In recent years, China’s IC sales have been increasing year over year. Although sales have been suppressed by the United States and the impact of the pandemic, China’s IC sales still increased by 17% in 2020. Benefiting from the development of terminal applications such as 5G, online office, and smart cars, China’s IC sales grew by 18.2% in 2021 and it is expected to rise by 11.21% in 2022.
Currently, China’s 12-inch foundries are primarily owned by SMIC and Hua Hong Semiconductor. SMIC’s 12-inch fabs are located in Beijing and Shanghai while Hua Hong’s 12-inch fab is located in Wuxi. SMIC’s annual sales revenue in 2021 was US$5.44 billion, growing 39% YoY, and it posted net profit of US$1.775 billion, growing 147.76% YoY. From the perspective of revenue structure, 12-inch products contributed approximately 60% of SMIC’s revenue in the past year.
From the perspective of production capacity, SMIC’s capacity utilization rate has hovered around 100% in the past year. In 1Q22, SMIC’s capacity utilization rate was 100.4%, with a monthly production capacity of 613,400 units of 8-inch equivalent. . In 2021, new production capacity was 100,000 units/month (converted to 8 inches), of which 45,000 units/month was added as 8-inch wafers. At present, SMIC is still accelerating production expansion. Its project in Lingang, Shanghai has broken ground and its two projects in Beijing and Shenzhen are progressing steadily. Production is expected at these fabs by the end of 2022, mainly as 12-inch capacity.
Hua Hong Semiconductor posted operating income of US$1.631 billion in 2021, a YoY increase of 69.64%. From the perspective of revenue structure, Hua Hong Group primarily focused on 8-inch production capacity before 2020. As production commenced at Hua Hong Wuxi’s 12-inch project, Hua Hong completed the leap from 8 inches to 12 inch wafers. In the past year, Hua Hong’s average monthly production capacity of 8-inch wafers was 194,000 units and revenue was US$1.15 billion, accounting for 70.55% of total revenue. The average monthly production capacity of 12-inch wafers was 56,000 wafers and revenue was US$480 million, accounting for 29.45% of revenue, and the proportion of 12-inch revenue is increasing. In 1Q22, Hua Hong Semiconductor’s 12-inch revenue accounted for 44.1% of total revenue, an increase of 5 percentage points from the previous quarter. With the completion of the second phase of the Wuxi project, 12-inch revenue is expected to, once again, achieve substantial growth.
It is worth noting that since the Sino-US trade war, China’s substitution of domestic products has become mainstream, especially in the foundry and packaging and testing portions of the manufacturing process. In addition, the tense relationship between supply and demand and hobbled logistics caused by the pandemic has also catalyzed an increase in the proportion of fab revenue coming from China. From the perspective of wafer foundries, Hua Hong Semiconductor’s China revenue will account for 76% of total revenue in 1Q22. In terms of SMIC, although 4Q20 was categorized by an inability to manufacture Huawei orders and the proportion of revenue from China and Hong Kong fell from 69.7% in 3Q20 to 56.1% in 4Q20, as tension rose between supply and demand, lost Huawei orders have been taken up by other Chinese IC designers. In 1Q22, SMIC’s revenue from China and Hong Kong accounted for 68.4% of total revenue, a return to its peak level in 3Q20.
Behind record high sales of semiconductors is an unrelenting spike in demand. In order to alleviate the imbalance between supply and demand, the world’s major fabs are accelerating new production capacity and China’s fabs represented by SMIC and Hua Hong are also stepping up production expansion. From the perspective of the expansion structure, the current focus of fabs is still on the expansion of 12-inch wafers. The primary reason for this is that 12-inch wafers are characterized by higher production efficiency and lower unit consumables, with a comprehensive equipment supply chain. In the past two years, China has built a total of 11 projects involving 12-inch wafers. However, due to factors such as the pandemic, tide of production expansion, and lack of chips for equipment, the lead time of semiconductor equipment has been continuously drawn out, resulting in a slowdown in fab expansion. In addition, 8-inch capacity expansion is relatively slow due to equipment constraints. From the perspective of China’s foundry market, among new wafer production capacity (8 inch equivalent) from 2020 to 2021, 12 inch capacity accounted for 58.17%, 8 inch capacity accounted for 22%, and 6 inch capacity accounted for 19.83%.
