The wafer behind the avalanche price chip: from love to ignore to buy three for one

Earlier, the chip prices of ST and Ti avalanched, again causing concern and hot discussion. The violent reaction of the chip spot market was finally transmitted to the declining capacity utilization rate of the upstream TSMC, UMC, SMIC and other fabs. Compared with the increase in global demand for computers and tablet products driven by the epidemic at home two years ago, coupled with the active stocking of domestic chip suppliers, the contradiction between supply and demand of global 8-inch wafers is prominent, and the price of the whole chip industry continues to rise.

The "price rise party" is about to end, and the good days for wafer factories to make big money by raising prices may come to an end.

At the end of July, it was reported that wafer foundry manufacturers in Chinese Mainland had started the first shot of price reduction, with a price reduction of 10%, which affected the "preferential price" of some Taiwan, China wafer foundry for specific processes (even buying three for one, equivalent to a disguised price reduction) to prevent the loss of orders. The reason why Fabs play this card is probably to keep the capacity utilization rate from falling too much.

This year is a big year for consumer electronics to cut orders. More than half a year has passed, and the supply of mature semiconductor process products has begun to exceed the demand. Through upstream and downstream adjustments, it is reported that the average inventory of the main IC products under the 8-inch wafer in the second half of this year is about 3-6 months, including DDIC (display driver IC), CIS, MCU and PMIC. Among them, the driver IC cut orders the most fiercely. It is said that it was cut by 26% in one month, and it is feared that it will be cut by half in the third quarter.

As a result, the capacity utilization rate of 8-inch wafers in various wafer factories has declined one after another, and they can no longer maintain full capacity. Even new demand can not quickly fill the gap. It seems that the global semiconductor industry has taken a sharp turn. Is there finally no shortage of chips? After reading this article, you will understand:

Capacity status of 8-inch wafer

What have you experienced from tension to excess?

Is there no shortage of 8-inch wafer capacity?

01

Current capacity of 8-inch wafer:

"Flowers without a hundred days of red"

According to the report released by trendforce, a market research institution, in July, the capacity utilization rate of 8-inch wafers was most severely affected in the second half of the year. Affected by the decline in the demand for consumer electronics such as TV, PC and mobile phone, and the drastic cut of orders, the capacity utilization rate of the 8-inch wafer factory in the second half of the year will no longer be full.

8-inch wafer process node (including 0.35-0.11 μ m) The products are mainly DDIC (display driving IC), CIS (image sensor) and power related chips (PMIC, power discrete, etc.), among which DDIC is directly impacted by the demand freeze of TV, PC, etc., and the downward repair range of projection is the most severe.

Observe the trend of the second half of the year, and inventory adjustment and order cutting may continue to occur.

Trendforce said that in addition to the continuous downward repair of DDIC demand, peripheral components such as smart phones, PCs, TV related SOC, CIS and PMIC have also started to adjust inventory, and began to reduce the production plan to the wafer foundry. The phenomenon of order chopping occurred in 8-inch and 12 inch factories, and the production process included 0.1X μ m. 90 / 55nm, 40 / 28nm, and even 7 / 6nm in the advanced process are hard to escape.

The OEM factory has successively sent out inventory adjustment messages.

According to the source, the 8-inch capacity of wafer foundry factories such as SMIC and Huahong semiconductor has been loosened for some time, and it is not as tight as before. According to the latest financial report of SMIC, the capacity utilization rate in the second quarter of this year decreased by 2.5% compared with the previous quarter. TSMC warned in its financial report in July that the supply chain of smartphone, PC and consumer related industries will participate in inventory adjustment in the second half of 2022 and will continue until 2023.

Source: SMIC international financial report

The trend of cutting down orders in the downstream continues. Take PC as an example, the growth rate of the global PC market has increased for seven consecutive quarters before, but this year, the rise suddenly stopped. In April, it was reported that almost all the leading PC manufacturers were "cutting orders". Lenovo, HP, Acer and ASUS all began to reduce their annual shipment targets. Dell was even exposed that the demand for display and laptop panels in the third quarter would be reduced by 50%, which was equivalent to cutting half of the business volume.

The production capacity of 8-inch wafers has been adjusted the most. Among the related DDIC (display drive IC), CIS, power management chip and power device chip, DDIC is the most violent. However, the power management chip will tend to balance after reallocation because it is still tight in the first half of the year.

02

The supply of 8-inch wafers was once tight

Generally speaking, the 8-inch wafer process ranges from 0.5um to 0.11um (or 110Nm), which is a combination of mature processes and special processes, taking into account stable quality and low development cost. At present, the main application fields of global 8-inch wafer production capacity are power management chip (PMIC), CMOS image sensing element, fingerprint identification chip, display driver IC, RF chip and power device.

Source: Network

Starting from the second half of 2019, the capacity of 8-inch wafers began to be tight, and mature process chips such as MCU and PMIC were in short supply one after another, and continued to be tight in the next year or two. It was hard to find a piece of wafer, and there was no relief. At the same time, the wafer foundry TSMC, UMC, lismc, and the world's advanced manufacturers have confirmed the increase in OEM prices one after another, and said that the production capacity is full and the orders are full until 2021.

