Domestic semiconductor materials "both quantity and price increase"

Latest update time：2022-03-25

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Driven by strong demand for semiconductor products, the demand for semiconductor materials has also increased significantly, and the scale of the global semiconductor materials market continues to expand.

Recently, the Semiconductor Industry and Equipment International (SEMI) released data showing that the global semiconductor materials market size reached US$64.3 billion in 2021, an increase of US$8.8 billion from US$55.5 billion in 2020, a year-on-year increase of 15.9%, setting a new record high.

Among them, the market for semiconductor materials in mainland China in 2021 was approximately US$11.93 billion, a year-on-year increase of 21.9%.

Global semiconductor materials market size (million US dollars)

Semiconductor industry observation chart, source: SEMI

With strong foundry capabilities and advanced packaging base, Taiwan has become the world's largest consumer of semiconductor materials for the 12th consecutive year with US$14.7 billion. Mainland China achieved the strongest absolute year-on-year growth in 2021, ranking second, while South Korea is the third largest consumer of semiconductor materials.

The substantial growth in the global semiconductor materials market is due to the increase in chip demand and the expansion of industry capacity. According to IC Insights data, global foundry sales revenue was US$110.1 billion in 2021, a year-on-year increase of 26%; it is expected that foundry sales will reach US$132.1 billion in 2022, a year-on-year increase of 20%. The high prosperity of wafers has prompted the continuous expansion of wafer fab capacity.

The various semiconductor materials needed for wafer manufacturing, such as silicon wafers, gases, photoresists, etc., have become the key needs of the industry, opening up high growth space. At the same time, with the carbon neutrality strategy and the accelerated trend of digital transformation, the demand for electronic products has also increased significantly. SEMI President Ajit Manocha pointed out that all semiconductor material fields saw double-digit or high single-digit growth last year.

Semiconductor materials: throughout manufacturing and packaging and testing

Semiconductor materials are a very important part of the upstream link of the industrial chain and play a key role in the production and manufacturing of chips. According to the application link, they can be divided into wafer manufacturing materials and packaging and testing materials, which are used in wafer manufacturing and chip packaging and testing links respectively.

In the wafer manufacturing process, the main materials are silicon wafers, target materials, polishing materials, photoresists, high-purity chemical reagents, electronic special gases and compound semiconductors, among which silicon wafers, electronic special gases, photomasks, polishing materials, etc. are used in larger quantities; in packaging testing, the main materials are packaging substrates, lead frames, ceramic packaging bodies and bonding metal wires, among which packaging substrates, bonding wires, etc. are the more important materials.

Semiconductor material classification (data source: SEMI)

Semiconductor materials run through the entire process of semiconductor production, and corresponding materials are required in each step, such as photoresist and mask plates needed in the photolithography process, various wet chemicals needed in the silicon wafer cleaning process, and polishing liquid and polishing pads needed in the chemical mechanical planarization process.

Mainly segmented into semiconductor material uses and applications

(Source: Founder Securities)

According to SEMI data, in 2021, silicon wafers, wet chemicals, CMP and photomask fields showed strong growth in the wafer manufacturing materials market, with the wafer manufacturing materials market size reaching US$40.4 billion, a year-on-year increase of 15.5%; while the packaging materials market size was US$23.9 billion, a year-on-year increase of 16.5%, mainly driven by organic substrates, leads and bonding wires.

Manufacturing Materials Market Landscape

The semiconductor manufacturing material market segments are fragmented and relatively small in scale, with silicon wafers accounting for nearly 35% of the market share, ranking first among materials, followed by electronic gases accounting for 13% and photomasks accounting for 12%. The remaining materials such as photoresist supporting chemicals, polishing materials, photoresists, wet chemicals, sputtering targets, etc. account for less than 10% and are relatively small in scale.

Silicon Wafer

In the silicon wafer market, Japan's Shin-Etsu Chemical accounts for 28%, SUMCO accounts for 22%, Taiwan's GlobalWafers accounts for 15%, Germany's Siltronic accounts for 11%, and South Korea's SK Siltron accounts for 11%. The top five manufacturers account for 87% of the market share, and the market segment concentration is relatively high.

