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%.
The output value of the world’s top 10 foundries in 4Q21 reached US$29.55 billion, or 8.3% growth QoQ, according to TrendForce’s research. This is due to the interaction of two major factors. One is limited growth in overall production capacity. At present, the shortage of certain components for TVs and laptops has eased but there are other peripheral materials derived from mature process such as PMIC, Wi-Fi, and MCU that are still in short supply, precipitating continued fully loaded foundry capacity. Second is rising average selling price (ASP). In the fourth quarter, more expensive wafers were produced in succession led by TSMC and foundries continued to adjust their product mix to increase ASP. In terms of changes in this quarter’s top 10 ranking, Nexchip overtook incumbent DB Hitek to clinch 10th place.
TrendForce believes that the output value of the world’s top ten foundries will maintain a growth trend in 1Q22 but appreciation in ASP will still be the primary driver of said growth. However, since there are fewer first quarter working days in the Greater China Area due to the Lunar New Year holiday and this is the time when some foundries schedule an annual maintenance period, 1Q22 growth rate will be down slightly compared to 4Q21.
Top 5 foundries account for nearly 90% of global market share, Samsung recovers share with advanced processes
Looking at the top five industry players, TSMC’s 4Q21 revenue reached US$15.75 billion, a QoQ increase of 5.8%. Although 5nm revenue spiked thanks to the new iPhone, 7/6nm revenue dropped due to a weak Chinese smartphone market, becoming the only TSMC node in decline in 4Q21, and inducing a contraction in TSMC revenue growth in 4Q21, though TSMC still accounts for more than 50% of global market share. As one of TSMC’s few competitors in advanced processes below 7nm, Samsung strengthened 4Q21 revenue to US$5.54 billion, a quarterly increase of 15.3% owing to the gradual completion of new advanced 5/4nm process capacity and the mass production of new flagship products from major client Qualcomm. Although Samsung’s foundry business has posted record revenue, the slower ramp-up of advanced process capacity continues to erode overall profitability. Therefore, TrendForce believes that improving advanced process capacity and yield in 1Q22 is one of Samsung’s top priorities.
Constrained by limited growth in new production capacity and the fact that the new wave of wafers contracted at the latest pricing has yet to be produced, UMC’s revenue stalled slightly in 4Q21, to US$2.12 billion, up 5.8% QoQ. GlobalFoundries benefited from the release of new production capacity, product mix optimization, and new long-term agreement (LTA) pricing, pushing up ASP performance. Revenue in 4Q22 hit US$1.85 billion, up 8.6% QoQ. SMIC posted 4Q21 revenue of US$1.58 billion, 11.6% QoQ, due to mounting demand for products such as HV, MCU, Ultra Low Power Logic, and Specialty Memory as well as factors such as product mix adjustment and appreciating ASP.
Surpassing DB Hitek, Nexchip officially breaks into the top 10 in 4Q21
The foundries ranked 6th to 9th are HuaHong Group, PSMC, Vanguard International Semiconductor (VIS), and Tower Semiconductor (Tower), respectively. Each has benefiting from factors such as a utilization rate uniformly at full capacity, release of new production capacity, and adjustment of ASP and product mix, sustaining the growth of revenue performance. It is worth mentioning, the acquisition of Tower by Intel netted Intel mature process technologies and a customer base and expanded the diversity and production capacity of its foundry business. However, before this transaction is officially completed, Tower is still considered an independent entity in terms of the accounting process. TrendForce states, after Intel’s foundry business is properly integrated with Tower, Intel will officially enter the ranking of top ten foundries.
Coming in 10th on the top 10 foundry ranking is Nexchip with revenue of US$352 million and a quarterly growth rate of 44.2%, the fastest growth rate among the top ten, and officially surpassed DB Hitek. According to TrendForce investigations, the primary reason Nexchip was able to break into the top 10 in 4Q21 was the company’s diligent production expansion. Nexchip also plans to develop more advanced processes such as the 55/40/28nm nodes and multiple product lines including TDDI, CIS, and MCU, to compensate for its current single product line and limited customer base. Since Nexchip is currently ramping-up operations quickly, its growth performance in 2022 should not be underestimated.