Since 2021, the demand for mobile phone tddi chips has been strong, and its 8-inch capacity has been fully loaded. Drive chip manufacturers have issued price increase letters one after another, which once pushed up the chip price. In addition, the delivery time of MCU, PMIC and other chips has been continuously lengthened, and the average delivery time of global chips has been constantly set new records. The price increase letters of chip manufacturers can be used to "one thousand and one nights", and the chip market price has experienced a sharp rise.

In order to grab chips, downstream terminals and distributors do not hesitate to increase prices, overbooking and double bookings. The surging demand for orders is transmitted from the chip factory to the upstream wafer foundry. The global semiconductor inventory level is gradually rising and remains high-end. Some voices in the industry are worried about the subsequent terminal demand and inventory reduction.

However, when the production capacity of 8-inch wafers is tight, it is difficult to give priority to the two types of chips, and even to increase the price. For example, DDIC with low gross profit rate and large demand, and MOS with low gross profit rate and usually less film production volume, when the demand for the epidemic increased sharply in 2020, they all experienced a lack of growth due to the squeeze of production capacity. In 2021, many small-scale chip design companies had a crisis of survival. It is said that many Chinese customers of a foreign power supply analog wafer factory were directly cut from 1000 chips / month to 50 chips / month, and some did not directly put in chips.

Customers with long-term cooperation, large number of films and high gross profit rate of products will be listed as "priority" objects. For example, after Huawei was sanctioned, the whole supply chain panicked to pull goods. The logic of the production capacity of the wafer factory is to give priority to ensuring the supply of mobile phone chips. Under the superposition of factors such as the epidemic, the lack of core has become more and more serious and the scope has become wider and wider.

In 2021, the car core shortage broke out, and the demand for cars from various generation factories poured in. As the demand for rapid expansion of consumer electronics occupied the capacity of car chips, the capacity utilization rate of 8-inch wafers remained full, and it was difficult for car chips to fill the gap in a short time. In order to meet the demand, the OEM factories maintained the capacity utilization rate at the full load level for a long time through product portfolio adjustment.

Most automotive chips are manufactured in 8-inch fabs. In fact, up to now, automobile chips still face the bottleneck of shortage. The production of car gauge chips is limited. Equipment and chips need to be certified. Once certified, they cannot be changed at will. Moreover, the certification is time-consuming and the production line is easy to be jammed. For the specialized wafer foundry seeking to maximize the utilization of production capacity, it is difficult to quickly fill the capacity of automotive chips.

Before the outbreak of chip chip shortage in automobiles, TSMC had never received a call from the top management of an automobile enterprise. In the past two years, the other party urgently needed 25 wafers. However, as the order received by TSMC jumped to 25000, the matter was settled. TSMC has repeatedly said that the supply chain of the automobile industry is long and complex, and it takes at least six months from chip manufacturing to automobile production. However, at the beginning of last year, TSMC made it a top priority to support the capacity needs of automotive electronics customers, and made a rare dynamic adjustment and reallocation of wafer capacity to support the global automotive industry.

By the end of 2021, the 8-inch wafer foundry capacity of most of the foundries such as UMC and SMIC had been sold out, and the capacity utilization rate of each wafer foundry was generally maintained at the full load level and continued to be in a state of capacity shortage. Jason Wang, CO president of UMC, said: "in the fourth quarter of 2021, it is expected that the wafer shipment and ASP trend will remain strong, and the capacity utilization rate of 8-inch and 12 inch facilities will continue to remain at full capacity."

The contradiction comes to the upstream wafer manufacturing equipment market. Since the equipment manufacturers have long stopped producing 8-inch wafer equipment, it is difficult to find 8-inch wafer equipment in the market. The price of second-hand equipment has risen, and the price of a second-hand lithography machine of Canon 26 years ago has risen 17 times.

03

Mend the fold after the sheep is lost

For a long time, the 8-inch wafer production capacity scrambled by consumer electronics and automotive electronics was regarded as an old and backward production line, and it was difficult to expand production. According to historical data, investing in an 8-inch factory requires about 800-1 billion US dollars, and the sunk cost is high. It is relatively advantageous to improve production efficiency, purchase second-hand equipment (or change machines) and M & A. However, good targets are hard to find, and the equipment supply is limited, so the 8-inch production capacity cannot be rapidly increased.

Discrete devices, power devices, MEMS, analog chips and other products need to be switched to 8-inch wafers, which also adds to the burden of 8-inch capacity. Data show that between 2010 and 2016, more than 20 6-inch Fabs were closed. Earlier, from 2016, the capacity of 8-inch wafers began to be tight. It is reported that from Q2 of 2017, the demand for 8-inch silicon wafers began to exceed the production capacity, and the supply of 8-inch silicon wafers began to tighten.

In 2020, the global epidemic broke out, and various places shut down production, while the demand brought by home suddenly soared. The contradiction between supply and demand of various types of chips intensified the tension of 8-inch wafer production capacity within a certain period of time. A product marketing manager of onto innovation, a semiconductor equipment company, once said that from 2016 to 2021, the 8-inch wafer foundry has been operating at nearly 100% capacity. They have seen a substantial increase in the demand for pmics, display driver ICs and MCUs.

