This article is from WeChat official account:Capital Detective (ID: deep_insights)< span class="text-remarks">, author: Zhou Yongliang, title picture from: unsplash

Starting from the second half of last year, the global chip shortage has become the biggest problem facing the semiconductor industry, and it has spread to other related industries. In fact, there will be a shortage of chip supply every three to four years or so. Compared with the past, the stock-out period is longer, and it has lasted for nearly a year. There is no clear timetable when it will be relieved in the future. Some institutions predict that it will be 2022, and pessimists even think that it may be 2023.

If we want to trace the reasons for the shortage of chips, the industry believes that there are several main reasons:

First, the new crown epidemic has accelerated the digitization process of the entire society, and has also superimposed application scenarios such as 5G and new energy vehicles.

Second, the trade conflict has disrupted the rhythm of the semiconductor industry chain, and uncertainty has increased the demand for stocking in all links.

Third, some companies panic placing orders and channel roasting stocks have exacerbated the shortage of production capacity.

In this round of chip shortages, the automotive industry is the industry most affected. The assessment of the international consulting firm AlixPartners shows that due to the semiconductor shortage, the loss of revenue in the automotive industry will reach 110 billion U.S. dollars in 2021; in terms of production, global automakers will reduce 3.9 million vehicles this year, higher than the 2.2 million predicted four months ago .

Among them, the second quarter will be the most tormenting moment for auto companies. The China Automobile Association said that the situation involved in the chip shortage is very complicated, and the current shortage is also large. The supply of entertainment chips is even tighter, and it is difficult to determine when the chip shortage will be resolved. Judging from the current situation, there may be some relief in the fourth quarter, and it may be resolved in the first quarter of next year.

How is the semiconductor industry performing in this wave of global chip shortages? What are the new features? The quarterly report of a semiconductor company may give answers to some of the questions.

1. CoreIs the film shortage until 2023?

After consulting the quarterly report of semiconductor companies, I found that strong performance is a more appropriate term. According to WSTS data, in Q1 of 2020, global semiconductor sales reached 123.1 billion U.S. dollars, an increase of 3.6% month-on-month and 17.8% year-on-year.

And this is not just driven by a few sub-sectors, but the entire semiconductor industry has shown a very high degree of prosperity. The performance of packaging and testing, design, equipment, materials, and IDM companies have all achieved significant results. Growth, and many companies’ revenue hit a record high.

According to the statistics of Tianfeng Securities, from the perspective of A-shares, the revenue growth rate of design, equipment, and materials in the first quarter was relatively high, at 70%, 68%, and 48% respectively; the packaging and testing sector and discrete devices increased by 31 year-on-year respectively. % And 32%. In terms of net profit attributable to the parent company, the equipment, packaging and testing, and IC design sectors grew by more than 100%, reaching 198%, 148% and 134%. Discrete devices and semiconductor materials also grew by 91% and 89% year-on-year.

Of course, in this chip shortage, the most concerned is the foundry field, which is also the core link of the contradiction between supply and demand. Starting from the second half of 2020, the capacity utilization rate of wafer manufacturers has remained at a high level. Entering Q1 of 2021, the global manufacturing capacity utilization rate will remain at full capacity.

Long-term insufficient production capacity will inevitably bring about a problem: price increase. It is understood that starting from the second half of 2020, some foundries have begun to increase the prices of new orders by 10% to 20%. After entering 2021, the foundry will again increase by 2% to 3%. Next, the industry generally expects that wafer foundries will increase prices, which will inevitably push up the procurement costs of the semiconductor industry chain.

In the context of shortages, price increases and new demand, the performance of foundry companies has increased significantly. Among them, TSMC is still the only one. The financial report shows that in the first quarter of 2021, TSMC’s revenue increased by 16.7% year-on-year to NT$362.41 billion (approximately US$12.92 billion), a new record Record; net profit increased by 19.4% to NT$139.7 billion(approximately 4.9 billionUSD), exceeding market expectations of NT$134.019 billion.

According to TrendForce’s data, TSMC will account for 54% of the foundry market in 2020; followed by Samsung with a market share of 17%; Mainland China’s SMIC and Hua Hong Semiconductor have market share They are 5% and 1% respectively.

At the same time, UMC, SMIC, and Hua Hong Semiconductor also performed well. From the perspective of revenue, UMC and SMIC’s revenue were US$1.65 billion and US$1.1 billion, an increase of 11.4% and 22% year-on-year. Hua Hong Semiconductor’s revenue was US$305 million, an increase of 50.3% year-on-year. It can be seen from this that although Hua Hong Semiconductor has a relatively small volume, its growth rate was the highest in the first quarter.

In terms of net profit, their performance is even more impressive. UMC’s net profit was NT$10.428 billion (approximately US$373 million), a year-on-year increase of 372%; SMIC’s net profit was US$159 million, a year-on-year increase An increase of 145%; Hua Hong Semiconductor’s net profit was US$20.9 million, a year-on-year increase of 662%.

It is worth mentioning that, unlike most people’s perceptions, the shortage of production capacity this time does not only occur in advanced manufacturing processes, mature processes also encounter similar problems. This has not only brought huge benefits to TSMC, Samsung, etc., but also the performance of companies such as UMC and SMIC, and foundry companies have made “full of money.”

The financial report shows that in the first quarter, TSMC’s 5-nanometer shipments accounted for 14% of total wafer revenue, and 7-nanometer shipments accounted for 35% of total wafer revenue. This also means that only 5nm and 7nm advanced processes have contributed nearly half of TSMC’s revenue.

