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The four giants of the wafer are all unable to withstand it!

15 Comments 2024-02-22

In the field of semiconductor foundry, Taiwan, China, is one of the most influential players.

According to data from the DIGITIMES Research Center, in 2022, the combined revenue of Taiwan's four major semiconductor foundries (TSMC, UMC, Powerchip, and World Advanced) reached 89.4 billion US dollars, growing by 31%. Based on their previous statistics, the global semiconductor foundry revenue in 2022 will reach 137.2 billion US dollars, which means that the four major foundries contributed more than 65% of the global semiconductor foundry.

However, according to a report released by TrendForce in March, the output value of the top ten semiconductor foundries in the fourth quarter of 2022 experienced the first decline in fourteen quarters, down by 4.7% month-on-month, about 33.53 billion US dollars. Facing the traditional off-season and the uncertainty of the overall environment, it is expected that the decline in the first quarter of 2023 will be even greater.

Recently, the four major semiconductor foundries in Taiwan released their latest financial reports, which also confirmed this statement.

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TSMC fell by 15%, the first time in four years

Until last quarter, the leader in semiconductor foundry, TSMC, was still on a winning streak, but now, the chill that started in the second half of last year has finally reached TSMC.

They said on Monday that the company's revenue in March fell by 15%, from 171.97 billion Taiwan dollars in the same period last year to 145.41 billion Taiwan dollars, which is the first decline in nearly four years. The data also shows that TSMC's revenue in the first quarter of this year increased by 3.6% year-on-year, reaching 508.63 billion Taiwan dollars (about 16.73 billion US dollars), at the lower end of the previously expected range.

It is worth mentioning that this is the second consecutive quarter that TSMC's sales have not met expectations, indicating that the demand for global electronic products continues to be weak, and the downturn in the chip industry has not yet hit bottom. The continued rise in interest rates, inflation, and banking crises continue to weaken consumer confidence. According to the latest data from IDC, global PC shipments in the first quarter fell by 29%, with Apple's Mac series leading the decline.

According to Digitimes, the decline in TSMC's performance is closely related to the reduction in orders from Apple and MediaTek, as well as the reduction in orders for related chips such as Sony and Broadcom at TSMC. However, TSMC responded that the exchange rate fluctuated greatly, and if the first quarter's revenue is calculated in actual US dollars, it still reached the previously set financial forecast target.The unsatisfactory performance has an impact not only on TSMC itself, but also on a series of chain reactions that follow. For example, according to Taiwanese media reports, a supply chain pointed out that due to weak demand, TSMC's expansion and factory construction speed has slowed down. Among them, the original goal of the 3nm process was to reach a monthly production capacity of 60,000-70,000 pieces/month in the middle of this year, but the current monthly production capacity is about 40,000 pieces, and the maximum in the second half of the year may be more than 50,000 pieces. In addition, TSMC's Kaohsiung factory construction plan has also changed. According to previous plans, TSMC originally planned to build two factories in Kaohsiung, including 7-nanometer and 28-nanometer factories. Among them, the 7-nanometer factory has been adjusted at the investor meeting in the middle of last year due to the weak demand in the smartphone and personal computer (PC) market; the market has also recently reported that the 28-nanometer factory will also be adjusted. Taiwanese media reported that the relevant electromechanical engineering bidding for TSMC's Kaohsiung factory was postponed for one year, and the related clean room and installation operations were postponed accordingly, and the list of 28-nanometer equipment that the factory planned to purchase was also cancelled. Related reports further pointed out that TSMC has even delayed the 2nm factory. However, according to a report by Nikkei at the end of March, TSMC's 2nm factory is still under construction. According to Nikkei's report, even if the market is so bad, TSMC has not slowed down its investment pace, but according to the supply chain, TSMC has revised its 2024 orders to equipment manufacturers, and the year-on-year decline in capital expenditures in 2024 may be double-digit percentages. For TSMC, another challenge that needs to be faced is the subsidy issue of the US chip bill. At the end of last year, TSMC held a ceremony to start the semiconductor foundry invested in Arizona, USA. Liu Deyin of the company announced on the spot that the investment amount of the US wafer factory would be increased to US$40 billion, a significant increase from the original US$12 billion. However, after the United States announced the relevant application details of the chip bill this year, TSMC was caught in a dilemma. According to reports, the United States requires subsidized manufacturers to comply with additional conditions of the United States, including: detailed financial forecasts and other information related to trade secrets, sharing a specific ratio of profit sharing with the federal government, and the subsidized companies are not allowed to expand semiconductor manufacturing capacity in "suspected countries" such as mainland China within 10 years, and cannot participate in joint research and technology licensing. In this regard, TSMC Chairman Liu Deyin bluntly stated that some restrictions in the bill are too harsh and TSMC "cannot accept" it! It is also necessary to discuss with the US government and not let the operations of Taiwanese manufacturers be negatively affected. According to the latest report from Reuters, the European chip bill has also allowed TSMC to find a new way out. UMC's annual decline of 20.09% is full of challenges. As another representative of Taiwan's wafer foundry, UMC has not had a good time recently.According to the data they recently released, the wafer foundry giant UMC's consolidated revenue for March 2023 was 17.688 billion yuan, a monthly increase of 4.88% and a year-on-year decrease of 20.11%. It rebounded from a low point in nearly 22 months, but still set a second-highest record for the same period. The cumulative consolidated revenue for the first quarter was 54.209 billion yuan, a quarter-on-quarter decrease of 20.09% and a year-on-year decrease of 14.53%, reaching a low point in nearly 7 quarters and slightly underperforming expectations, but still setting a second-highest record for the same period.

