Today the semiconductor industry seems to be caught in a strange circle. One side of the enterprise shouting lack of core, foundries and international IDM manufacturers to sell expansion; while the other side is the recent signs of "chip overcapacity" warning, which makes the semiconductor industry more confusing.

What is the current global shortage of core status? Chip production capacity is really to excess it?

One

What is the current situation of the industry shortage of core?

Chip shortage is still the status quo of the industry, but unlike the previous industry-wide chip shortage, the shortage of core more structural shortage, shortage of automotive chips, industrial control chips, consumer chips are in oversupply.

The shortage of automotive-grade chips has always existed, during the epidemic, the "house economy" to promote car companies to significantly cut automotive chip orders, coupled with the chip suppliers for the consumer electronics market and good expectations of the industrial sector, more capacity to give up to non-automotive demand, resulting in a shortage of automotive chips.

Among them, there is an extreme shortage of MCU and SoC with a high degree of coupling with the core functions of the car. At the same time, the rapid development of new energy vehicles since then, but also the power semiconductor chip demand has risen sharply, resulting in the short-term can not be alleviated.

Consumer chips are due to the downturn in the consumer electronics market, showing an oversupply of scenes. Recent media reports a number of cell phone chip makers and cell phone brand manufacturers have recently cut single news, including MediaTek cut 35%, Qualcomm cut 15%, Xiaomi, Vivo, OPPO orders in the next few quarters will shrink by 20% ...

According to TrendForce, the traditional off-season multiplier effect, making the first quarter of 2022 smartphone production performance is even weaker, global production reached only 310 million units, a quarterly decline of 12.8%. The annual decline was also as high as 10.1%.

Looking ahead to the second quarter, in the face of high inflation exacerbated by the Russian-Ukrainian conflict and the direct impact of the epidemic, continued to weaken consumer momentum. According to the current observation of TrendForce, the global smartphone production volume is estimated to be 309 million units in the second quarter, slightly unchanged from the first quarter, but we do not rule out the possibility of downward adjustment in the quarter.

two

Three major hints point to overcapacity?

Observe the time of fab capacity landing, capital expenditure plans, and some of the chip market price changes, the semiconductor industry may face the problem of overcapacity in the future.

Hint one: manufacturers "crazy" expansion, a large number of new production capacity will be released

So far in 2021, the chip market is hot, we can see the global foundry and international IDM announced one after another expansion plans and expansion progress news, TSMC, UMC, Intel, Samsung, Powerchip, SMIC, Micron, STMicroelectronics, Huahong, Ge-Core, Silan Micro, BYD Semiconductor and other leading companies are no exception.

The global production scale is huge, according to the global semiconductor observation incomplete statistics, there are 9 fabs in 2021 capacity release, and most of them are concentrated in mainland manufacturers; 2022 there are 14 fabs have capacity release, 2023 and will add 8, including the majority of the head manufacturers, 2024 and 2025 will also add 9.

Due to the new capacity from the investment to the official production time is long, so the current release of capacity is not enough to ease the chip shortage problem. However, from the global production capacity production time speculation, foundries and international IDM factory new production capacity in 2022 and 2023 continued to release, to 2024 and 2025 capacity or will reach a peak. Industry speculation, with the slowdown in demand, large-scale production capacity may lead to the possibility of excess semiconductor capacity.

The first signs of two: huge capital expenditure, capital danger critical line warning

Behind the large expansion of production, is bound to be the rapid growth of capital expenditure of large factories.

The industry believes that the semiconductor industry may be accompanied by a significant decline in the semiconductor market after one to two years of substantial growth in capital expenditures. For example, in 1984, the global semiconductor industry capital expenditure rose by more than 100%, and the semiconductor market fell the following year. The same pattern has been seen in the four cycles since then.

Industry comparison of historical cycles after the law to come up with a reference indicator, that is, the capital danger threshold. When capital expenditure growth exceeds 40%, it is usually predicted that there will be overcapacity and semiconductor growth rate decline in the future.

From the aforementioned major foundries and IDM capital expenditure data, the overall spending ratio of each major fab exceeds or is close to the capital danger threshold.

For example, TSMC's capital expenditure in 2021 increased by 74% year-on-year, and this year is expected to increase by 33.2%-46.5% year-on-year; UMC's capital expenditure growth rate in 2021 is as high as 80%, and this year is expected to increase by 100%. For Intel, capex is expected to grow 43% year-over-year this year, just above the capital danger threshold. Gecko has multiplied its capital expenditure in the past two years, with growth rates far exceeding those of other manufacturers. Samsung's capital expenditure increase this year is modest, but the investment amount is second only to TSMC. SMIC has been expanding steadily this year, with a growth rate of 11.10%.

