2022, a turbulent year, is about to turn to its final page. One question is, how does the development of the semiconductor industry, which has become prominent in the global geopolitical game, fare in recent years? What is the situation of China’s semiconductor industry under the measures taken by the United States against it? To answer these questions, it is necessary to review and observe the semiconductor industry for the whole year.
The year 2021 saw an unusual period of prosperity in the global semiconductor industry, which is also a year of high growth rarely seen in the past two decades. This period is characterized by shortages, price increases, and extended delivery cycles. The raging COVID-19 pandemic in the last few years and the continued suppression of China’s semiconductor industry as imposed by the U.S. have jeopardized the once-normal global semiconductor industry chain.
According to World Semiconductor Trade Statistics (WSTS), the global semiconductor industry grew by 26.2% in 2021, with a total size of USD 558.9 billion, of which the revenue from memory component sales is estimated to be USD 153.8 billion, an increase of 30.9%. Following the strong growth in 2021, WSTS predicted that the global semiconductor market would grow by only single digits in 2022, with a total size of USD 580 billion, an increase of 4.4%. The latest forecast released by WSTS indicates that dragged down by the rapid freezing of the memory chip market, the global semiconductor market will shrink by 4.1% to USD 557 billion in 2023. This is the first time the industry declining since 2019.
Mo Dakang, semiconductor industry consultant at ANBOUND, pointed out that from the perspective of the industrial cycle, after experiencing extremely high growth in 2021, it is completely normal for the industry to adjust in 2022. In 2022, with the outbreak of the war in Ukraine, against the backdrop of high oil prices and continued deterioration of geopolitics, the global macro economy slowed down and consumers’ purchasing power tightened. This, in turn, slowed down the global semiconductor industry. However, from the perspective of the industry and the market, what the business practitioners perceive would be quite different from the macro view of the industry. All companies in the global semiconductor industry chain (including device manufacturers of various categories) feel the chill about market changes.
The market performance of various semiconductor products varies. According to IC Insights, a semiconductor industry research company, the four major products in 2022, such as logic chips, analog chips, discrete devices, and sensors, are expected to achieve steady growth of more than double digits; and products such as microprocessors and optoelectronics will also see a single-digit increase. Only the highly cyclical memory market declined, with a sharp drop of 17%. This means that the decline in the memory chip market is an important factor that drags down the overall growth of the IC and semiconductor markets this year.
Driven by investment inertia, semiconductor investment in 2022 started at a high level, at USD 153 billion in 2021, an increase of 35%. Meanwhile, the investment in 2022 reached USD 185.5 billion, a year-on-year increase of 21%. However, the sales growth rate of the semiconductor market did not match the investment growth rate. The forecast of the international semiconductor industry association SEMI shows that the sales of semiconductor equipment increased from USD 90 billion in 2021 to USD 99 billion in 2022, an increase of 10%. The sales growth of leading enterprises is higher. The 2022 fiscal year (up to October 30) results announced by Applied Materials reveal that its total sales revenue increased by 12% year-on-year to USD 25.78 billion, and the company’s installed capacity increased by 8% year-on-year in the fiscal year 2022.
When it comes to automotive chips, there will still be a structural shortage in the context of an overall market surplus. According to a report by Kristin Dziczek, a policy adviser to the Federal Reserve Bank of Chicago, on the issue of automotive chip production capacity, the shortage of automotive chips is still ongoing and is estimated to continue until 2024.
Although market performance varies, 2022 is destined to be a year of adjustment for the semiconductor industry. The capital market has already responded to this in advance. The total market value of American chip giants such as Nvidia, AMD, Intel, and Micron has evaporated by USD 1.5 trillion. Layoffs in the industry have also begun. VTDigger reports show that the American foundry GF announced at a staff meeting on December 1 that the company will retrench as many as 800 employees worldwide in December this year. Intel Ireland will put up to 2,000 staff on unpaid leave for three months in a bid to cut costs. This is actually a transitional stage of layoffs in disguise.
The good days of TSMC, which dominates the world’s leading semiconductor foundry, also appear to end. First of all, the customer cuts the order. For example, AMD, MediaTek, Qualcomm, Apple, and many other customers cut orders and transferred the original 3nm orders to 5nm and 4nm process technology. Intel’s large orders have also shrunk significantly, and new orders are nowhere in sight. Under the reduced demand, the capacity utilization rate of TSMC’s 7nm and 6nm process technology continued to decline. The second is inventory adjustments. Counterpoint believes that AP and SoC inventory adjustments for 5G smartphones may continue until next year, which is the main reason for the decline in TSMC’s 7nm and 6nm capacity utilization. The third is product delays for smartphone and PC customers. TSMC believes that terminal markets such as smartphones and PCs are weak. From the fourth quarter of this year, TSMC’s 7nm/6nm capacity utilization rate will no longer be at the high point of the past three years. This situation is expected to continue until the first half of 2023 and may pick up in the second half of the year. Under multiple changes, TSMC began to reduce its investment plan. Its original plan was to invest about USD 44 billion in 2022, which is now revised down to USD 35 billion.
When it comes to China’s semiconductor industry in 2022, Mo believes it cannot be described with simplistic terms like “good” or “bad”. The development of China’s semiconductor industry, in his opinion, is unique, and its complexity far exceeds expectations.
The general trend is that China’s semiconductor industry is continuing to grow under the vigorous promotion of national funds and the Science and Technology Innovation Board. Yet, with the U.S. exerting greater pressure on China in this field on October 7, there are more uncertainties to the development of the latter’s semiconductor industry. For China, some fundamental issues in the development of China’s semiconductor industry are unavoidable. Resolving the constraints of EDA tools, IP and semiconductor equipment or materials, for instance, are aspects that involve the industrial foundation and crystallization of the West in the past century. It is almost impossible for China to overcome such barriers within a short period of time.
However, due to the unsustainable model of relying heavily on imported equipment and materials, the development of China’s semiconductor industry has to overcome multiple difficulties, chiefly in the localization and substitution of key industrial links, as well as maintaining the continuous operation of several key production lines.
For the development of the semiconductor industry, the most valuable resource is talents. The U.S. measures against four Chinese chip manufacturing plants with advanced technology are estimated to reduce annual sales by about USD 10 billion. Yet, more importantly, this would also affect the talents. Industry insiders estimate that such actions by the U.S. will cause about 1,000 “surplus” employees in foreign equipment factories, 20% of whom are senior engineers who have worked for many years. As it stands, China’s semiconductor industry urgently needs to maintain the operation of four backbone chip production lines to realize the localization of semiconductor equipment. In fact, the shortage of manpower is also a major problem encountered by the U.S., as it vigorously built a number of chip manufacturing plants. Therefore, competition for talents will be a focus of both countries.
Final analysis conclusion:
The global semiconductor industry is facing multiple impacts from both changes in the industrial cycle and geopolitical factors. 2022 is a year of adjustment for the industry, particularly for China. If China wishes to form sustainable development capabilities in its semiconductor industry, it will have to promote the localization of key industrial links and attract talents.
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