From 2020 to 2025, the compound annual growth rate (CAGR) of 12-inch equivalent wafer capacity at the world’s top ten foundries will be approximately 10% with the majority of these companies focusing on 12-inch capacity expansion, which will see a CAGR of approximately 13.2%, according to TrendForce’s research. In terms of 8-inch wafers, due to factors such as difficult to obtain equipment and whether capacity expansion is cost-effective, most fabs can only expand production slightly by means of capacity optimization, equating to a CAGR of only 3.3%. In terms of demand, the products primarily derived from 8-inch wafers, PMIC and Power Discrete, are driven by demand for electric vehicles, 5G smartphones, and servers. Stocking momentum has not fallen off, resulting in a serious shortage of 8-inch wafer production capacity that has festered since 2H19. Therefore, in order to mitigate competition for 8-inch capacity, a trend of shifting certain products to 12-inch production has gradually emerged. However, if shortages in overall 8-inch capacity is to be effectively alleviated, it is still necessary to wait for a large number of mainstream products to migrate to 12-inch production. The timeframe for this migration is estimated to be close to 2H23 into 2024.
PMIC and Audio Codec gradually transferred to 12-inch production, alleviating shortage of 8-inch production capacity
At present, mainstream products produced using 8-inch wafers include large-sized panel Driver IC, CIS, MCU, PMIC, Power Discrete (including MOSFET, IGBT), Fingerprint, Touch IC, and Audio Codec. Among them, there are plans to gradually migrate Audio Codec and some more severely backordered PMICs to the 12-inch process.
In terms of PMICs, other than certain PMICs used in Apple iPhones already manufactured at 12-inch 55nm, most mainstream PMIC processes are still at 8-inch 0.18-0.11μm. Burdened with the long-term supply shortage, IC design companies including Mediatek, Qualcomm, and Richtek have successively planned to transfer some PMICs to 12-inch 90/55nm production. However, since product process conversion requires time-consuming development and verification and total current production capacity of the 90/55nm BCD process is limited, short term relief to 8-inch production capacity remains small. Effective relief is expected in 2024 when large swathes of mainstream products migrate to 12-inch production.
In terms of Audio Codec, Audio Codecs for laptops are primarily manufactured on 8-inch wafers, and Realtek is the main supplier. In the 1H21, the squeeze on capacity delayed lead times which affected notebook computers shipments. Although the stocking efforts of certain tier1 customers proceeded smoothly in the second half of the year, these products remained difficult to obtain for some small and medium-sized customers. At present, Realtek has partnered with Semiconductor Manufacturing International Corporation (SMIC) to transfer the process development of laptop Audio Codecs from 8-inch to 12-inch 55nm. Mass production is forecast for mid-2022 and is expected to improve Audio Codec supply.
In addition to PMIC/Power Discrete, another mainstream product derived from 8-inch manufacturers is the large-sized panel Driver IC. Although most fabs still manufacture 8-inch wafers, Nexchip provides a 12-inch 0.11-0.15μm process technology used to produce large-sized Driver ICs. As production capacity at Nexchip grows rapidly, the supply of this product has been quite smooth. However, TrendForce believes that this is a special case. Mainstream large-sized Driver ICs are still manufactured on 8-inch wafers and there is no trend to switch to 12-inch wafers.
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Although the demand for end products related to the stay-at-home economy slowed down as many countries saw rising vaccination rates and were partially lifting social distancing restrictions, the decline in foundry orders from this source was more than offset by the traditional peak season for smartphones, according to TrendForce’s latest investigations. At the same time, OEMs for notebook (laptop) computers, networking devices, automotive electronics, and IoT devices kept vigorously building up their inventories because the earlier capacity crunch in the foundry market was constraining them from reaching their shipment targets. Because of these developments, demand continued to outstrip supply in the foundry market during 3Q21. As for foundries, they have been gradually taking on new production capacity in the recent period and gaining from the ongoing rise in the ASP. Thanks to robust demand, new production capacity, and rising wafer prices, the quarterly total foundry revenue rose by 11.8% QoQ to reach a new record high of US$27.28 billion for 3Q21. This result indicated nine consecutive quarters of revenue growth.