Investment advisory firms estimate that UMC's earnings per share for the first quarter will drop to 1.01 yuan, a low point in nearly 7 quarters. Although the semiconductor industry is in an inventory adjustment period, UMC should be able to weather this cyclical fluctuation through its differentiated product portfolio and cooperation with global customers. It is estimated that with the operation warming up in the second half of the year, the earnings per share for this year will be about 4.92 yuan.

US foreign capital previously issued a report on the wafer foundry industry, believing that the semiconductor industry will continue to reduce inventory in the first half of the year, but the order reduction has slowed compared to the previous two quarters. With the peak of inventory reduction in the downstream supply chain having passed, it is expected that the utilization rate of the wafer foundry industry will stabilize in the second half of the year.

US foreign capital pointed out that the demand for mature processes in 12-inch wafer foundry in the first half of the year is more stable than that for 8-inch. The demand for 28-nanometer processes used in OLED panel driver ICs and 40-nanometer eFlash processes for automotive microcontrollers (MCUs) is still tight. UMC's 28-nanometer process utilization rate is currently stable, but it is still necessary to observe the impact of Samsung's potential to take back outsourced orders for self-production on the demand for the next two years.

At the beginning of this year, when UMC announced its 2022 revenue, it stated that looking forward to the first quarter of 2023, UMC estimated that the wafer shipment would decrease by 17-19% (high teens), the average selling price (ASP) in US dollars would remain stable; the utilization rate of production capacity would drop from about 90% in the fourth quarter to 70%, and the gross profit margin would drop from 42.93% in the fourth quarter to about 34-36% (mid-30%). Based on this, the first quarter's revenue may decrease by 20% quarter-on-quarter.

UMC's General Manager Wang Shi said that in 2023, the global economy is weak, customers' inventory days are higher than normal, and the visibility of orders is low, and it is expected that the first quarter will be full of multiple challenges. In response to the current economic downturn, the company has implemented strict cost control measures and postponed some capital expenditures as much as possible.

In terms of capital expenditure, UMC's capital expenditure in the fourth quarter of 2022 was about 1.167 billion US dollars, reaching about 2.7 billion US dollars for the whole year, a reduction of 10% from the previously expected 3 billion US dollars. The capital expenditure for 2023 is about 3 billion US dollars, of which 90% is used for 12-inch production capacity and 10% for 8-inch production capacity.

However, in the long term, UMC remains optimistic. With the company's differentiated special process technology leadership, diversified production capacity supply, and excellent quality and operation, the company can grasp the demand driven by the continuous digital transformation across industries and become the preferred wafer manufacturing partner for leading customers.

At that time, UMC pointed out that, driven by the long-term trend of automotive electrification and automation, it is expected that automotive electronic ICs will continue to be an important growth driver for 2023 and beyond. With the wafer factory's comprehensive automotive-grade process technology and strict quality standards that meet automotive requirements, while continuing to establish a solid partnership with world-class automotive leaders, the company is ready to serve the vast automotive electronics market.

In February, relevant reports pointed out that the company intends to offer a 10-15% price discount to customers who increase the wafer input volume in the second quarter. However, the latest news indicates that this does not include the company's 28nm production capacity, as the news source said that UMC's capacity is close to full load, and it is expected that the quotations and long-term orders will remain stable by the end of 2023.However, the termination of contracts with long-term customers like VJIC has brought new uncertainties to UMC.

The domestic RF giant VJIC stated that due to the decline in demand for end consumer electronics, the integrated circuit industry chain has entered a destocking cycle. The original capacity guarantee agreement for wafer purchase prices has led to high costs for the company, and continuing to execute the agreement would reduce the competitiveness of the company's products. To protect the interests of the company and small and medium investors, the company has decided to terminate the capacity guarantee agreement after careful consideration, in order to seek better cost advantages and advanced technology processes. As a result, the two parties have recently reached an agreement on the aforementioned termination of the capacity guarantee agreement, in accordance with the provisions of the capacity guarantee agreement.

This may become an X factor affecting the development of UMC in the future.

Powerchip and World Advanced, a sharp downturn

Powerchip and World Advanced, which were advancing vigorously two years ago, are also not very satisfactory.

First, let's look at Powerchip. According to the latest forecast, the company's consolidated revenue in March 2023 was 3.826 billion yuan, a sharp decline of 46.88% year-on-year. This is the third consecutive month after January and February that such a poor performance has been delivered. The data shows that in February 2023, Powerchip's consolidated revenue was 3.69 billion yuan, a decrease of 6.14% from 3.932 billion yuan in January and a decrease of 44.25% from 6.62 billion yuan in the same period last year, reaching a low point in the past 29 months. The cumulative consolidated revenue for the first two months was 7.623 billion yuan, a decrease of 43.55% from 13.504 billion yuan in the same period last year, reaching a low point in the past three years.

