Ranking of dumbbell-shaped semiconductor manufacturers, which one is more worth looking forward to?
Latest update time：2021-09-14 14:22
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Recently, IC Insights released a compilation of the third quarter (ending September) sales growth expectations of the world's top 15 semiconductor suppliers. As shown in the figure below, Qualcomm and Apple are expected to see significant growth in semiconductor sales in the third quarter of 2021 amid the expected surge in demand for upcoming 5G smartphones. In addition, the three major memory chip suppliers - Samsung, SK Hynix and Micron - are expected to grow by 10% each, while Kioxia expects sales to grow 11% in the third quarter as demand for memory chips remains strong for data center servers, enterprise computing, and 5G smartphones and related infrastructure.
Overall, IC Insights expects the top 15 companies to achieve 7% growth in the third quarter of this year. Semiconductor sales are expected to remain strong through the end of the year, supporting IC Insights' current forecast of 24% growth in global semiconductor sales this year.
Let's take a look at how these companies performed.
Samsung
Samsung once again surpassed Intel and ranked first. This is primarily due to the strong performance of its memory chip business, which is in sharp contrast to Intel's CPU sales performance. The former has maintained an upward growth momentum, while the latter has performed poorly and is caught in a price war with AMD.
In the second quarter of this year, Samsung's main source of income was the semiconductor business, which accounted for more than half of Samsung's operating profit for the quarter and nearly 35% of its operating income. The semiconductor department's consolidated revenue was 22.74 trillion won (about 19.768 billion U.S. dollars), an increase of 24.7% over the same period last year; operating profit was 6.93 trillion won (about 6.024 billion U.S. dollars), an increase of 24.7% over the same period last year. Compared with the first quarter, the department's revenue increased by 19.6% and operating profit more than doubled.
On the basis of good performance, Samsung is also constantly strengthening its storage business. Taking the Chinese market as an example, Samsung's investment is very large, mainly in the memory plant in Xi'an. Previously, Samsung decided to invest $15 billion in its Xi'an plant, which is the company's only overseas memory production base. After the first phase of investment of $7 billion in August 2017, the second phase invested $8 billion in 2019. A production line built by the first phase of investment has started production in March 2020. In the near future, the second plant will also be put into production, and the third phase of the project is also in the investment plan. After the second phase of investment in Samsung's Xi'an plant is completed, the NAND flash capacity of the second plant will reach 130,000 wafers per month. The capacity of the first plant is 120,000 wafers per month. The total output of 250,000 wafers per month is about half of Samsung's NAND flash production in 2020.
Although Samsung's wafer foundry is not as prosperous as its memory business, it has always attracted much attention. After all, it ranks second in the world in this sector and has a strong desire to surpass TSMC.
Intel
Intel set its third-quarter 2021 sales guidance at -3% in its most recent earnings report, and full-year sales guidance at -1%. In a year when total semiconductor sales are expected to grow 24%, this would be a particularly weak performance for the processor giant.
Intel's gross profit margin remained at around 60% in the first quarter of 2020 and before, but starting from the second quarter of 2020, the company's gross profit margin began to fluctuate and decline slightly. In the first quarter of 2021, due to the data center business revenue of US$5.6 billion, a decrease of 20% from the same period last year, this was originally Intel's most profitable business. The decline in revenue weakened the overall gross profit, and the gross profit margin fell to 55.2%, a decrease of more than 5 percentage points from the same period in 2020.
It can be seen that Intel's gross profit margin has a slight downward trend. The reason is that Intel has been in trouble in recent years, both in chip design and manufacturing. In particular, the research and development and mass production of 14nm and more advanced processes have been slow to form market competitiveness.
In recent years, Intel has been plagued by production capacity issues, causing the development of its new products to lag behind AMD.
Intel's Q2 financial report shows that although total revenue and PC business revenue increased, the data center division's revenue was $6.5 billion, down 9% year-on-year, the average processor ASP fell 7%, operating profit fell from $3.1 billion to $1.9 billion, and operating profit margin fell from 44% to the current 30%. In other words, it is getting cheaper and cheaper, and the price war has begun. This also confirms Intel's previous statement that in the data center market, the company can fight a price war to maintain its market share.
Previously, Intel CEO Pat Gelsinger believed that it was appropriate to adopt competitive pricing in the server CPU market. Although it would affect the company's performance, it could maintain or even increase market share.
