After six consecutive quarters of price increases, major chip foundry companies announced that mature processes would stop rising.

In the past year, mature process chip production capacity has been in short supply, and wafer foundry quotes have also risen accordingly. Taking 8-inch wafers as an example, in 2021, the price of 8-inch wafer foundry capacity increased by 20-40%. At the beginning of 2022, 8-inch wafer foundries are still overwhelmed. It is even reported in the industry that in addition to signing long-term contracts, IC design houses have also raised prices through "bidding" to obtain wafer foundry capacity, setting a record for the longest consecutive increase.

Huge demand

Driving the price increase of mature processes

Mature processes are mainly used to manufacture small and medium-capacity memory chips, analog chips, MCUs, power management (PMIC), analog-digital hybrids, sensors, RF chips, etc. New demands for chips such as new energy, 5G, and AIoT are rising rapidly, especially the surge in demand for downstream panel driver chips (DDI), power management chips, MCUs, and automotive chips, providing strong impetus for mature processes:

1. Power management chip

Since the second half of 2020, the demand for downstream smart cars, industrial control, smart home appliances, and consumer electronics (especially fast charging products) has grown rapidly, driving the rapid growth of the power management chip market. According to MarketWatch forecasts, the global power management chip market is expected to reach US$40.8 billion by 2025, with a compound annual growth rate of 6.86%.

2. LED driver chip

Factors such as strong exports under the epidemic, the explosion of emerging application scenarios, and the transfer of panel production capacity to the domestic market have jointly driven the high growth in demand for LED driver chips.

3、MCU/SoC

In 2021, there is a severe shortage of automotive chips that cannot meet market demand, which is the main battlefield of mature processes. In particular, driven by applications such as epidemic prevention, security, industrial control, and IoT, the demand for MCUs has increased significantly. The popularization of 5G commercial applications, the rapid growth of smart homes, wearable devices, and various IoT devices have driven the explosion of SoC demand.

4. Power semiconductors

Power devices are one of the core electronic devices in the electronic control system of new energy vehicles. The amount of power devices used in new energy vehicles is more than five times that of traditional vehicles, contributing the most to the industry's growth. In addition, industrial control and smart home appliances are also core application scenarios for power devices. The continued prosperity of these two industries since the second half of 2020 has further stimulated the demand for power devices.

Global Regions

Continuously increasing mature process capacity

According to IHS, the global mature process foundry market size is expected to be US$43.1 billion in 2025, with a CAGR of 8% in the next five years.

Under the extreme pull of tight production capacity and strong demand, major OEM companies have entered the re-expansion stage of "raising prices - improving return on net assets - expanding production", and are continuously increasing capital investment and capacity construction.

Taiwan, China

Take TSMC, the leading foundry, for example. The company has been making frequent moves in the past two years to continuously expand its production capacity layout. In 2021, mature process chips based on the 28nm process are the most in short supply. TSMC has successively announced expansion plans for 28nm in Nanjing and 7nm/28nm in Taiwan, China, and has also invested in a 22/28nm process wafer fab in Kumamoto Prefecture, Japan. In addition, a new plant in Germany is also being planned and promoted.

Chinese mainland

Taking SMIC, a representative company of mature processes, as an example, SMIC has built a 28nm process wafer factory in Beijing and is also building new production lines in Shanghai and Shenzhen. The scale of production expansion will continue to increase in 2022 and 2023.

USA

GlobalFoundries is a representative company. The company's CEO pointed out that all production capacity before the end of 2023 has been sold. In the next 5 to 10 years, the company will pursue supply rather than demand, increase the production capacity of automotive chips by at least 1 times, and invest US$6 billion to expand production.

South Korea

Samsung is naturally unwilling to lag behind. In November 2021, Samsung finalized the establishment of a 12-inch wafer factory based on 5nm process technology in Texas, USA, with an investment of approximately US$17 billion, and it is expected to start production in 2024.

In addition, SK Hynix System IC, a subsidiary of SK Hynix, plans to close its M8 plant in Cheongju, South Korea in February 2022. All equipment at the plant will be relocated to Wuxi, China in May 2022. The relocation is expected to be completed in the first half of 2022, when it will make every effort to seize the Chinese 8-inch wafer foundry market. The Wuxi plant can produce 100,000 8-inch wafers per month.

In addition, Huahong Group, Jinghe Integrated Circuit, Powerchip, UMC, and World Advanced are all increasing their capacity construction.

Industry analysis:

The halt in price increases does not mean that production capacity will be reduced

The industry believes that the end of the growth trend of mature processes is closely related to the weakening demand in the downstream areas mentioned above and the continuous expansion of production capacity. The weakening demand for large-size panel driver chips, TDDI, and Android mobile phone power management chips has led to rising inventory levels and an urgent need to destock.

However, the cessation of price increases for mature process foundry quotations does not mean that production capacity will be loosened. The supply of automotive-related 28nm/40nm/55nm/65nm/90nm, and even 0.13 micron and 0.18 micron, is still "very tight."

In early March, an IC design company revealed that TSMC plans to increase the price of 8-inch mature process foundry again in Q3, with the increase of about 10%-20%. The price of 12-inch mature and advanced processes is still under evaluation. The company also pointed out that the expansion of mature processes represented by 8-inch is limited, and production capacity is still in great demand.

In response to the news that the price increase trend has stopped, UMC said that it is still optimistic about the price increase this year, and the average unit price of products in 2022 may reach an annual increase of 14%-16%; Powerchip emphasized that its customers had not signed long-term contracts before, but chose to sign long-term contracts to ensure production capacity, so the current prices are mainly based on long-term contract prices.

Turning point is coming

Will mature processes face oversupply?

With the global wafer fabs expanding production on a large scale, concerns about overcapacity have always existed. Industry analysts believe that this wave of price hikes may be a one-quarter adjustment or temporary, but if demand shrinks too much due to external factors, exceeding the industry's new capacity, it may lead to a cyclical recession.

Demand side

According to TrendForce data, the consumer electronics market in the first half of 2022 was impacted by the weakening of the stay-at-home economy, the epidemic, tense international situation, high inflation, and the traditional off-season. The demand for related applications such as PCs, laptops, TVs, and smartphones has cooled significantly, and downstream customers have successively lowered their shipment targets for this year.

In addition, a previous report by Nikkei News also showed that due to the conflict between Russia and Ukraine and global inflationary pressure, Apple cut orders for iPhone 13 and iPhone SE 3 by at least 2 million units each, and AirPods orders for the whole year by 10 million units. Therefore, the industry demand that occupies the majority of mature processes is facing pressure.

Capacity

Dale Gai, research director of research firm Counterpoint, estimates that for mature process chips, which are currently in short supply, the production capacity of major wafer foundries will increase by about 40% from 2021 to 2025. SEMI analysts believe that 29 new wafer fabs will be built worldwide by the end of 2022, and the production capacity of 12-inch and 8-inch wafers will increase by 11% and 5% respectively in 2022.

With the adjustment of market demand and the increase in production capacity, the frantic rush for mature process production capacity last year may no longer exist, and the price of mature process of wafer foundry may say goodbye to the upward trend. Nikkei Asian Review reported that if there is an oversupply in the future, the degree of oversupply of different types of chips will also be different, and mature processes may be the first to bear the brunt. Therefore, although the automotive and Internet of Things still maintain good demand, we should still be wary of the possibility of a cyclical decline in chip demand.