In addition, combined with the data in Table 1, more foundry and IDM vendors (TSMC, UMC and SMIC in particular) are focusing their expansion targets on 22/28nm, with most of the output going to mature node semiconductors. Current industry news shows that there is a general shortage of advanced nodes, while some mature nodes or the possibility of oversupply.

According to recent foreign media reports, TSMC will need to reconsider whether it is necessary to invest in new production capacity (in addition to the projects already invested). They believe that if the company further increases production capacity in the future, not only will face the increased risk of idle capacity, but also face huge pressure on construction and equipment costs.

The first signs of three: some chip prices fall

Oversupply will increase prices, oversupply will reduce prices is the law of the market.

Since 2020, wafer foundry prices have risen wildly for six consecutive quarters. In late April this year, foreign media sources show that the wafer foundry mature process makers announced one after another, the near future will not increase the price of mature process foundry. And more obviously, the recent part of the chip began to reduce prices.

Among them, the GPU suffered an avalanche of decline. Since December last year, the price of GPU has been falling. According to foreign media reports, at the beginning of May this year, the price of AMD's Radeon RX6000 and NVIDIA's GeForce RTX30 (both are gaming graphics cards), compared to the suggested retail price premium, has dropped from 80% higher at the beginning of this year to less than 20%.

In addition, according to tech media outlet Tom's hardware, the average price of graphics cards dropped another 15 percent in May from a year earlier, with more than half of AMD and Nvidia's cards now selling at or below the suggested retail price. The report notes that this is much better than the double or triple the suggested retail price seen last year, and in the next few months, or see all graphics cards selling at or below the suggested retail price.

On the Chinese mainland, CCTV Finance's "Positive Finance" reported on April 8 that graphics card prices in the market also jumped, and in Huaqiang North, Shenzhen, known as "China's first electronics street," some merchants said that the price of graphics cards of various brands have fallen sharply, with prices at the low end of the last two years, dropping by almost 1,000 yuan individually in the last month. About.

According to CCTV financial reporter investigation reports, many speculators in the early high-priced hoarded goods, plans to increase the price of resale to the market, the result of a large amount of inventory smashed in the hands, and finally forced to reduce prices, heavy losses. In the future, as the demand for graphics cards on the market decreases and the supply increases, the price of graphics cards still has room to fall.

It is worth noting that Apple's WWDC 2022 Worldwide Developers Conference held on June 7 newly launched the new M2 chip and the M2 chip-equipped MacBook and other hardware and software products, and Apple may launch the latest iPhone 14 series in the second half of the year. In addition, Intel, AMD and Nvidia will all launch new products in the second half of the year, which may become a new variable affecting consumer chips given the influence of the aforementioned manufacturers.

three

Equipment: the new key to affect capacity?

Recently, this ring of semiconductor equipment may become a new key to affect production capacity.

Industry sources indicate that the tight supply of industrial MCUs, FPGAs, embedded processors and other key chips has led to a lengthening of equipment delivery cycles. In April this year, according to foreign media reports, including Applied Materials, Corex, Panlin Group, ASML and other companies have issued a warning to customers that they may need to wait up to a year and a half to deliver their orders.

If the equipment is not available on time, the expansion of the major foundries can only slow down.

It is worth noting that in terms of advanced processes, ASML has a direct impact on the realization of 3nm and 2nm technologies based on its monopoly position. In this year's Q1 earnings meeting, ASML said that with the second quarter chip manufacturing equipment market demand exceeds supply, will raise long-term revenue expectations, maintaining this year's 20% revenue growth and 55 extreme ultraviolet lithography capacity is expected to remain unchanged, and said that in 2025 will be able to produce more than 70 extreme ultraviolet lithography machine.

However, it is not enough to rely on ASML's expansion alone. ASML has 700 product-related suppliers, 200 of which are key suppliers. Therefore, whether ASML can successfully and rapidly increase production capacity will also depend largely on whether supply chain partners can continue to follow up.

Conclusion 

The statement of semiconductor overcapacity is not to quench the flame of industry expansion, but more to reflect the wisdom of planning ahead. Semiconductor is a cyclical industry, always follow the increase in demand - expansion - increase in production capacity - overcapacity - product price decline - stop expansion - increase in demand -expansion ... such a cycle of the process. Currently, the chip expansion has lasted nearly two years, the market demand has been gradually met, the chip supply and demand inflection point do not know when it will come. In the face of potential overcapacity crisis, companies to adjust inventory and product lines in a timely manner, in order to better respond to market demand