Wafer shortage, who is reaping the benefits?

Latest update time：2020-01-02

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Source: The content comes from "First Financial Daily", thank you.

The hot sales of Apple AirPods have completely ignited the consumer market's enthusiasm for TWS (true wireless stereo) headphones. Its Bluetooth main control chip is currently in short supply and its price has soared.

This is mainly because the production capacity of wafers, the basic raw materials for semiconductor devices, is fully loaded, and wafer manufacturers are under tremendous supply pressure.

With the increase in market demand for 5G in the second half of last year and better-than-expected sales of Apple’s iPhone 11 series, orders for the semiconductor production chain bottomed out and rebounded.

Tianfeng Securities stated in a research report that due to the increase in orders from Apple, Huawei, AMD and Qualcomm customers, especially Huawei Kirin 990 and Apple A13 products are in the stocking period, TSMC's 7nm wafer orders have increased significantly, resulting in a shortage of products. In addition to 7nm, the main processes shipped by most chip manufacturers, such as 16nm, 12nm, and 10nm, have also reached full capacity. Due to the backlog of orders, TSMC has delayed delivery of some orders, and the delay has lasted for as long as 100 days.

CLSA said that the 8-inch wafer foundry in Asia is in short supply, and not only TSMC, but also UMC, SMIC and other manufacturers are facing the same situation. The main reason is that the ultra-thin under-screen fingerprint recognition and 5G mobile phone demand are all increasing the overall wafer demand, and manufacturers including TSMC will benefit from it.

SMIC, Pioneer, Hua Hong Semiconductor and other companies have also increased their production capacity due to demand. In fact, since the second quarter of last year, China's independent wafer fabs have entered a peak of production, and the commissioning of multiple wafer production lines has also brought about a wave of purchases of related equipment.

Fab capacity is being robbed

"Our current job is to ask for production capacity from upstream wafer fabs, and we must be very decisive when placing orders. " A domestic TWS headset manufacturer told the First Financial reporter that the market does not wait for anyone.

On Christmas Eve last year, Apple's new AirPods Pro headphones were sold out across the U.S. The analysis agency Counterpoint Research predicts that global shipments of TWS headphones last year were 120 million pairs, and 42.5 million pairs were sold in the fourth quarter Christmas season alone, almost catching up with the full-year shipment level in 2018.

This year, as more and more brands invest in TWS headsets and the Apple AirPods replacement wave arrives, Counterpoint predicts that TWS headset shipments will jump to 230 million pairs in 2020, a year-on-year growth rate of 91.6%, and is expected to replicate the explosive growth of smartphones from 2009 to 2012.

Previously, the price of TWS headset Bluetooth main control chips had been falling due to the promotion of local chip manufacturers, but in recent weeks, the situation has reversed. According to industry insiders, the price of TWS headset Bluetooth main control chips has bottomed out and rebounded after a sharp drop. The current price has risen three or four times compared to the low point. The main reason is that the production capacity of upstream foundry manufacturers is fully loaded, resulting in a shortage.

The shortage has also increased the foundry pressure on upstream wafer manufacturers, and this pressure will continue until the first quarter of this year.

In addition to the popularity of Bluetooth master control chips brought by TWS headphones, the rising demand for CMOS Image Sensor (CIS, complementary metal oxide semiconductor image sensor) also poses challenges to the production capacity of upstream wafer manufacturers.

Since 2018, the CIS market has continued to be hot. This situation has intensified as the number of cameras on smartphones continues to increase. Apple's 2016 model iPhone7Plus is equipped with dual cameras, and then Huawei's mobile phones started the "triple camera strategy". Now, major smartphone manufacturers have successively invested in multi-camera models in high-end, mid-range and low-end mobile phones. According to research institutions, among the total number of mobile phone sales in 2020, mobile phones equipped with dual cameras (and more cameras) account for about 72% (about 52% in 2019), and the proportion of mobile phones equipped with three cameras (and more cameras) is as high as 29%.

In addition, industry research firm HISMarkit pointed out that as governments and enterprises increase their investment in security networks, there will be more than 1 billion surveillance cameras in the world by 2021, and the demand for CIS will grow significantly. Behind these applications, the performance of CIS original manufacturers such as Sony, Samsung, OV, GalaxyCore, SmartSens and ON Semiconductor, as well as wafer foundries such as TSMC, SMIC, Huahong Grace and Wuhan Xinxin will be driven.