Representatives of domestic silicon wafer production companies include Shanghai Silicon Industry, Zhonghuan Semiconductor, Shengong Semiconductor, and Liwei An, etc. Among them, Shanghai Silicon Industry's subsidiary Shanghai Xinsheng Semiconductor Technology Co., Ltd. has achieved 300mm semiconductor silicon wafer production, with cumulative sales of more than 1.7 million pieces. Its second phase project will have a production capacity of 300,000 pieces/month by the end of 2021 to ease dependence on imported silicon wafers.

Electronic Gases

Electronic gas is one of the indispensable basic and supporting materials in the production of electronic industries such as large-scale integrated circuits, flat panel display devices, compound semiconductor devices, solar cells and optical fibers.

According to statistics from the China Industrial Gases Association, China can only produce about 20% of the special gases used in integrated circuit production, and the rest are imported. As the second largest semiconductor raw material, the global electronic gas market is occupied by Air Products and Chemicals of the United States, Linde Group of Germany, Air Liquide of France and Taiyo Nippon Sanso of Japan, which account for more than 90% of the market share.

At present, the main domestic enterprises include Yak Technology, Jinhong Gas, Nanda Optoelectronics, Walter Gas, etc. The special gases that can be mass-produced are still mainly concentrated in the process links of integrated circuit cleaning, etching, photolithography, etc., and only a few varieties of gases for doping, deposition and other processes have made breakthroughs. It can be seen that independent control based on safety is still the main theme of long-term domestic substitution of electronic gases.

Photoresist

Photolithography is the most important process in semiconductor wafer manufacturing, which determines the minimum feature size of the chip, accounts for 40-50% of the chip manufacturing time, and 30% of the manufacturing cost. Photoresist is the core consumable in the photolithography process, which determines the precision and yield of the process graphics. Its importance is self-evident. Semiconductor photoresists are divided into g-line photoresists, i-line photoresists, KrF photoresists, ArF photoresists, and EUV photoresists according to different exposure wavelengths.

From a technical perspective, semiconductor photoresist has high barriers, but high barriers have created a monopoly. Semiconductor photoresist is one of the materials with the lowest domestic production rate, and the market is mainly occupied by Japanese and American manufacturers. The global photoresist market is mainly monopolized by manufacturers such as Tokyo Ohka, DuPont, JSR, and Sumitomo Chemical, especially in the high-end KrF and ArF fields of semiconductor photoresists, where the market concentration is even higher.

China's semiconductor photoresist industry is still in its infancy, with a huge technological gap with foreign companies. Except for a few companies covering g/i photoresist, the localization rate of KrF photoresist is only about 1%, and ArF photoresist is still in the research and development stage, except for a few domestic companies that can sell a small amount.

At present, photoresist is accelerating domestic substitution. On the one hand, the supply and demand tension and supply chain security issues are becoming increasingly serious, and the window for domestic substitution of photoresist is further opened. Photoresist is a highly customized product and needs to be developed in conjunction with photolithography machines. With the rapid release of new production capacity of domestic wafer fabs, domestic manufacturers will give priority to domestic manufacturers with localization advantages to meet the development of product matching. Domestic companies represented by Huamao Technology, Tongcheng New Materials, Jingrui Electric Materials, etc. integrate upstream materials such as monomers and resins with photoresists to achieve all-round security of the supply chain and become the preferred supplier for the long-term development of domestic wafer manufacturers.

CMP

CMP (chemical mechanical polishing) is a process that achieves global flattening of the wafer through the coordinated chemical and mechanical corrosion of polishing materials. Its core consumables focus on polishing liquid and polishing pad.

With the increasing complexity of chip manufacturing, the demand for CMP materials has increased, and the wafer production capacity has expanded. The domestic and foreign market scale has steadily increased, and the domestic market growth rate is higher than the global market. Taking polishing liquid as an example, according to the forecast of Techcet and QY Research, the global polishing liquid market size is expected to reach US$2.48 billion in 2024, with a CAGR of 8.45% from 2019 to 2024; and the domestic polishing liquid market size will exceed US$1 billion in 2025, with a CAGR of 31.66% from 2019 to 2025.