Considering that Intel's 14nm process is mature enough and the cost of its 10nm process has recently dropped by 45%, it is still confident to adopt a price war strategy. After all, AMD's 7nm process is still very expensive, and TSMC's foundry price is not cheap. The 7nm chip foundry quotation is over 10,000 US dollars, and the 5nm is as high as 17,000 US dollars. The price may increase again this year.
Regarding competitors' practice of lowering prices and launching price wars, Su Zifeng said that in the data center processor market, performance and total cost of ownership are the most important, and price factors are secondary.
From AMD's point of view, their current advantage mainly lies in the super large number of cores. A single socket has 64 cores and 128 threads. The 5nm Zen4 is expected to be further upgraded to 96 cores and 192 threads, which means the unit cost will be lower.
As Intel's own production capacity cannot keep up with market demand, Intel has started some test wafer projects at TSMC in the past year, including the GPU using the 6nm process expected to be launched in the first half of this year, and the Atom processor using the 5nm process expected to be mass-produced and applied to mobile platforms in the second half of this year. Some institutions estimate that about 5% of Intel processors used in laptops this year will be outsourced to TSMC for production.
TSMC
IC Insights predicts that TSMC's sales will increase by 11% in the third quarter of this year. Its sales will increase by another 4% in the fourth quarter. IC Insights believes that TSMC's sales in the second half of the year will increase by 14% over the sales in the first half of the year, and increase by 24% for the full year. If achieved, this will mark the foundry giant's consecutive years of revenue growth of more than 20%. TSMC's annual sales in 2020 increased by 31%.
TSMC's second quarter revenue was US$13.29 billion, up 2.9% quarter-on-quarter and 28% year-on-year. Its NT$ revenue was NT$372.15 billion, up 2.7% quarter-on-quarter and 19.8% year-on-year. Its gross profit margin was 50%, down 2.4 percentage points quarter-on-quarter and 3 percentage points year-on-year. Its net profit after tax was NT$134.36 billion, down 3.8% quarter-on-quarter and up 11.2% year-on-year.
TSMC's revenue in the first half of the year was US$26.208 billion, and NT$734.555 billion, an increase of 18.2% year-on-year. Its gross profit margin was 51.2%, a decrease of 1.2 percentage points year-on-year. Its net profit after tax was NT$274.049 billion, an increase of 15.2% year-on-year.
It can be seen that in the latest quarter, TSMC's profit still showed a year-on-year growth trend, but decreased month-on-month, mainly due to the alternation of peak and off-peak seasons. In terms of gross profit margin, TSMC has always been the highest in the industry. The year-on-year and month-on-month declines this quarter did not affect its excellent performance in revenue and profit. The reason for the decline has a lot to do with its cost pressure, because the company has invested heavily in 5nm and 3nm processes, and it is difficult for the return to be proportional to the investment in the short term; in addition, the loss of Huawei HiSilicon, a high-quality large customer with the most advanced process, will definitely affect its profit margins in 7nm and 5nm; furthermore, in the face of the general price increase trend in the industry, TSMC's changes in the contracts of existing customers are very small, which will also affect the gross profit margin to a certain extent.
In the second half of the year, TSMC entered its traditional peak season, and the growth momentum came from the mass production of new 5nm orders. Among them, Apple's M1X and the subsequent M2 will adopt 5nm mass production in the second half of the year. The A15 application processor equipped with iPhone 13 began mass production in June with TSMC's enhanced 5nm version, and the production volume will increase month by month in the second half of the year until the fourth quarter.
Furthermore, TSMC's 5G mobile phone chip orders are strong in the second half of the year. Qualcomm uses TSMC's 6nm mass production for new 5G mobile phone chips and will ship them in large quantities in the third quarter. There are also three 5G mobile phone chips that will expand the use of TSMC's 7nm or 6nm process. The new generation Snapdragon 895+ to be launched early next year is rumored to be mass-produced by TSMC's 5nm in the fourth quarter. As for MediaTek's new generation Dimensity 2000 series, it will also introduce 5nm mass production in the second half of the year.
SK Hynix
SK Hynix, ranked fourth, mainly relies on its memory chip business for its performance. On this basis, the company has also invested heavily in the foundry business in recent years. SK Hynix CEO once said that it will increase investment in the foundry business because it is the key to the company's business transformation.
From the second half of 2016 to the first half of 2018, the global memory market experienced large-scale shortages and price increases, so the world's three largest memory manufacturers, Samsung, SK Hynix and Micron, made a lot of money. But starting from the second half of 2018, the market began to change, and the prices of DRAM and NAND Flash fell all the way. Therefore, the revenue of Samsung, SK Hynix and Micron went from rising sharply to falling sharply in more than a year.