In the list of the top ten semiconductors in the world in the third quarter of 2019 released by IHSMarkit, Sony's revenue in the third quarter of last year increased by 41.5% month-on-month, jumping from 15th in the previous quarter to 9th. Affected by the expansion of demand, CIS suppliers including Sony, Samsung and SK Hynix have also accelerated the increase of production capacity.

CLSA said that some downstream manufacturers are now bypassing suppliers and directly approaching wafer fabs, and Samsung's own wafer foundry capacity is almost fully loaded, which is unprecedented. It is expected that some orders will be transferred to 12-inch wafer fabs. The orders received by TSMC have exceeded the total production capacity in 2020. If customers do not take decisive action first, there will basically be no capacity allocated.

Hou Mingxiao, head of research at CLSA's Asia technology sector, believes that TSMC's capacity shortage is more serious than at any time in history. In addition, automotive and industrial demand, which were very strong in 2017 and 2018, is currently quite weak. Once it recovers, capacity demand will inevitably become even tighter.

Good news for the upstream wafer manufacturing supply chain

The main bodies of wafer manufacturing can be divided into IDM (international integrated device manufacturers) companies and wafer foundries. IDM giants are mainly in the United States, while my country is mainly composed of foundries.

According to IHS statistics, the global silicon wafer foundry industry revenue reached US$57.3 billion in 2017, with a compound growth rate of 10.8% from 2012 to 2017. Data shows that the share of pure wafer foundry capacity increased from 24.1% in 2012 to 34.0% in 2017. It is expected that the revenue growth rate of the wafer foundry industry will remain at around 8% from 2018 to 2020.

In fact, the growth in wafer foundry demand in mainland China far exceeds that in other parts of the world. In 2018, the scale of China's pure wafer foundry market increased by 41%, and its total share increased by 5 percentage points to 19%. From a global perspective, it ranks second only to the Americas. The China Merchants Bank Research Institute said that the mainland Chinese market basically drove the growth of the entire pure wafer foundry market.

Institutions believe that the localization of the mainland semiconductor supply chain is unstoppable. "In the field of wafer foundry, China is at a historic stage of wafer manufacturing capacity expansion, and countercyclical investment is an important support for the resilience and strong growth of China's semiconductor equipment demand. " Huatai Securities said in a research report that as the world's largest semiconductor consumer market, the focus of consumption in mainland China has also led to a shift in the focus of production capacity to China to a certain extent. At the same time, with the support of national strategies, global production capacity has continued to shift to China. Chinese and foreign semiconductor companies have invested in and built factories in China. From 2019 to 2021, Chinese local companies are expected to become the main force in wafer factory construction.

Since 2018, multiple wafer production lines have been put into production, which means that mainland wafer fabs will gradually enter the next round of intensive equipment procurement.

At present, local semiconductor manufacturing companies represented by SMIC, Yangtze Memory Technologies Co., Ltd., and Hefei Changxin are deploying advanced process production capacity in the fields of logic circuit chips, 3D NAND memory chips, and DRAM memory chips, respectively. They are companies at the forefront of China's semiconductor process technology.

Peng Jin, senior vice president of global sales and marketing at SMIC, previously said that SMIC's production capacity is still expanding, and the demand is mainly related to the increase in smartphone pixels and the number of mobile phone cameras. Currently, three of the top five camera suppliers in the world use SMIC as their main foundry, including the largest one in Japan and one of China's most advanced CIS suppliers.

Benefiting from the rapid advancement of wafer fab construction, Huatai Securities said that in 2020, the scale of China's semiconductor equipment market is expected to rank first in the world.

The expansion of production capacity and the gradual maturity of advanced process technologies of local wafer fabs have provided a better verification and trial platform and import substitution opportunities for domestic equipment. According to data from the China Electronic Special Equipment Industry Association, in the first half of 2019, domestic equipment accounted for about 10% of the integrated circuit production line equipment market.

Founder Securities stated in a research report that China's independent wafer fabs entered the peak of production in the second quarter of 2019, and the demand for semiconductor equipment will usher in explosive growth in the next three years. It is estimated that the total investment in semiconductor equipment in mainland China from 2019 to 2022 will be around US$70 billion, which has a lot of room for growth compared to US$12 billion in 2018. In addition, the wafer fab itself has a procurement demand for cost reduction in production expansion, which is conducive to the improvement of the localization rate. Among domestic equipment, North Huachuang and AMEC will lead the domestic substitution.

*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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