At present, the materials with the most development potential are Wide Band Gap (WBG) semiconductors with high power and high frequency characteristics, including silicon carbide (SiC) and gallium nitride (GaN), which are mainly used in electric vehicles (EV) and the fast charging battery market. TrendForce research estimates, the output value of third generation power semiconductors will grow from US$980 million in 2021 to US$4.71 billion in 2025, with a CAGR of 48%.
SiC is suitable for high-power applications, such as energy storage, wind power, solar energy, EVs, new energy vehicles (NEV) and other industries that utilize highly demanding battery systems. Among these industries, EVs have attracted a great deal of attention from the market. However, most of the power semiconductors used in EVs currently on the market are Si base materials, such as Si IGBT and Si MOSFET. However, as EV battery power systems gradually develop to voltage levels greater than 800V, compared with Si, SiC will produce better performance in high-voltage systems. SiC is expected to gradually replace part of the Si base design, greatly improve vehicle performance, and optimize vehicle architecture. The SiC power semiconductor market is estimated to reach US$3.39 billion by 2025.
GaN is suitable for high-frequency applications, including communication devices and fast charging for mobile phones, tablets, and laptops. Compared with traditional fast charging, GaN fast charging has higher power density, so charging speed is faster within a smaller package that is easier to carry. These advantages have proven attractive to many OEMs and ODMs and several have started rapidly developing this material. The GaN power semiconductor market is estimated to reach US$1.32 billion by 2025.
TrendForce emphasizes that third generation power semiconductor substrates are more difficult to manufacture and more expensive compared to traditional Si bases. Taking advantage of the current development of major substrate suppliers, companies including Wolfspeed, II-VI, and Qromis successively expanded their production capacity and will mass-produce 8-inch substrates in the 2H22. Output value of third generation power semiconductors is estimated to have room for continued growth in the next few years.
Intel and AMD will be releasing new CPUs that support DDR5 DRAM solutions for PCs and servers this year. In response, the DRAM industry led by South Korean suppliers is developing solutions to complement the arrival of the new CPUs. In the midst of the gradual shift to DDR5, DRAM suppliers will also scale back the supply of DDR3 solutions, according to TrendForce’s latest investigations. With Korean suppliers accelerating their withdrawal from DDR3 production, Taiwanese suppliers yet to kick off mass production using newly installed capacities, and Chinese suppliers falling short of their expected yield rate, the global supply of DDR3 solutions will undergo an impending decline. With respect to the demand side, however, not only has the supply of networking chips been ramping up, but material shortage issues are also gradually easing. As such, buyers are now procuring DDR3 solutions ahead of time, resulting in a tight supply and demand situation in the DDR3 market. TrendForce therefore expects DDR3 DRAM prices to recover from a bearish first quarter and undergo a 0-5% QoQ increase in 2Q22.
On the supply side, Samsung and SK hynix have begun scaling back their DDR3 production while also planning to declare EOL (end of life) for their DDR3 offerings, such as 1/2Gb and 4Gb chips. It should be noted, however, that Micron’s DDR3 solutions will not reach EOL even by 2026, meaning the company will still offer DDR3 solutions long after its two Korean competitors have stopped doing so, according to TrendForce’s understanding. Also worth noting is that Micron is migrating its DDR3 production to a US-based fab that mainly manufactures specialty DRAM solutions. Nevertheless, since this fab’s production capacity will be divided between products for consumer and automotive applications, TrendForce believes that the aforementioned migration will tighten Micron’s supply of consumer DRAM solutions because the US fab will give priority to automotive DRAM solutions that offer a higher gross margin and are currently enjoying surging demand.
Although Taiwan-based DRAM suppliers that focus on promoting DDR3 solutions, namely, Nanya Tech and Winbond, are in the process of capacity expansion, their new production lines will not be operational until 2023-2024. Hence, the contribution from the newly added capacities is not expected to drive up DDR3 supply substantially this year. Chinese suppliers, including CXMT and GigaDevice, are continuing to collaborate in DDR3 development, though their capacity increases and yield rate improvements have both fallen short of market expectations. After being added to the Entity List, JHICC, yet another China-based DRAM supplier, is now dealing with severe restrictions with respect to procuring equipment, making it difficult for JHICC to raise its wafer input. Furthermore, the company has no spare resources that can be allocated to R&D and pilot runs. As a result, JHICC still primarily manufactures DDR4 4Gb chips at its initial 25nm node, with no DDR3 production at the moment.
With regards to demand, DDR3 consumer DRAM is primarily used in end-devices such as STBs and networking products (e.g., GPON, routers, and modems), which do not require high-performance SoCs. While the foundry industry suffered a severe shortage of wafer capacities allocated to logic ICs in 4Q21, production capacities for relatively low-margin chips were noticeably impacted in turn. Along with a preexisting component mismatch situation, most manufacturers found themselves unable to assemble end-devices. Moving into early 2022, however, the supply of certain materials, including those used in foundry operations, saw a gradual improvement. As various components needed for device manufacturing became available after Lunar New Year, certain buyers have once again kicked off their consumer DRAM procurement activities.