At the same time, UMC and SMIC are mainly based on mature processes, and they have performed well. UMC’s revenue from 28nm increased by 18% from the previous quarter, accounting for 20% of its overall revenue, and 40 nanometers also accounted for 20%. These are its two largest business segments. Prior to 2017, UMC decided not to pursue advanced logic processes below 14 nanometers, and instead focused on wafer manufacturing with mature and special processes.

For SMIC, more than 90% of its revenue comes from mature manufacturing processes. The financial report shows that the 14/28nm advanced node contributed 6.9% of SMIC’s revenue, an increase from the fourth quarter of last year. The revenue contributed by 40/45nm is growing steadily, and 55/65nm is still one of the main sources of SMIC’s revenue.

Another issue that has attracted much attention is when the shortage of chips can be alleviated. The predictions of each company are different. SMIC CEO Zhao Haijun is the most optimistic, believing that the “core shortage” will continue until the end of this year. In contrast, TSMC President Wei Zhejia and UMC General Manager Wang Shi are relatively conservative, believing that the shortage may continue into 2022 or even 2023.

Second, the equipment section is “fierce”

Although the semiconductor industry has performed well as a whole, the most “ferocious” growth in performance is in the equipment sector. According to data from Bank of China Securities, in Q1 of 2021, the revenue of leading global semiconductor equipment companies increased by 11.5% month-on-month and 45.1% year-on-year, higher than the previously expected 39%. Among them, Asmer’s (ASML) revenue in the first quarter was 4.36 billion euros, a year-on-year increase of 78.8%, and net profit was 1.33 billion euros, a year-on-year increase An increase of 240% was higher than expected guidance in the previous quarter.

For A-share semiconductor equipment boards, revenue in the first quarter increased by 54.5% year-on-year, and net profit increased by 174.6% year-on-year. Among them, North Huachuang and Jingsheng Electromechanical are the representatives. In 2021, Q1 revenue will be 1.42 billion yuan, 910 million yuan, an increase of 51.76% and 27% year-on-year; net profit is about 73 million yuan, 280 million yuan, an increase of 175 year-on-year %, 110%. It can be seen that although domestic equipment companies are growing rapidly, the gap between them and international giants is still very large.

Behind this rapid growth, mainly due to the short supply of chip production capacity, wafer manufacturers have greatly expanded their capital expenditures:

  • TSMC plans to invest US$100 billion in capital expenditures in the next three years. Among them, it will reach 30 billion U.S. dollars in 2021, much higher than the 17.2 billion U.S. dollars in 2020.

  • Samsung plans to make 35 trillion won in 2021(approximately US$31 billion)‘s chip capital expenditure, an increase of 20% year-on-year.

  • In March 2021, Intel announced an investment of US$20 billion to build two wafer fabs in Arizona, USA, and restart its foundry business.

According to VLSI data, global semiconductor capital expenditures will reach 133 billion U.S. dollars in 2021, and wafer manufacturing equipment sales will reach 78 billion U.S. dollars, an increase of 22% year-on-year.

This is also in line with the law of development of the semiconductor industry. Generally speaking, the semiconductor upstream equipment is the most sensitive to the industry boom. Because the foundry capacity expansion cycle is usually more than 6 months(It takes at least 6 months for the old factory to add new equipment, and the new factory is about 2 years from the construction to the start of production. About), so midstream manufacturing will place orders a year in advance, which will result in substantial growth in the equipment sector.

What cannot be ignored is that most of the funds go to advanced manufacturing processes. It is understood that TSMC will substantially increase its capital expenditure in 2021 in order to expand its 7nm and 5nm production capacity. Q1 financial data shows that the proportion of 7nm process technology has increased from 22% in Q1 of 2019 to 35% in Q1 of 2021; in terms of 5nm process, the proportion of revenue in 2021Q1 has reached 14%.

Samsung has not disclosed the capital expenditure plan of its foundry part, but it is most likely to invest in advanced manufacturing processes. Previously, because 70% of the most advanced extreme ultraviolet lithography machine (EUV) was acquired by TSMC, Samsung’s advanced process development lags behind TSMC. So at the end of 2020, Samsung Electronics Vice President Li Zayong personally flew to ASML’s headquarters in the Netherlands for a visit, intending to seek to supply more EUV lithography machines.

Another situation that cannot be ignored is that the mainland is still one of the world’s most important semiconductor equipment markets. According to the statistics of the top six semiconductor equipment companies, the semiconductor equipment market demand in mainland China will account for 27% of the world in 2020, followed by Taiwan, China (23%) and Korea (22%).

Entering the first quarter of 2021, ASML, KAccording to data from the four major semiconductor equipment companies of LA, Lam, and TEL, the sales revenue of semiconductor equipment from mainland China was US$13.2 billion, accounting for 23.4%, closely following South Korea (32.81%) and (25.42%) in Taiwan.

At present, the semiconductor industry is entering a new upward cycle. With the release of production capacity and the continuous emergence of new demands, future performance will continue to improve. However, there will be differences between the subdivisions, the equipment sector first, then the manufacturing link will be relayed, and finally the material.

On the other hand, semiconductors are an industry with an extremely mature division of labor in the industrial chain. However, under the influence of the global core shortage, countries are thinking about how to strengthen the independent control of semiconductors and avoid excessive reliance on imports. The United States has issued various benefits. On the one hand, it attracts TSMC and Samsung to build factories in the United States, and on the other hand supports local semiconductor companies; Germany, France, Spain and other European Union countries have signed a joint statement to invest heavily in processors and semiconductor technology. The future semiconductor industry chain is bound to undergo a new reorganization to achieve a certain balance.

This article is from WeChat official account:Capital Detective (ID: deep_insights)< span class="text-remarks">, author: Zhou Yongliang