Demand in the global foundry market remains strong in 1Q21, according to TrendForce’s latest investigations. As various end-products continue to generate high demand for chips, clients of foundries in turn stepped up their procurement activities, which subsequently led to a persistent shortage of production capacities across the foundry industry.
TrendForce therefore expects foundries to continue posting strong financial performances in 1Q21, with a 20% YoY growth in the combined revenues of the top 10 foundries, while TSMC, Samsung, and UMC rank as the top three in terms of market share. However, the future reallocation of foundry capacities still remains to be seen, since the industry-wide effort to accelerate the production of automotive chips may indirectly impair the production and lead times of chips for consumer electronics and industrial applications.
TSMC has been maintaining a steady volume of wafer inputs at its 5nm node, and these wafer inputs are projected to account for 20% of the company’s revenue. On the other hand, owing to chip orders from AMD, Nvidia, Qualcomm, and MediaTek, demand for TSMC’s 7nm node is likewise strong and likely to account for 30% of TSMC’s revenue, a slight increase from the previous quarter. On the whole, TSMC’s revenue is expected to undergo a 25% increase YoY in 1Q21 and set a new high on the back of surging demand for 5G, HPC, and automotive applications.
In response to increased client demand for 5G chips, CIS, driver ICs, and HPC chips, Samsung will continue to raise its semiconductor CAPEX this year, which is divided between its memory and foundry businesses and represents Samsung’s desire to catch up to TSMC. With regards to process technologies, the Korean company’s capacity utilization rates for the 5nm and 7nm nodes have been relatively high in 1Q21, during which Samsung is expected to increase its revenue by 11% YoY.
In addition to chip demand from the automotive sector, UMC has been keeping up with manufacturing driver ICs, PMICs, RF front-end, and IoT products. The company’s capacity thus remains fully loaded in 1Q21, and UMC is expected to undergo a 14% YoY increase in revenue. GlobalFoundries is similarly experiencing high capacity utilization rates due to the increase in automotive chip demand, as well as the military chips that it has been manufacturing for the U.S. Department of Defense. GlobalFoundries’ revenue is expected to increase by 8% YoY in 1Q21.
SMIC’s revenue for the 14nm and below nodes is expected to decline in 1Q21 as the company was added to the Entity List by the U.S. and subsequently faced constraints in the development of advanced processes. However, with the persistent demand in the foundry market for mature processes above (including) the 40nm node, SMIC’s revenue is projected to stay on a positive trajectory and reach a 17% YoY increase in 1Q21. TowerJazz will spend about US$150 million on a small-scale capacity expansion, but equipment move-in and calibrations will not be finalized until approximately 2H21, after which the expanded capacity will start measurably contributing to the company’s revenue. In 1Q21, TowerJazz’s revenue is expected to be on par with the previous quarter while reaching a 15% increase YoY.
PSMC is primarily focused on manufacturing memory products, DDICs, CIS, and PMICs. At the moment, high demand for 8-inch and 12-inch wafer capacities and for automotive chips has resulted in fully loaded capacity for PSMC. The company’s revenue is expected to increase by 20% YoY in 1Q21. Likewise, VIS’ capacity is fully loaded across all of its process technologies. Driven by increased spec requirements for PMICs and small-sized DDICs, VIS’ revenue is expected to increase by 26% YoY in 1Q21. Finally, Hua Hong is currently placing considerable emphasis on expanding the 12-inch capacity of HH Fab7 in Wuxi. Process technologies for 12-inch production lines, including NOR, BCD, Super Junction, and IGBT, have all passed qualifications, thereby injecting fresh momentum into Hua Hong’s development. Furthermore, given Hua Hong’s fully loaded 8-inch capacities and the fact that its performance in 1Q20 represents a relatively low base period for YoY comparison, Hua Hong’s revenue may likely reach a 42% YoY increase in 1Q21.
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