In addition, DRAM spot prices shifted from a prior decline to a strong upturn at the end of last year as the Chinese government ordered a month-long lockdown in Xi’an. The ensuing price hike, which has lasted for two months, subsequently led buyers to procure even more DRAM ahead of time in anticipation of further price hikes. Hence, although the demand for end-products has yet to make a full recovery, buyers are now slowly and steadily procuring consumer DRAM in order to avoid either higher upcoming prices or even an inability to secure consumer DRAM inventory.
Regarding rising tensions stemming from the Russian-Ukrainian war, TrendForce indicates that Russia is not one of the Taiwanese foundry industry’s primary markets. Hence, while sanctions against Russia continue to pile up, their impact on Taiwanese foundries will likely remain limited, though the war may potentially result in a decline in sales of end-devices, thereby indirectly reducing manufacturers’ component demand and, subsequently, wafer inputs at foundries.
TrendForce indicates that the smartphone industry will be noticeably affected by the ongoing war. Take the ranking of smartphone brands by market share in Russia and Ukraine last year, for instance; the top three brands sold included Samsung, Xiaomi, and Apple, which had a combined annual sale of about 45 million units for 2021. Since the inception of the armed conflict, there have been continued fluctuations in currency exchange rates, with the Ruble plummeting in value, and this devaluation has been noticeably reflected in retail sales of iPhones. More specifically, the retail price for the iPhone 13 Pro 128 GB has risen by almost 50% in Russia. Such price hikes pertaining to electronic items will likely prompt consumers to reallocate a rising portion of their spending to other daily necessities instead. Therefore, the two countries’ demand for chips is expected to rapidly shrink, in turn leading IC design companies to reduce their wafer input at foundries.
With foundries terminating their supply to Russia, will Chinese companies subsequently benefit from redirected orders?
Although Russia is not a major market for the Taiwanese foundry industry, certain Elbrus-branded chips, used in military and networking applications, are manufactured by TSMC. Notably, the Washington Post indicated that TSMC is no longer manufacturing and shipping Elbrus products, while there have also been rumors suggesting Chinese semiconductor companies may reap benefits in response. TrendForce, however, believes that, even though Chinese foundries are able to provide the 1Xnm and more mature process nodes necessary for Elbrus chip production, the requisite redesign and verification processes will likely take at least one year. As such, Russia will have a difficult time immediately redirecting orders for Elbrus chips to Chinese foundries, and the Chinese semiconductor industry will not be able to take advantage of these orders in the short-term.
Escalating warfare places significant stress on transportation, logistics, and supply chains
In light of the ongoing conflict, various parties have been imposing diverse sanctions on Russia, and the shipping industry has, in turn, sustained both direct and indirect ramifications pertaining to their businesses’ stability and safety. Logistic disruptions and skyrocketing prices, for instance, represent some of the issues that have emerged post-conflict and placed undue stress on the global supply chains. As a hotbed of semiconductor production, then, Taiwan would naturally be assumed to have domestic semiconductor companies stockpile component inventories. However, according to TrendForce’s investigations, not only do most of these companies currently possess healthy inventory levels, but Russia and Ukraine also do not represent the sole sources of semiconductor materials for Taiwan, since Taiwanese companies have been sourcing materials from China as well. Hence, the Russian-Ukrainian war has caused neither noticeable stock-up activities nor production bottlenecks for Taiwanese semiconductor companies.
Since February 14, UMC subsidiary Hejian Technology (HJTC), had entered phased shutdown and temporary suspension due to the pandemic, according to TrendForce‘s investigation. The plant is an 8-inch fab and its production capacity accounts for approximately 25% of UMC’s total 8-inch capacity and approximately 3% of global 8-inch capacity. Since this incident was not an unforeseen accident, utilization rate during the phased shutdown was maintained at roughly 25~30% and wafers on the production line did not need to be scrapped. The plant has gradually resumed operation today (2/24). Since it takes approximately five to seven days to recalibrate semiconductor equipment, full recovery of overall utilization rate is expected to fall in early March with an estimated wafer input loss of 14~20 days, affecting approximately 4~5% of the company’s 8-inch production capacity this quarter or approximately 0.4~0.5% of global 8-inch production capacity, a manageable situation overall.
UMC HJTC Fab 8N contains 0.5μm~0.11μm node production lines and is a full eight-inch fab. The actual proportion of customer products on the production line at the time of the incident is as follows: HJTC’s largest client Silergy accounted for 40% of the production line for PMICs, with most end applications being consumer and industrial products such as IP cams, air conditioners, and refrigerators. SinoWealth and Novatek each accounted for 13% of the production line with products such as MCUs and large size DDIs. Other PMIC clients include Mediatek and GMT who accounted for approximately 35% of the plant’s production capacity.
