Order volume fell by nearly 30% in the first quarter, and the semiconductor packaging and testing industry may gradually polarize in 2022

Since 2020, although the global economy has been affected by the epidemic, due to the strong development momentum of the emerging fields of automotive electronics, Internet of Things, and artificial intelligence, the semiconductor industry has been suffering from severe shortages and price increases in the past two years. The overall production capacity has continued to be in short supply, driving a substantial increase in demand in the packaging and testing market.

In 2021, benefiting from the imbalance between supply and demand of production capacity, the packaging and testing industry saw a rare phenomenon of rising both quantity and price. Orders from first-tier packaging and testing manufacturers spilled over to second- and third-tier packaging and testing manufacturers. Packaging and testing manufacturers of all sizes around the world basically delivered their best performance in history.

However, as new production capacity has been gradually opened up, affected by the industrial cycle and the epidemic, the development of markets such as consumer electronics and 5G communications has been lower than expected. Since the end of 2021, although the production capacity of upstream wafer foundries is still fully loaded and the market demand for automotive chips, industrial control chips, etc. is still relatively stable, the market demand for consumer general-purpose chip products has gradually slowed down, and the overall semiconductor packaging and testing industry order volume has also declined accordingly.

The consumer electronics market is sluggish, with overall orders falling by 20% to 30%

According to an executive of a domestic medium-sized packaging and testing manufacturer, due to the sluggish consumer electronics market, the overall order volume of conventional product series in the packaging and testing industry has dropped by 20% to 30% since the first quarter of 2022.

In this regard, a well-known domestic IC design company also felt deeply, "In fact, the packaging and testing capacity in the first three quarters of last year was very full. In Q4, the company's packaging and testing suppliers had another round of price increases. The new price started in October and the increase was 20%. However, since the end of last year, the packaging orders for consumer electronic products have declined significantly, especially for mobile phone-related chip products. Therefore, the entire packaging industry's capacity is relatively loose at present."

From the perspective of downstream application areas, communications and consumer electronics are the most important application markets for integrated circuits in my country. Therefore, the market prosperity in this field also directly determines the order situation of most domestic semiconductor packaging and testing manufacturers.

From the demand side, Jiwei.com learned from agent distributors that the first quarter of 2022 is the traditional off-season for the entire consumer electronics market. Under the influence of the new crown epidemic, except for automotive electronics and industrial control fields, the demand and shipments of consumer electronics markets including notebooks, smart phones, smart TVs, wearables, etc. have shown a significant decline.

In the field of communications, it has become an industry consensus that 5G construction is not as good as expected. Huawei recently announced its sales revenue of 636.8 billion yuan in 2021, a year-on-year decrease of 28.6%. This is the first time Huawei has experienced negative revenue growth in nearly a decade.

In this regard, Meng Wanzhou pointed out that, first, the multiple rounds of sanctions by the United States have had a great impact on mobile phones, PCs and other businesses. Second, my country's 5G construction was basically completed in 2020, and customer demand has decreased. Third, Huawei has been under great pressure under the epidemic.

From this, it can also be seen that the demand for chips used in the field of 5G construction will also decline significantly. Although the demand in the fields of automotive electronics and industrial control is still stable, most of the market share is occupied by international first-tier manufacturers, and the orders that many small and medium-sized chip manufacturers can get have shrunk.

For example, MCU, display panel driver IC, power semiconductors, power management chips, etc. are the products with the most serious price increases and shortages in the semiconductor industry since 2020. However, as market demand continues to be sluggish, the tight supply situation of products including 8-bit MCU, TDDI chips, medium and low voltage MOS tubes has been greatly alleviated, and there is even a trend of price competition.

First-tier manufacturers are more optimistic, and the packaging and testing industry is gradually polarized

In fact, upstream material manufacturers can learn about the prosperity of the packaging and testing market more quickly. Thanks to the high prosperity of the packaging and testing market, Kangqiang Electronics, a leading domestic lead frame company, achieved revenue of 2.195 billion yuan in 2021, a year-on-year increase of 41.71%. However, its forecast for the market situation in 2022 is not optimistic, and it only proposes that the company strives to achieve operating income of 1.8 billion yuan in 2022.

Kangqiang Electronics stated that the semiconductor packaging and testing market declined at the end of 2021, and coupled with the continued outbreak of the COVID-19 pandemic, the market is expected to be affected in the first half of 2022, and the second half of the year is still unclear.

Of course, the shortage of production capacity in the upstream wafer foundry industry is still continuing, and not all semiconductor packaging and testing manufacturers have loosened their production capacity. In the first quarter of 2022, ASE, the leader in the global packaging and testing industry, also raised its order price by 5% to 10%.

It is worth noting that due to fewer working days and the EMS entering the off-season, ASE's revenue in February was NT$43.831 billion, a decrease of 9.8% from NT$48.574 billion in January. Looking ahead to the capacity utilization rate of major products in the first quarter, ASE estimates that the packaging capacity utilization rate in the first quarter will be about 80% to 85%, and the testing capacity utilization rate will be about 80%.

ASE believes that the tight packaging and testing capacity and supply will continue beyond 2023. The growth of HPC, automotive, 5G, IOT and the expanding silicon content will lead to strong end-user demand and an optimistic long-term outlook. ASE's long-term service agreements with its customers will continue until 2023.

Like ASE, Tongfu Microelectronics is also optimistic about the packaging and testing market in 2022, and is betting on application areas such as high-performance computing, memory, automotive electronics and power modules, MCU, display drivers, and 5G.

Based on the revenue of 15.812 billion yuan in 2021, a year-on-year increase of 46.84%, Tongfu Microelectronics plans to achieve operating income of 20 billion yuan in 2022, an increase of 26.49% over the actual performance in 2021.

Obviously, when the overall market demand for the semiconductor packaging and testing industry weakens, orders will further concentrate on first-tier manufacturers, and the performance of major manufacturers may show a two-tier differentiation.

An industry insider admitted that the overall semiconductor packaging and testing market demand is not clear this year, but for first-tier packaging and testing manufacturers, they have signed capacity guarantee contracts with IC design customers during the period of capacity shortage. By binding high-quality industry leading customers, the company's orders can be guaranteed. However, small and medium-sized packaging and testing manufacturers find it difficult to receive spillover orders from first-tier packaging and testing factories, and weak market demand will lead to insufficient capacity utilization for some manufacturers.