From the perspective of market share, due to the high process barriers and certification difficulties of CMP materials, the industry structure is relatively concentrated and is mainly monopolized by American and Japanese manufacturers. In the polishing liquid market, leading manufacturers such as Cabot, Hitachi, Fujimi, and Versum account for a cumulative share of about 65%. It is worth mentioning that the Chinese company Anjie Technology is catching up rapidly, breaking through the 14nm process in copper and copper barrier layer polishing liquid, and continuing to expand the application of tungsten polishing liquid and dielectric material polishing liquid in 3D NAND advanced processes. The product technology has approached the highest international level. In 2020, its global market share has increased to 4.5%.

In the field of polishing pads, the Dow Chemical Company of the United States is the only one in the market, accounting for nearly 80% of the global polishing pad market, and even 90% of the market share in the two high-end fields of integrated circuit chips and sapphire, presenting a single oligopoly. 3M, Cabot, Japan Toray, Taiwan Sanfang Chemical, etc. can also produce polishing pads for some chips.

Among mainland manufacturers, Dinglong has passed the verification of the entire 28nm product process (ILD/SIT/W/Cu/GKMG) and received orders. New products developed for advanced processes below 14nm are progressing smoothly in client verification. Domestic manufacturers have initially broken the monopoly of polishing pad technology, and production capacity is still being released.

Target

Target materials are the core raw materials of the sputtering process and are a must for the preparation of functional thin films. The entry threshold of the target material industry is high, and it takes 2-3 years from the development of new products to the realization of mass supply. The high certification cost forms a stable supply relationship and imposes strict requirements on new entrants.

High thresholds lead to high concentration, and the world presents the characteristics of oligopoly of the United States and Japan, with obvious first-mover advantages. Due to the numerous manufacturing processes of target materials, high technical barriers, and large equipment investment, few companies can achieve large-scale production. Leading manufacturers in the United States and Japan master core production technologies and implement strict technical confidentiality measures. Currently, Honeywell (USA), Nippon Mining and Metals (Japan), Tosoh (Japan) and Praxair are the top four manufacturers in the world with a market share of nearly 80%. Among them, Nippon Mining and Metals has the largest scale and monopolizes 30% of the global chip target market. From the perspective of target material type segmentation, the main supplier of copper targets is Nippon Mining and Metals; the main suppliers of molybdenum targets are Plansee and Startech; the main suppliers of aluminum targets are Sumitomo Chemical and Afaco; the main suppliers of ITO targets are Mitsui, Nippon Mining and Metals and Umicore.

Domestic manufacturers have been catching up, and the technical nodes have been continuously broken through. A number of excellent target material enterprises have emerged , including Jiangfeng Electronics, Guangwei Semiconductor, Ashi Chuang, Longhua Technology, etc. Among them, Jiangfeng Electronics is the largest domestic manufacturer of high-purity sputtering targets for semiconductor chips. Its ultra-high purity metal sputtering target products have been applied to the world's advanced manufacturing processes. The 7nm technology node has achieved batch supply, and some products of the 5nm technology node have passed the evaluation and achieved mass production, and some products have entered the verification stage; the ultra-pure sputtering target products produced by Guangwei Semiconductor have entered TSMC's 3nm supply and completed the process terminal test, and are about to enter the mass production stage. The main product, ultra-high purity copper-manganese sputtering target, meets the requirements for the use of 45-3nm process nodes, and provides Guangyang in Taiwan with a stable supply of ultra-high purity 6N/7N copper raw materials, and later manufactures copper-manganese targets required for its 3nm chip manufacturing process.