Since most customer products allocated to this fab are simultaneously produced at the UMC fab in Taiwan or at other fabs and end-user products including smartphones, TVs, and laptops are all currently in the off-season, restocking momentum is weak. TrendForce believes that although the shutdown was longer than expected, since no wafers were scrapped on the production line and the cycle time of some PMICs is short, wafer input losses have an opportunity to be mitigated through expedited order production and have limited impact on shipments. In terms of revenue, due to the relatively low selling price of 8-inch wafers, the impact of this incident on UMC’s annual revenue performance falls within a 0.3% range.
In 4Q21, NAND Flash bit shipments grew by only 3.3% QoQ, a significant decrease from the nearly 10% in 3Q21, according to TrendForce’s investigations. ASP fell by nearly 5% and the overall industry posted revenue of US$18.5 billion, a QoQ decrease of 2.1%. This was primarily due to a decline in the purchase demand of various products and a market shift to oversupply causing a drop in contract prices. In 4Q21, with the exception of enterprise SSD, the supply of which was limited by insufficient upstream components, the prices of other NAND Flash products such as eMMC, UFS, and client SSD, all fell.
TrendForce’s summary of NAND Flash market sales performance in 2021 is as follows: although there have been signs of weakening since 2H21, thanks to remote services and cloud demand driven by the pandemic, revenue performance still grew significantly compared to 2020. Revenue reached US$68.6 billion, up 21.1% YoY, the second-biggest increase since 2018.
NAND Flash revenue fell for most manufactures in 4Q21 due to PC OEM destocking
There were some changes to the top three NAND Flash revenue rankings in 4Q21 compared 3Q21, Samsung and Kioxia remained in the top two while third place was replaced by Western Digital (WDC). Although there was still demand coming from data centers, as PC OEMs continued to deplete client SSD inventories and demand from China’s smartphone market weakened, stocking momentum was affected by component mismatch issues, resulting in a decline of approximately 5% in Samsung Electronics’ bit shipments in 4Q21. After the market shifted to oversupply, ASP also fell by approximately 5%, leading to Samsung Electronics posting 4Q21 revenue of US$6.110 billion, a QoQ decrease of 6.1%.
Second ranked Kioxia continued seeing strong demand from data center clients in 4Q21 but this was offset by inventory adjustment and reduced purchasing on the part of PC OEMs. Bit shipments declined slightly by 1% and ASP remained flat even in the face of weakening market demand, which was better performance than that of other suppliers in the same period. Revenue in 4Q21 reached US$3.543 billion, a QoQ decrease of 2.6%.
WDC was another company that benefited from continued strong stocking demand from major US smartphone clients for new 5G flagship phones which offset the impact of weak client and enterprise SSD sales, for bit shipment growth of 13%. However, as the proportion of consumer goods grew, ASP declined by 6%. WDC’s NAND Flash division posted 4Q21 revenue of US$2.62 billion, a QoQ increase of 5.2%.
Benefiting from continued stocking from data center clients and US-based smartphone brands, SK hynix’s bit shipment growth remained above 10%, in line with original forecasts. However, ASP was affected by weaker mobile phone shipments in China and inventory adjustment at PC OEMs. Pricing fell by nearly 10% which offset overall growth momentum. Revenue posted by SK hynix’s NAND Flash division in 4Q21 increased by 2.8% to US$2.615 billion.
Micron was similarly affected by inventory adjustments undertaken on the part of PC OEMs and data center clients. Although Micron’s 176-layer products continue to be adopted, shipments in 4Q21 were flat compared to 3Q21 and ASP fell approximately 5% as the growth rate of supply outpaced demand, leading to a decline of 4.7% in Micron’s 4Q21 NAND Flash revenue to US$1.878 billion.
Solidigm’s 4Q21 production capacity was still being affected by the impact of supply chains (such as PMIC supply) on enterprise SSD, resulting in a continued decline in bit shipments of nearly 5% in 4Q21. At the same time, while orders for laptops are still strong, Solidigm actively increased bits shipments of PC QLC SSDs in order to reduce production capacity, causing a drop in ASP and a 4Q21 NAND Flash revenue performance of only US$996 million, a 9.9% decline.
Looking forward to 1Q22, TrendForce states that with the advent of the demand off-season, demand for major applications will show a seasonal decline, exacerbating the phenomenon of oversupply and driving the contract price of products to fall further. Falling prices and shrinking volume is expected to further reduce the revenue level of the NAND Flash industry. Referencing information released by TrendForce on Feb. 10, it is worth noting that market expectant psychological factors in 2Q22 generated from the previous Kioxia and WDC raw material pollution incidents will change the supply and demand situation after February and certain products with additional orders and non-quarterly contract prices will immediately reflect a pricing increase. This will help reduce the decline in the output value of NAND Flash in 1Q22.