July, in the middle of 2024, is not only a transitional period between the first and second halves of the year but also a pivotal moment for the semiconductor industry as it shifts from a downturn to an upswing. The industry is recovering from the slump of 2023, and according to statistics and forecasts from major market research institutions, the first half of 2024 is still in a recovery phase, with the second half expected to be much better than the first. Under these circumstances, the mid-year transitional period of June and July has become a season of multiple events influenced by various factors, especially in chip manufacturing, where orders and manufacturing line transfers are taking place in succession, and chip prices are also changing accordingly.
01
The transfer of wafer foundry orders intensifies
TSMC's latest financial report shows that in the second quarter of 2024, when classified by the location of the customer's headquarters, North America still has the largest share, reaching 65%. The Chinese mainland market has rapidly increased to 16%, a significant increase compared to 9% in the first quarter and 12% in the same period of 2023, replacing the Asia-Pacific region as the second-largest market. The Asia-Pacific region's share has dropped to 9%, while Japan remains at 6%.
Advertisement
Affected by U.S. export policies, many Chinese mainland companies that have not yet been subject to export controls have placed orders in advance to stock up, especially for advanced processes of 5nm and below, where capacity is tight. If they do not place orders soon, it may be difficult to secure capacity in a few months. This is particularly the case for China, which is actively developing AI and has a high demand for advanced chips, with TSMC and Samsung being the only two options at present, with TSMC being the preferred choice.
It's not just orders from the Chinese mainland that are transferring to TSMC, but also orders from international chip giants.
For a long time, Qualcomm has been one of Samsung's top five customers (including but not limited to wafer foundry business). However, in the past two years, Qualcomm has transferred a large number of orders to TSMC. Recently, a report released by Samsung showed that the top five customers are Apple, Deutsche Telekom, Hong Kong Chuangke, Shangzhi Electronics, and Verizon, accounting for about 13% of Samsung's total revenue, with Qualcomm not included. This is the first time in three years that Qualcomm has fallen out of the top five Samsung customers.
Previously, Qualcomm had entrusted a large number of Snapdragon series processor orders to Samsung for foundry production, but now a large part has been replaced by TSMC. However, with the recent increase in smartphone sales in China, orders from some companies in mainland China and Taiwan have filled the gap left by Qualcomm.
In 2023, it was reported that Qualcomm, considering the limited capacity of TSMC, originally planned to implement a dual-factory strategy starting in 2024. The fourth-generation Snapdragon 8 would use TSMC's N3E process technology on one hand, and on the other hand, the version for the Galaxy series of smartphones would use Samsung's 3GAP (SF3) process. However, due to the unstable yield and limited capacity of Samsung's 3nm process, many business opportunities have been missed, with Qualcomm being one of the major customers affected.It is reported that Qualcomm still plans to switch to a dual-factory strategy by 2025 and has requested TSMC and Samsung to provide 2nm process chip samples for further evaluation. Qualcomm hopes to reduce the production cost of SoC through the new strategy.
In 2023, Samsung's foundry business won the order for Google's Tensor G4 chip. Subsequently, Google entrusted the production of the Tensor G4 to Samsung's 4nm foundry production line, and the chip will be equipped on the Pixel 9 series mobile phones scheduled to be released in the second half of 2024.
However, in early July, according to insiders, TSMC and Google have recently entered the tape-out phase before mass production of the fifth-generation processor Tensor G5, which will be equipped on the Pixel 10 series mobile phones scheduled to be released in 2025.
Industry insiders say that Tensor G5 will be produced using TSMC's 3nm process technology, and its performance is expected to be significantly improved compared to Tensor G4.
Previously, the industry only speculated on the possibility of TSMC and Google's cooperation on Tensor G5, but recently the two companies seem to be preparing for mass production, indicating a significant shift in Google's foundry partner relationships.
It is understood that Samsung's 3nm process production line has not yet received any clear large-scale customer orders. Therefore, in the first quarter of 2024, Samsung's foundry market share decreased by 1 percentage point from the previous quarter (14%) to 13%, while TSMC's market share increased from 61% to 62%.
Not only is the most advanced process foundry market controlled by TSMC and Samsung undergoing order transfers, but the relatively mature (below 28nm) and mature process (above 28nm) market order transfers are also intensifying, with the main beneficiaries including UMC, Powerchip, and World Advanced. In the second half of the year, it is estimated that UMC's capacity utilization rate will be between 70% and 75%, Powerchip's 12-inch factory capacity utilization rate can reach 85% to 90%, and World Advanced's capacity utilization rate will increase to more than 75%, all better than expected.