Top four foundries posted double-digit revenue growth for 3Q21 due to peak season for smartphones; SMIC’s revenue growth was slightly limited by restrictions imposed on its capacity expansions
TSMC raised its quarterly revenue by 11.9% QoQ to US$14.88 billion as it benefited from the release of new iPhone models. The foundry remained firmly at the top of the ranking in 3Q21. Regarding TSMC’s revenue generation by node, the combined revenue share of the 7nm and 5nm nodes has already surpassed 50% and is still expanding thanks to continued demand for smartphone chips and HPC chips. Samsung raised its revenue by 11% QoQ to US$4.81 billion for 3Q21 and sat firmly in second place. The revenue growth was attributed to several factors. First, the releases of new smartphone models during the second half of the year has spurred the demand for SoCs and DDIs. Second, fab Line S2 in Austin has returned to its normal level of revenue contribution following the recovery from the winter storm that struck Texas in the earlier part of this year. Third, fab Line S5 in Pyeongtaek has activated its newly added production capacity. And finally, the revenue result for 2Q21 was a low base for comparison and thus led to a rather impressive performance for 3Q21.
UMC made significant gains in 3Q21 because the activation of new production capacity for its 28/22nm nodes led to an increase in wafer input for OLED driver ICs and other components. This also caused a rise in its blended ASP. UMC’s revenue went up by 12.2% QoQ to US$2.04 billion for 3Q21. With a growth rate that surpassed the top two ranking leaders, UMC retained third place by overtaking GlobalFoundries in the ranking for the first time in 1Q20, and its lead has been gradually widening since then. GlobalFoundries posted a QoQ increase of 12% in revenue to US$1.71 billion for 3Q21 and kept fourth place in the ranking. To address the worldwide chip shortage, GlobalFoundries has announced a series of capacity expansions and greenfield projects this year. Existing plants including Fab1 in Dresden and Fab8 in Malta (which is a town in the state of New York) will take on new production capacity. New plants will also be built in Singapore and Malta. It is worth noting that the capacity expansions and greenfield projects that GlobalFoundries has revealed so far for this year will be financed via a public-private partnership model. GlobalFoundries will be leveraging funding from governments and advance payments from its clients to reduce the pressure of rising capital expenditure and ensure that the new production capacity will operate at a high utilization rate in the future.
SMIC increased its revenue by 5.3% QoQ to US$1.42 billion for 3Q21 and was ranked fifth. Two reasons were behind the revenue growth. First, there is a stable level of demand for its PMICs, Wi-Fi chips, MCUs, and RFICs. Second, SMIC has been steadily raising wafer prices. It is also worth pointing out that SMIC has been adjusting its product mix and client base due to geopolitical factors. Growing consistently over the quarters, the share of Chinese clients in SMIC’s client base came to almost 70% in 3Q21. Under the impetus of the semiconductor policies of the Chinese government, SMIC will continue to give priority to the demand from domestic clients. Hence, the portion of foreign clients in its incoming orders will gradually shrink relative to that of domestic clients.
Second- and third-tier foundries posted higher revenue growth rates compared with first-tier counterparts because of strong demand for mature nodes
HuaHong Group posted a QoQ increase of 21.4% in revenue to US$799 million for 3Q21, thereby taking sixth place in the ranking. HuaHong continues to raise its ASP as it production capacity is expected to be fully loaded through the whole 2021. This development, together with the successful capacity expansion undertaken at its Fab7 in Wuxi, contributed to the above-expected revenue result for the foundry. PSMC’s revenue growth continued to pick up pace in 3Q21 thanks to the general rise in wafer prices and the robust demand for the main categories of chip products (e.g., DDIs, PMICs, CIS, and power discretes such as MOSFETs and IGBTs). PSMC raised its quarterly revenue by 14.4% QoQ to US$525 million and was ranked seventh.
