As wafer demand dries up, foundry revenues head for a cliff, we all celebrate
Some potential good news for those unhappy with pandemic-era lead times, prices
After surging 28 percent in 2022, foundry revenues are set to plunge over the next 12 months as wafer demand slows, inventory consumption slumps, and geopolitical conflict drives chip designers out of China, according to Trendforce.
The market seers now expect foundry revenues to fall four percent year-over-year, well below that of the 1.9 percent decline observed in 2019. And while orders for some components are expected to pick up in the second half of the year, an uncertain economic climate remains a major variable.
Semiconductor demand has fallen across the industry for the past year as the global economy has chilled in the face of rising interest rates, skyrocketing energy prices, and other effects. NAND flash and DRAM were among the first semiconductors affected, with analysts predicting flash storage pricing would plummet 20 percent in the latest quarter. That's sad news for memory suppliers trying to turn a profit, and great news for anyone on the market for cheap SSDs.
Now it appears this phenomenon is spreading across the broader semiconductor market. As we waltz further into the first quarter of the year — traditionally a slow period for smartphone, PC, and TV sales — Trendforce predicts wafer demand will drop, and fab utilization along with it.
What does that mean for us? Well, if demand generally is down, prices tend to slide as well – or, at least, they don't go up. We've already seen lower prices trickling down in the PC space. Facing slowing demand for consumer chips, AMD and Intel have cut pricing on their latest personal-computing processors, with chips routinely selling for as much as 15 percent below their recommended retail value.
The supply and demand mismatch should also help to remedy extended lead times which have plagued customers over the past few years. Lead times for key components like, metal–oxide–semiconductor field-effect transistors (MOSFET), and insulated gate bipolar transistors, and power management circuits have improved steadily over the past few months, falling below 26 weeks by last fall. While not as sexy as a GPU, application processor, or switch ASIC, a shortage of these components can and has prevented device and equipment manufacturers from shipping products on time.
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Things are looking a little better for TSMC and 12-inch wafer demand. Trendforce expects the world's largest foundry operator will see "lower-than-ideal" utilization rates at its fabs during the first half of 2023. But things should begin to improve in the second half of the year as utilization rates of TSMC's 7nm node increases and its demand for its 5nm node returns to optimal levels.
Trendforce predicts Samsung Electronics — the No. 2 foundry operator — will face capacity headwinds after two of its largest customers, Nvidia and Qualcomm, shift orders off its 8nm and smaller nodes to TSMC. With the launch of Nvidia's Hopper and Ada Lovelace architectures used in the H100 and 40-series cards, Nvidia ditched Samsung 8nm process in favor TSMC's more advanced N4 manufacturing process.
US-China trade war takes its toll
In addition to slowing wafer demand, Trendforce forecasts that geopolitical conflict will continue to cause problems for foundries over the next year. "Some major OEMs have initiated a review of supply partners so that they can meet the requirements of the tenders released by the US government," the report reads.
Over the past two administrations, the US government has taken steps to deny Chinese companies access to intellectual property and manufacturing equipment used in semiconductor manufacturing. Late last year, the US Commerce Department added nearly three dozen Chinese companies, including memory vendor Yangtze Memory Technologies Co. to the US "Entities" list and enacted stricter rules on the export of manufacturing equipment.
Since then, the US has pressured the Dutch government to establish similar export restrictions on ASML's lithography machines. These efforts have culminated in several companies announcing plans to eliminate Chinese-made chips from their products. Most recently it was reported that Dell planned to purge Chinese chips from its supply chain by 2024.
According to Trendforce, several chip designers have moved portions of their orders to foundries based outside of China, with the majority being to 8-inch wafer fabs. As a result, analysts expect Taiwan's UMC and Vanguard are likely to see an "above-average" increase in utilization in the second half of the year.
Trendforce predicts foundry fragmentation
In the wake of the semiconductor shortage, foundry operators announced massive expansions to their global footprints totaling hundreds of billions of dollars.
"Governments worldwide are now much more aware of the importance of local manufacturing due to recent geopolitical events," the report reads.
Both the US and Europe have set aside billions in funding under respective CHIPS bills to bolster domestic semiconductor manufacturing and reduce reliance on the Asia Pacific market. Trendforce is tracking more than 20 new fabs, expected to come online in the near future. This includes five in Taiwan, five in the US, six in China, four and Europe, and another four across South Korea, Japan and Singapore.
As more of these fabs come online over the next few years Trendforce predicts semiconductor manufacturing will become more fragmented and regionalized. ®