When the semiconductor industry realized that the chip shortage was not enough, in addition to maintaining the high-level operation rate of the wafer factories, the major wafer factories were still on the way to "mend the way after the sheep has died". It was difficult to expand the production of 8-inch wafers, and the tension was more serious than that of 12 inch wafers. It was hoped that the production capacity of 12 inch wafers would be continuously increased to solve the large chip gap. Some chip design enterprises transferred their chips to 12 inch.

Generally speaking, in the long run, the larger the wafer size, the lower the cost allocated to each chip, and the higher the profit margin. But in the short term, 12 inches is not as cost-effective as 8 inches. 12 inch requires higher process stability. As the process is smaller, the mask cost and design cost are higher. Therefore, considering the cost and process, a considerable number of chips are still produced based on 8 inch wafers.

The global "lack of cores" in the past two years has led chip manufacturers and OEM manufacturers to continuously expand production and increase production. According to incomplete statistics, from 2020 to 2024, a total of 25 8-inch and 60 12 inch wafer factories will be built, with a total investment of nearly 1 trillion yuan. By then, the global 8-inch wafer production capacity will increase by nearly 20%, and the 12 inch production capacity will increase by nearly 50%. By 2022, the capacity of 8-inch wafers will be the largest in Chinese Mainland (accounting for 21%).

Semi's latest report shows that in 2022, factories will account for more than 50% of the global wafer production capacity, and analog chips, discrete and power devices will account for 19% and 12% of the production capacity respectively. Chip categories such as analog and power management that rely on 8-inch wafers will continue to account for a certain share of the global wafer production capacity and equipment investment.

Number of global 8-inch wafer semiconductor mass production Fabs

Source: Semi

We do not know whether the 8-inch wafer was over expanded or reasonable demand. However, at present, the prosperity of full capacity is no longer there, and it has even fallen to the "unhealthy level".

04

The utilization rate of production capacity has declined,

Is there no shortage of wafer capacity?

Under the influence of the trend of order cutting, the price response of the chip market is the most obvious, and the price reduction is like an avalanche. Now, the wafer foundry has been unable to withstand customers' substantial order cutting, and the capacity utilization rate has officially dropped.

Wafer factories have reduced their inventories one after another. The main reason is that the gap between DDIC, consumer PMIC and CIS is large, and the new demand can not be fully covered in a period of time. Trendforce believes that in the second half of the year, the overall capacity utilization rate of 8-inch Fabs will fall to 90-95%, and some Fabs with a high proportion of manufacturing and consumer applications may have to face a 90% capacity defense war. While 12 inch is at a high utilization rate of 95%, among which the capacity utilization rate of 7 / 6nm in the new advanced process will slightly drop to 95-99% in response to the conversion of product portfolio, and 5 / 4nm will be maintained at a water level close to full load driven by a number of new products.

For a specific 8-inch wafer factory, there is also a set of capacity utilization standards. Zhao Haijun, joint chief executive officer of SMIC, said on August 12 that excluding the impact of new capacity and no order capacity, a capacity utilization rate higher than 90% is a healthy level. SMIC's capacity utilization rate also declined. Calculated by 8-inch wafers, the company's capacity utilization rate in the second quarter was 97.1%, down 3.3 percentage points compared with the previous quarter and the same period last year.

When the world advanced recently announced its revenue in July, it said that due to the weak demand of the consumer electronic terminal market, the customer's inventory adjustment has shortened the order visibility to three months, and the orders have dropped significantly from the previous peak. It is estimated that the capacity utilization rate of its wafer factory will be reduced to 81-83% in the third quarter. World advanced believes that the inventory adjustment of panel customers will continue to the fourth quarter, and the inventory adjustment caused by uncertain factors such as the Russian Ukrainian war, city closure and inflation is expected to continue to the first half of next year.

It should be noted that at the beginning of this year, the Korean media reported that "the capacity of 8-inch wafers has been exhausted this year, and the mature process has been set to rise". Judging from the current situation of the decline in the utilization rate of 8-inch capacity, it is quite a "slap in the face". Does the decline in capacity utilization mean that there is no shortage of 8-inch capacity?

Some products have gradually completed the transfer of 12 inch wafers, leaving more 8 inch wafer capacity to some extent. The cooling of consumer electronics has loosened the capacity utilization rate of the wafer foundry in the short term, and it is difficult for new demand to fill the spare capacity in a short time. In the long term, the wafer factory needs to reallocate the capacity.

The redistributed capacity, or the capacity supporting 8-inch wafers, continues to maintain a high utilization level. For example, the burgeoning new energy vehicle market has driven the demand for IGBT, SiC and SJ MOSFET, breaking the balance of the original chip supply system. Wang Chuanfu once said, "the demand for semiconductors of electric vehicles is 5-10 times larger than that of traditional vehicles. A piece of 8-inch wafer can produce thousands of ICs, but it can only meet the needs of 2-3 vehicles for the production of IGBT, and the consumption of chips by new energy vehicles