TrendForce Research analysis shows that this wave of order transfers mainly comes from manufacturers such as Qualcomm and Monolithic Power Systems (MPS). Cypress (which has been acquired by Infineon) and GigaDevice are also negotiating flash memory production plans with Powerchip. UMC, with its advantage of diverse production locations, has attracted large manufacturers such as Texas Instruments (TI), Infineon, and Microchip to discuss long-term cooperation plans.
Powerchip said that in order to adapt to supply chain adjustments and competition from Chinese mainland wafer factories, the company is adjusting its product line investment strategy, trying to meet the needs of large customers with order transfers, actively developing advanced BCD processes for power management IC production, and hoping to seize the business opportunities in high-growth markets such as the Internet of Things and important AI, high-performance computing (HPC), and electric vehicles.
TechInsights predicts that, driven by strong demand for high-bandwidth memory (HBM) and the growth of NAND flash memory usage in AI data centers, the global wafer factory (including logic and storage chips) capacity utilization rate is expected to reach around 80% in the second half of 2024.The robust recovery of the storage market has also provided a stable source of orders for the wafer foundry market. Omdia forecasts that the global pure wafer foundry industry revenue will grow by 16.4% in 2024. In addition, the market size of the AI accelerator field is expected to exceed 150 billion US dollars by 2025.
02
Trend of Wafer Foundry Prices
Due to strong demand from applications such as consumer electronics, new energy vehicles, and communications, Sigmaintell Consulting estimates that in the second quarter of 2024, the global utilization rate of 28nm and 40nm process wafer foundry capacity will be about 90%, with a slight increase in 28nm foundry prices and 40nm prices remaining basically flat. Relatively speaking, the growth momentum of 28nm demand is more obvious, and it is expected that there will still be a single-digit percentage increase in the third quarter.
The downstream applications of 55nm and 90nm process chips are mainly consumer electronics. Due to the active expansion of wafer foundries in mainland China on the 55nm and 90nm processes, the increase in related capacity utilization rates is not significant. Sigmaintell Consulting estimates that in the third quarter of 2024, it will still be between 75% and 80%. Due to the larger price drop in the past 3-4 quarters for this process, from the second quarter of 2024, most wafer foundries' price strategies in this process range will mainly focus on narrowing the price drop, with the goal of stopping the decline by the end of 2024. It is expected that the overall price drop in the third quarter will be 2% to 3%.
Thanks to the completion of inventory adjustments in consumer electronics, since the first quarter of 2024, 8-inch wafer foundries have welcomed more orders, and the overall capacity utilization rate has steadily rebounded. However, the overall capacity utilization rate in the second quarter is still relatively low, about 60%-65%, and it is expected to recover to 70% in the third quarter. Some customers have transferred part of the analog chip orders from mainland China to wafer foundries in other regions. Sigmaintell Consulting estimates that the price drop in the third quarter for 8-inch wafer foundries in mainland China will be about 5%, and the price drop in the Taiwan region is expected to be 1%-3%.
Samsung foundry adjusted the pricing for the first quarter of 2024, not only providing a discount of 5%-15%, but also clearly stating that more favorable prices can be provided according to the order volume. Industry insiders analyze that Samsung's price reduction this time is mainly due to the current market demand not being as good as expected, and also to grab TSMC's customer orders through price reduction.
SMIC expects that as chip manufacturers increase capacity, chip prices will continue to fall.
Zhao Haijun, co-CEO of SMIC, said at the performance briefing in May that SMIC is facing low-price competition, which may lead to the loss of orders worth tens of millions of dollars. He said that the average selling price (ASP) of chips will decrease every quarter, but not so fast. He said that the price of some orders with full 12-inch wafer capacity will be relatively stable, but when standard products encounter competition, SMIC will follow the market and face competition with customers, and the price of standard products may further decrease later.
Different from the price competition of mature processes, the capacity of the most advanced processes (5nm and below) is in short supply, and the price increase is imminent.It has been reported that TSMC plans to raise the price of its advanced process and advanced packaging orders for 2025. Specifically, the price for the 3nm process is expected to increase by more than 5%, and the price for CoWoS packaging is expected to rise by 10% to 20%. Rumors suggest that TSMC's price increase plan for the 3nm process has been agreed upon by customers, and a new agreement has been reached to ensure a stable supply.
