected business operations and deliveries.
In May, TI eliminated the MCU R&D team in China and moved the original MCU R&D line to India. There are two reasons: on the one hand, the domestic substitution tide is getting hotter and hotter, and the market share is squeezed; On the other hand, it is due to the rising salary level of domestic chip talents in recent years, the cost expenditure is overwhelmed.
In June, NXP closed its APS (Advanced Power System) research and development unit in China as demand weakened due to market changes.
On the surface, the reasons for the removal of the production line of foreign high-tech enterprises are “intricate”, but it is obvious that with the rapid development of China’s economic level, the advantage of cheap labor is no longer. In recent years, the reform of the supply side, the upgrading of the industry 4.0 system, and other changes have greatly improved the level of our industry. Made in China objectively “squeezed” the living space of foreign enterprises. Capital is driven by profit, and labor-intensive industries will naturally move to places where labor costs are lower.
It can be said that the relocation of foreign factories is not only the survival of the fittest but also the only way for China’s industrial development and transformation.
➡️Pass on the cost to drive up prices
In this round of “chip shortage” trend, as manufacturers continue to expand production, chip manufacturing in many links appears in short supply, the backlog of orders, and other phenomena, resulting in a comprehensive bid up.
In April this year, Shin-Etsu Chemical announced on its website that it would raise the price of all its silicone products worldwide by about 10 percent. Showa Denko, a leading semiconductor materials company, and Sumco, a big Japanese silicon wafer maker, later said they expected to raise prices further.
In addition, this year’s global turmoil and the Ukraine crisis have exacerbated the crisis in the semiconductor industry chain, leading to soaring prices of raw materials such as palladium, nickel, and aluminum, which are located upstream of the semiconductor industry. Palladium, nickel, and aluminum prices have all surged to record highs since March.
On the foundry side, TSMC last August announced price increases of 10 to 20 percent for both mature and advanced processes. This week, less than a year after the previous hike, TSMC said it would raise foundry prices across the board by about 6 percent, citing looming inflation concerns, rising costs and its massive expansion plans to help ease a global supply squeeze.
Zhao Haijun, co-CEO of SMIC, also said at the 2022 Q1 earnings briefing that SMIC was forced to adjust prices with customers due to rising prices of various raw materials.
It can be seen that as the upstream raw materials and equipment prices rise, the major foundry enterprises pass on the cost, and the price of natural also rises.
➡️Production surplus, into the capital winter
The semiconductor industry has cyclical characteristics, generally, every few years will experience a round of demand outbreak, price increase, production expansion, production capacity, demand contraction, surplus, and price decline cycle.
Global semiconductor foundry or IDM capacity will peak year by year from 2023, according to foundry makers, amid rising concerns about overcapacity and whether demand will be able to support such a large scale of capacity by then. Even if the current market demand is to increase the capacity of the mature process, it is likely that the mature process chip will be oversupplied in a few years.
From the market point of view, from April this year, the domestic chip sales showed a significant decline, and the domestic listed electronics sector also showed a significant adjustment. The share prices of Huiteng Technology and Changdian, two leading domestic chip designers and packers, have halved in the past year. Shares of newly listed chip companies break frequently. Therefore, some people speculate that the global semiconductor industry may enter the trough in the past two years.
Whether the winter of the domestic semiconductor industry will really come still needs to wait and see the market changes, but we still need to be prepared to think of a good way to deal with it.
How will semiconductors develop in the next decade?
The next decade is a very good opportunity for the semiconductor industry, mainly because the digital transformation background will drive semiconductor demand growth.
At present, China is in the catch-up stage in each field of equipment, materials, design, manufacturing, and so on. There are no comparable international leading enterprises, so it is the first task to build a leading enterprise in China.
On this basis, due to China’s advantages in closed test, 8-inch silicon wafers, and the factory in mainland China has lower manufacturing costs and higher subsidies, so it can focus on development; Intelligent vehicles are also a great opportunity for China’s semiconductor market. The increasing semiconductor content of vehicle equipment has brought a broad market space for domestic chips. Advanced Packaging and Chiplet are also important steps in the semiconductor industry revolution. A large part of the credit for the semiconductor industry to continue to move forward will come from advanced packaging and Chiplet. In addition, there are also many opportunities for domestic substitution of semiconductor equipment and materials in the high-end field. It is very important for the country and semiconductor industry chain to further break the technological monopoly and realize independent control by improving the substitution rate or penetration rate of domestic equipment and materials in mature production lines.
The “first half” of 2022 has passed, and the integrated circuit industry, which has made rapid progress for two consecutive years, is returning to rationality. At present, the dividend of capital and market is shrinking, and the market should move toward unity and avoid homogeneous competition. In the next 10 years, there are many opportunities for semiconductors, but innovation is still a difficult problem, and the whole market needs to work together.
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