Under such circumstances, SK Hynix announced that it would increase its investment in non-storage businesses in the next few years, focusing on wafer foundry and logic chips to reduce risks and minimize the impact of ups and downs in a single field on the company's revenue.
Currently, the foundry business accounts for only 5% of SK Hynix's revenue, and there is still a lot of room for development. The company provides foundry services through its SK Hynix System IC subsidiary, which moved its factory from Cheongju, South Korea to Wuxi, China.
In 2020, SK Hynix also purchased a 49.8% stake in Key Foundry, a wafer foundry spun off from Magnachip.
SK Hynix System IC subsidiaries and Key Foundry mainly produce 8-inch wafer mature process chips. Judging from the statement of its CEO, SK Hynix hopes to make breakthroughs in advanced processes.
In February 2018, SK Hynix announced that it would invest US$107 billion to build four wafer fabs to consolidate its position in the memory chip industry.
Nvidia is closing in on Qualcomm
Nvidia, ranked seventh, is hot on the heels of Qualcomm, ranked sixth.
In recent years, Qualcomm and Broadcom have always been the top two in the global IC design company list, and Qualcomm has long been in the leading position, while Broadcom only occasionally surpasses it, and most of the time it is in second place. This year, Nvidia has come to the second place with its strong performance, closely following Qualcomm. This also reflects from one side that the changes and reforms in technology and applications in recent years have had a great impact on the market, thus enabling the manufacturers who design the corresponding chips to achieve a counterattack.
Broadcom represents traditional technology and power, especially in network communications, which is Broadcom's strength. In addition, RF chips and modules are also the focus of its business. But these are relatively traditional. Relatively speaking, Nvidia's GPU is like a duck in water in the combination of high-performance computing and AI, which is the biggest market growth point in recent years. In addition, Nvidia's consumer GPU products have caught up with the market explosion period after the epidemic in the application of game consoles, and the revenue is considerable.
In short, Broadcom is more like the representative of traditional technology and application forces, while Nvidia is the representative of emerging technology and applications, and its momentum is getting stronger and stronger. If it weren't for the large scale of the main battlefield of smartphones where Qualcomm excels, it is estimated that Nvidia would surpass it in a short time.
MediaTek
MediaTek has surpassed Texas Instruments and ranked ninth.
In the past year, MediaTek not only achieved record revenue and became the world's third largest IC design company, but also saw a significant 80% increase in net profit compared to 2019. Recently, it was also reported that it had entered Apple's supply chain and supplied chips for its brand headphones.
In the third quarter of last year, MediaTek became the world's largest mobile phone chip market share company for the first time in its 23 years of existence, surpassing Qualcomm, the giant that had held the throne for many years. This achievement was maintained until the most recent quarter.
Over the past year, MediaTek's stock price has increased 1.4 times, setting new highs, and industry institutions have raised its target price.
Behind all these achievements is the company's product R&D roadmap and the result of its development strategy going with the flow. At the same time, the industry environment and external forces also assisted at the right time. This was mainly reflected in the outbreak of the Sino-US trade war in May 2019. After Huawei was sanctioned by the United States, Chinese mainland mobile phone brands switched orders from Qualcomm to MediaTek in order to diversify the risk of chip supply sources. According to statistics, in the second half of 2020, MediaTek's market share in mainland China climbed from 17% to 31.7%.
Texas Instruments
As the absolute leader in the field of analog chips, Texas Instruments (TI)'s analog sales in 2020 increased by about 6% compared with 2019. The company's analog revenue in 2020 accounted for 80% of its IC sales of US$13.6 billion and 75% of its total semiconductor revenue of US$14.5 billion.
TI's outstanding performance is largely due to the characteristics of analog ICs themselves and their market, namely, analog ICs are significantly differentiated and have a long life cycle.
The technology of analog IC comes from collecting and capturing information from the real world. Because of the complexity and heterogeneity of the real world, the product design used to capture this feature also has complex and heterogeneous characteristics. The differences in analog ICs are very significant, which is reflected in the fact that the company's IP is particularly important. At the same time, analog ICs emphasize high signal-to-noise ratio, low power consumption, high reliability and stability, long life cycle and low price, which is significantly different from digital ICs (digital ICs follow Moore's Law and are usually eliminated by higher-process products after 1 to 2 years).
In addition, from the supply side, the supply of research capabilities in the analog IC industry is limited. In the design process, human resources are difficult to replicate. Compared with digital ICs, the design process of analog ICs relies more on experience and less on computer models. The design process is more trial-and-error, and good engineers have more than 10 years of experience. Therefore, analog IC companies have built strong entry barriers.