Industry insiders have revealed that the 4nm and 5nm processes, which are targeted at artificial intelligence and high-performance computing customers, may see a price increase of 11%. This means that the price of a 4nm wafer will increase from $18,000 to $20,000, which represents at least a 25% increase compared to the 2021 price. Analysts predict that by 2025, the price of the 3nm process will increase by an average of 4%, mainly depending on the quantity of orders and the specific terms of the agreement. The current wafer price is over $20,000.
However, mature processes such as 16nm, which have abundant production capacity, are unlikely to see a price increase. It has been reported that TSMC's 6nm and 7nm production utilization rates have already dropped to 60%. Not only will there be no price increase next year, but there may even be a price reduction of about 10%.
Memory Chip Production Capacity Shift
In the past six months or so, the competition for NVIDIA's HBM memory orders has become a major event for the three major international memory chip manufacturers. Due to SK Hynix's early layout, it has a clear advantage in the competition, putting a lot of pressure on Samsung. In order to obtain related orders, Samsung even replaced its business management personnel.
Samsung's efforts seem to have paid off. It is reported that its HBM3e memory has passed NVIDIA's certification and is expected to start shipping in the third quarter. To ensure supply, Samsung has taken a big step by allocating 30% of its existing DRAM total production capacity to HBM3e.
On July 16, it was reported that the construction of Samsung's second phase (PH2) of the Pyeongtaek P4 factory will be suspended. The P4 factory mainly includes DRAM and wafer foundry production lines. According to the original plan, Samsung will first build the PH1 memory production line, then the PH2 foundry production line, followed by the PH3 memory line and PH4 foundry line for producing DRAM products. Now, Samsung has decided to temporarily suspend PH2 and prioritize the construction of the PH3 production line.
As the global leader in memory chips, Samsung's allocation of 30% of its memory production capacity to HBM3e means that 13% of the world's existing DRAM production capacity will no longer produce DDR4 or DDR5, which may trigger a chain reaction, especially as the peak season for consumer electronics approaches. With a sharp reduction in supply and a surge in demand, the relevant DRAM chips are expected to rise in price.
As a major manufacturer of global DDR4 and DDR5 producers, Nanya Technology is expected to benefit from this change. The company's chairman, Li Peiying, pointed out that the shortage of HBM and DDR5 is expected to lift the DRAM market. It is expected that Nanya Technology's production utilization rate in the second half of the year will increase to meet market demand. Li Peiying believes that with the three major manufacturers all busy producing HBM, the global output of DDR4 will be reduced. At that time, Nanya Technology will be able to raise the price of DDR4, and with the backdrop of a shortage, Nanya Technology will have greater bargaining power.VicTsing's chairman, Chen Libai, stated that currently, the production capacity of major memory chip manufacturers is prioritized for HBM, which has the highest gross profit margin, followed by general-purpose DDR5 and DDR4. As a result, the price of DDR5 is highly likely to continue rising, and the destocking of DDR4 will also come to an end. Prices will enter a second wave of increase starting from August, with an increase of at least 30%.
Team Group indicated that due to the insufficient supply from the original DDR5 manufacturers, prices will still rise.
Among all chip segments, the memory cycle fluctuates the most. At the peak of the upcycle, the sales of memory in 2010 and 2017 increased by 55% and 61% year-on-year, respectively. At the bottom of the downcycle, the sales of memory in 2002 and 2019 decreased by 30% and 33% year-on-year, respectively. The last cycle of DRAM peaked around December 2017 and bottomed out in December 2019, with the downcycle lasting about two years, followed by an upcycle of about one and a half years. The last cycle lasted 3-4 years. The current DRAM cycle peaked in April 2021, bottomed out in September 2023, and rebounded in October. The current downcycle has lasted for two and a half years, and a new upcycle of DRAM has already begun.
Looking at the development trend for the whole year of 2024, the global memory market has been moving upward, and prices are also rising. In this regard, various market research institutions have provided statistics and forecasts, and there are no substantial differences between them. Against this backdrop, Samsung's allocation of a large part of its production capacity to HBM memory is another disturbance to the global memory chip market, which will play a role in pushing the wave forward. It will further strengthen the growth trend of the global memory chip market, which has been sluggish since 2022-2023, and has rebounded from the bottom.
Leave a Reply