Li Meng, an analyst at Founder Securities , divides China's semiconductor manufacturing materials into three echelons based on the competitiveness of China's semiconductor manufacturing materials segmented products and the current localization progress : the first echelon: target materials, electronic gases, and wet electronic chemicals. The technical standards of some products have reached the world's first-class level, and local production lines have achieved medium and large-scale supply; the second echelon: CMP materials, masks, and silicon wafers. The technical standards of some individual products have reached the world's first-class level, and local production lines have achieved small-scale supply; the third echelon: photoresist, the technology is still far behind the world's first-class level.

Packaging materials: Advanced packaging opens up the market

According to statistics in 2020, the main materials for semiconductor packaging are packaging substrates, accounting for 33%, followed by lead frames 17%, bonding wires 16%, packaging resins 15%, ceramic materials 12%, and chip bonding 4%.

As a special printed circuit board, the package substrate is the basic component that connects high-precision chips or devices with low-precision printed circuit boards. With the emergence of new high-density packaging forms, many functions of electronic packaging are gradually being partially or fully assumed by the package substrate.

The packaging substrate industry started in Japan and then spread to South Korea and Taiwan, China, with the three regions accounting for more than 90% of the market share. In recent years, Japanese packaging substrate companies have gradually withdrawn and downsized, focusing on high-end products. Japanese companies represented by Ibiden, Shinko, Kyocera, etc. have strong technical strength and occupy the main market for CPU packaging substrates, which are the most profitable among packaging substrates. In all other packaging substrate categories, suppliers from Taiwan, China and South Korea dominate the market.

Overall, the packaging materials market is relatively fragmented. Mainland manufacturers have a certain influence in the bonding wire, epoxy molding compound, and lead frame markets, and the domestic production rate is relatively high. However, there is still a large gap between them and international leading companies in terms of packaging substrates and chip bonding materials.

Semiconductor packaging materials industry manufacturers

In recent years, high-density multi-layer substrates have accounted for an increasing proportion of electronic substrates, and their application in advanced packaging has become more and more extensive. According to Yole data, the global packaging revenue has a compound annual growth rate of 4%, of which the advanced packaging market has a compound annual growth rate of 7%. It is expected that by 2025, the advanced packaging revenue will reach US$42.2 billion, accounting for nearly 50% of the packaging market.

Global Advanced Packaging Market Trends

Based on the overall development trend of the packaging and testing market, the future growth space of advanced packaging materials will exceed that of traditional packaging materials, and materials suitable for 3D packaging, flip-chip and fan-out packaging will grow rapidly.

Overall, China's semiconductor materials industry has achieved breakthroughs in various segments after its past development, but products as a whole are still concentrated in the mid- and low-end fields, with a low market share.

In terms of wafer manufacturing materials, Japan has almost a monopoly in the field of large-size silicon wafers and photoresists, and electronic gases are also jointly monopolized by large companies in Europe, the United States, Japan, etc. In terms of chip packaging materials, substrates and lead frames are mainly dominated by companies in Japan, South Korea, and Taiwan. Although most of the bonding wires are produced domestically, foreign brand manufacturers still occupy most of the market share.

According to public data, the localization rate of many key semiconductor materials is less than 10% at present, and even less than 5% in some fields with very high technical barriers. On the other hand, this also means that there is a lot of room for localization of semiconductor materials.

Domestic materials have a chance to break through

Affected by the trade war, domestic substitution of chips has become an inevitable trend. Semiconductor materials, as the upstream of the industry, are also key technologies that "choke the neck" and need to be replaced by domestic products as soon as possible.

Domestic semiconductor materials welcome policy dividends

The rapid development of China's semiconductor materials cannot be separated from the support of relevant industrial policies.

The first phase of the National Semiconductor Industry Fund has invested in Shanghai Silicon Industry, the leading domestic silicon wafer company. The second phase has taken semiconductor materials as a key investment area and continued to increase investment in Shanghai Silicon Industry. In addition, it has also added investments in electronic gas supplier Peri Special Gas, photoresist supplier Ningbo Nanda Broadcasting and Television, electronic grade phosphoric acid supplier Xingfu Electronics, and packaging substrate supplier Shenzhen South Circuit. The second phase of the fund covers key links such as silicon wafers, electronic gases, photoresists, high-purity reagents, and substrates, indicating that the country is constantly increasing its attention to the field of semiconductor materials.