Legal persons said that Powerchip's consolidated revenue for the first two months reached about 63% of the first quarter's revenue forecast target, which is lower than expected. To achieve the first quarter's financial forecast target, the consolidated revenue in March needs to increase by 20.3-26% month-on-month, rising to about 4.44-4.656 billion yuan. However, judging from the performance in March, Powerchip is likely to be disappointed. According to Powerchip's General Manager Xie Zaiju's previous expectations, the utilization rate in the first quarter of 2023 may continue to decline to about 60%, resulting in a quarterly revenue decrease of about 15%.

However, Xie Zaiju said that there are also positive messages in the market. The customer inventory in the fourth quarter of last year showed a trend of easing, and it is expected to significantly decrease in the first quarter of this year. The demand for discrete components such as automotive and industrial control also remains good. Some driving IC and memory chip customers' short-term demand for orders has emerged, although the price requirements are more challenging, but it has already shown signs of demand recovery.

In terms of long-term contracts, Xie Zaiju revealed that the company has lifted the process technology restrictions on customer wafer investments, providing customers with more flexibility in wafer investments. The part of the wafer investment that is insufficient will not be deducted immediately, and the company will add one year of performance time for customers, and the deposit will be refunded according to the progress and proportion of the wafer investment.

Regarding whether this year's operations will be better than the overall wafer foundry industry, Xie Zaiju said frankly that the company's products are different from TSMC and are a second-tier wafer foundry. The degree of decline is greatly affected by the PC and consumer markets, and the degree of fluctuation in operations will also be more than TSMC. The expectation of a 3% decline will not be the bottom line.Looking at the world's advanced performance, it's also a case of six of one and half a dozen of the other.

Recently, World Advanced has announced its revenue for March 2023, showing that the company's consolidated revenue was 2.5 billion yuan, with a monthly increase of 0.64% and a year-on-year decrease of 50.67%, rebounding from a three-year low. Affected by the off-season and inventory correction, World Advanced previously expected its first-quarter revenue to drop to 7.9 to 8.3 billion yuan, with the utilization rate estimated to continue to decline by 10 percentage points, reducing the gross margin to 29-31%, and the operating profit margin to 14.5-16.5%. Based on the median estimate of financial forecasts, revenue is expected to decrease by about 15% quarter-on-quarter to a near three-year low, while the gross margin and operating profit margin are expected to reach the lowest levels in nearly five and a half and ten years, respectively.

World Advanced estimates that the first quarter's wafer shipments will decrease by 7-9% quarter-on-quarter, and the average selling price (ASP) will decrease by 1-6% quarter-on-quarter, with the monthly production capacity remaining roughly the same at 270,000 8-inch wafers. Chairman and General Manager Fang Lue expects that the first quarter's operations will be the coldest, and subsequent quarters should see a gradual improvement, with the second and third quarters expected to show a moderate warming trend, but the extent of the warming is still to be observed.

US foreign capital issued a report believing that World Advanced has a single-digit percentage of capacity for advance stocking in the first quarter, and it is expected to be planned to end in the second quarter. The main driving force for the second quarter's revenue growth comes from the first quarter's advance stocking, and the expected quarter-on-quarter growth rate will be less than 10%, lower than the market's expectation of 13-18%, and it is believed that the improvement in utilization rate may be limited, and the gross margin may continue to decline from the first quarter.

At the same time, US foreign capital survey expectations for the power management chip (PMIC) industry's average selling price (ASP) in the first quarter is expected to decrease by 2-6% quarter-on-quarter, but the power management chip contributed 78% of World Advanced's revenue in the last quarter. Therefore, US foreign capital believes that this may shift the pressure to wafer foundries such as World Advanced, and related applications still have challenges. In addition, World Advanced's automotive revenue contribution exceeds 10%, and US foreign capital has recently found that some automotive power management chip manufacturers have begun to see product price reduction pressure, making the automotive semiconductor business potentially subject to downward revision risk.

In conclusion, there is no doubt that the wafer foundry field, like many semiconductor markets, is on the decline. However, in the eyes of many, the dawn seems to be ahead.

When asked about the industry's prosperity earlier, Huang Chongren, Chairman of Powerchip, said that these demands will slowly come back, and the inventory adjustment from last year to this year should be quite a lot, and now looking at every company's inventory will come down, especially NB, PC is moving. He also pointed out that the current inventory digestion is relatively fast, and the world is very sensitive to inflation, which also leads to changes in the judgment of the prosperity, and he believes that the prosperity will slowly rise again.

The International Semiconductor Industry Association (SEMI) forecast report data also shows that although it is expected that the global wafer fab equipment spending will decrease by 22% year-on-year in 2023, it will increase by 21% year-on-year in 2024, returning to a revenue scale of 92 billion US dollars (about 632.04 billion yuan).

As a key indicator of wafer fabs, we also see the industry's confidence in the rapid recovery of semiconductors from this.

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