Furthermore, product differentiation and limited research capabilities have reduced market competition, while the decentralized nature of the terminal market continues to amplify the strategic advantages of the analog IC industry. The terminal market for analog ICs is very fragmented, with tens of thousands of product lines and a decrease in average order volume. Industry leaders have advantages in horizontal categories, and it is difficult for new entrants to compete effectively. The market competition landscape is stable, and leaders have a say in pricing power.
AMD
AMD's ranking at 11th place fully demonstrates the company's rapid growth in recent years.
AMD's revenue in the second quarter of 2021 was $3.85 billion, operating income was $831 million, and net income was $710 million. Revenue and operating gross profit doubled year-on-year, and earnings more than doubled year-on-year, with a gross profit of 48%, up 4 percentage points year-on-year and 2 percentage points month-on-month.
AMD sales are expected to grow 6% in the third quarter of this year. For the full year 2021, AMD expects sales to increase by a significant 60%. AMD's sales have been growing rapidly since the second quarter of 2020. The company's sales in the third and fourth quarters of this year are expected to reach US$4.1 billion and US$4.23 billion, respectively, and sales in the second half of the year will increase by 14% compared to 1H21.
Although Intel is still the CPU overlord, its situation is becoming more and more urgent under AMD's fierce offensive, especially in the field of PC CPUs, where AMD is taking over cities and towns with great momentum.
In the past few years, as the leader in the semiconductor industry, Intel's annual revenue has remained around $70 billion, with little change. However, just six years ago, AMD's annual revenue was hovering around $2 billion, but by 2020, the company achieved revenue of approximately $9.8 billion, like a rocket.
Someone on SeekingAlpha has summarized the changes in AMD's market share over the past three years based on data from research firm Mercury Research. In Q3 2018, the company's share of the entire x86 processor market recovered to 10.6%, breaking the double-digit mark. It has been rising steadily since then, reaching a peak share of 22.4% in Q3 2020. However, the share has declined from the end of last year to Q1 this year, but it still has a share of 20.7%. There are reasons for AMD's share decline, which is related to the tight global semiconductor production capacity from the end of last year to now. AMD's processors are also out of stock, and AMD chooses to give priority to the high-end processor market, such as EPYC servers, and the low-end CPUs are sacrificed, so the total share has declined, but AMD's performance has grown rapidly.
AMD's success is inseparable from TSMC. In the past year, AMD has had the fastest growing demand for TSMC's production capacity, especially 7nm orders, because AMD's ZEN 2 and the upcoming ZEN 3 architecture CPUs are based on the 7nm process, and the company's growth momentum in the CPU market is very strong. In addition, AMD's GPUs are also manufactured by TSMC, and are still mainly based on the 7nm process. Since AMD's CPUs and GPUs occupy a very important position in Sony and Microsoft's new generation of game consoles, and the epidemic has caused a surge in market demand for these new game consoles, this has provided AMD with an excellent business opportunity. It is reported that both Sony's PlayStation 5 and Microsoft's XBOX Series X use AMD's customized 8-core Zen 2 architecture CPU, and the GPU uses AMD's RDNA 2 architecture products.
AMD's upcoming new generation of processors will use a 5nm process and has already lined up at TSMC. At present, AMD is likely to become TSMC's second largest customer in terms of the most advanced process, second only to Apple.
Conclusion
Among the top 15 companies, 13 will achieve positive growth, which shows the prosperity of the global chip consumption market. In addition, the only two companies that did not achieve positive growth - Intel and Texas Instruments - are both old IDM companies, while Nvidia, MediaTek and AMD, which are in their "middle age" and mainly produce processors (CPU or GPU), are excellent Fabless representatives, and their upward momentum is the fastest, which is in sharp contrast with the traditional IDM companies in the list.
In addition, among the top 15, the top five and the bottom five are all manufacturing-oriented companies, while the middle five are design-oriented companies, forming a dumbbell-shaped upward channel. Judging from the development of MediaTek, AMD and Apple in recent years, they have been on an upward trend. Overall, Fabless is more dynamic and has more room for future growth.
*Disclaimer: This article is originally written by the author. The content of the article is the author's personal opinion. Semiconductor Industry Observer reprints it only to convey a different point of view. It does not mean that Semiconductor Industry Observer agrees or supports this point of view. If you have any objections, please contact Semiconductor Industry Observer.
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