In addition to the big fund, the country has also introduced a series of policies in recent years to promote the development of the semiconductor materials industry.

my country's policies related to semiconductor materials

Source: Founder Securities Research Institute

A rare opportunity to replace domestic materials

On the other hand, the global shortage of semiconductor materials has also provided domestic companies with a once-in-a-lifetime opportunity for substitution.

The chip shortage has spread to the upstream material end. The production capacity obtained by domestic chip manufacturing and packaging companies from foreign suppliers will be affected, and the delivery cycle will become longer. Under this circumstance, domestic manufacturers are more willing to import products from domestic suppliers.

This has brought opportunities to domestic semiconductor material companies. If they can seize the opportunity, quickly fill this gap, and become a stable supplier of domestic chip manufacturing and packaging companies, they can achieve this part of domestic substitution. For example, Shanghai Silicon Industry seized the opportunity of the global silicon wafer supply shortage and successfully entered major domestic chip manufacturers such as SMIC and Wuhan Xinxin; Shenzhen South Circuit also seized the opportunity of the global substrate supply shortage and successfully entered the supply system of the world's three largest packaging and testing companies, ASE, Amkor Technology, and Changdian Technology.

In addition, facing the current global capacity shortage and the substantial expansion of semiconductor wafer manufacturing capacity, the capital expenditure plans of industry leaders such as Shin-Etsu, SUMCO, and Dow are relatively conservative. With the substantial expansion of manufacturing capacity and the conservativeness of material manufacturers, coupled with factors such as the epidemic and international frictions, the tight supply and demand of semiconductor materials will continue.

Domestic giants such as SMIC, Yangtze Memory Technologies, and Changxin Memory Technologies have already broken through the early stages of risky trial production and yield rate climbing, and their production capacity has already reached scale. In the later expansion process, the strategic goal has shifted from "climbing yield rate to produce products" to "supply chain security". The willingness of Fab factories to localize is expected to increase, and domestic semiconductor materials will usher in an accelerated introduction and volume stage. However, once entering the field of semiconductor materials, which has high barriers, it is not easy to be replaced. Therefore, it is expected that the penetration rate of domestic enterprises in the global market will gradually increase irreversibly.

According to institutional estimates, mainland China's demand for semiconductor materials represented by photoresist and CMP has room to more than double in the future.

Overall, the global semiconductor industry chain continues to migrate to mainland China. The rapid growth of the upstream electronic chemical materials market provides Chinese new materials companies with the opportunity to get a piece of the pie. The development path will unfold along the lines of increasing low-end substitution share and gradually breaking through high-end products.

Last words

In the 1970s, Japan, with its advantages in the home appliance industry, led to the overall upgrading of semiconductor technology and industry. A number of industry companies emerged, and the semiconductor industry shifted from the United States to Japan for the first time. Its semiconductor materials and equipment also developed into a strong force.

Semiconductors are a highly international industry, and it is impossible for any country or region to achieve 100% localized manufacturing. At present, the global manufacturing landscape is divided among China, the United States, Japan, and South Korea, so semiconductor materials also need to be deployed in the above-mentioned regions, as close as possible to wafer fabs, to play a supporting role.

At present, my country's semiconductor materials industry may learn from Japan's development experience, seize the opportunity of semiconductor industry transfer, actively develop and deploy globally. The localization of semiconductor materials still faces difficulties and challenges such as the need to start from scratch for many high-end semiconductor materials, shortage of relevant talents, and the technical blockade of the core technologies of many key materials by the United States, Japan, Europe and other countries.

However, against the backdrop of Sino-US technological frictions, domestic policy tilts, the strengthening of Fab factories' willingness to localize under the tight supply and demand situation, and the active capital market have provided new opportunities and windows for the domestic materials market, prompting the localization of semiconductor materials to move further in depth and comprehensively.

Against the backdrop of a turbulent global market and international situation, domestic companies' market share is accelerating, and semiconductor materials are expected to usher in a spring of rising both volume and price.

*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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