After surpassing Tower Semiconductor in the ranking for the first time in 2Q21, VIS maintained its strong growth momentum by posting a QoQ increase of 17.5% in revenue to US$426 million in 3Q21 on account of several factors. First, VIS increased its products shipments through capacity expansion. Furthermore, VIS was able to optimize its product mix and raise its ASP. It secured eighth place in the ranking. Occupying ninth place in the ranking, Tower Semiconductor’s performance exceeded expectations for 3Q21 with its revenue climbing 6.9% QoQ to US$387 million. Tower’s revenue generation mainly benefited from the stable demand related to RF-SOI chips, industrial sensor chips, and PMICs.
Taking the tenth place in the ranking, DB HiTek registered a 15.6% QoQ increase in revenue to a record high of US$283 million for 3Q21 because of the rising ASP. In the past year, DB HiTek kept its capacity utilization rate at almost 100%. To raise its overall output, the foundry has decided to focus its expansion efforts on its existing wafer production lines. As a result, its production capacity has been increasing slightly since 2Q21. The additional production capacity will effectively contribute to its revenue generation in 4Q21.
Moving into 4Q21, although foundries have undertaken various capacity expansions and greenfield projects, their new production capacity that has been activated this year is already completely booked. The new fabs that foundries have announced will need some time to get built and fully set up, so the chip shortage on the whole will unlikely ease off anytime soon. On the demand side, sales have weakened a bit for TVs and other end products associated with the stay-at-home economy. However, the hardware and infrastructure demand related to 5G, Wi-Fi 6, and IoT continues to gain momentum. Moreover, OEMs for consumer electronics are still stocking up on components in preparation for the year-end holiday sales. Based on the latest examination of incoming foundry orders, TrendForce finds that foundries will continue to operate at fully-loaded capacity. Due to the undersupply situation, the overall ASP of the foundry market has also been climbing. Meanwhile, foundries have been optimizing their product mixes to boost their financial performances. Taking account of this and other aforementioned developments, TrendForce believes that revenue growth will continue for the top 10 foundries in 4Q21. However, 4Q21 will also see more moderate growth compared with the previous quarter because there is a shortage of peripheral ICs made using mature process nodes. Additionally, demand has slacked a bit for some SoC products.
For more information on reports and market data from TrendForce’s Department of Semiconductor Research, please click here, or email Ms. Latte Chung from the Sales Department at firstname.lastname@example.org
This year sees the continuation of the persistent chip shortage, which entails a shortage of production capacity for not only 12-inch wafers fabricated with mature process technologies but also 8-inch wafers in particular. The shortage of 8-inch wafer production capacity initially began gestating in 2H19, owing to emerging demand from structural changes in the semiconductor industry, with 5G smartphones and PMICs used in new energy vehicles as two examples of such demand. At the same time, the consumption of semiconductor production capacity has also increased multiplicatively in recent years as a result of the aforementioned structural changes. TrendForce expects demand for semiconductor capacity from emerging applications to continue rising in the coming years.
In response to this emerging demand, foundries such as TSMC, UMC, and SMIC are currently expanding their investment in mature process technologies. TrendForce expects the industry’s total 8-inch wafer capacity to grow at a 3-5% CAGR from 2019 to 2023, while 12-inch wafer capacity is expected to grow at an 11-13% CAGR across the same period. It should be pointed out that production capacities allocated to the 0.18-0.11µm process nodes（for 8-inch wafer fabrication） and 55nm-12nm nodes（for 12-inch wafer fabrication）represent the most severe shortage among all process nodes. Hence, certain foundries are expected to gradually install additional production capacities for mature process technologies in 2H22-1H23. These installations will likely help address the ongoing chip shortage.
In addition, several foundries are focusing on expanding their 28nm manufacturing capacity, primarily because transistor architecture below the 20nm node requires a transition to FinFET architecture, which is relatively costly. The 28nm node represents the sweet spot in terms of cost/benefit and is widely used for manufacturing such mainstream products as notebook Wi-Fi chips, smartphone OLED driver ICs, automotive MCUs, and image signal processors. Furthermore, chips used for IoT applications, including smart home appliances and set-top boxes, as well as other products currently manufactured at the 40nm node will likely be migrated to 28nm manufacturing, meaning the demand for 28nm capacity will continue to grow going forward.