As the memory market faces oversupply and falling prices due to declining demand in 2023, there’s a glimmer of hope when looking into their Q4 guidance. Memory prices are gradually rising, indicating a potential escape from the market’s low point. The most recent financial reports from the world’s top five companies substantiate this positive outlook.

1. Mixed Results in the Financial Reports of Top 5 Giants

From the recent financial reports of Samsung, SK Hynix, Micron, Kioxia, and Western Digital reveal a slowdown in the rate of revenue loss despite some reporting losses. Some companies express optimism, noting a gradual recovery in certain downstream demand.

Samsung: Anticipating Q4 Demand Recovery

Samsung Electronics’ Q3 financial report shows a revenue of 6.74 trillion Korean won, a YoY decrease, but with a net profit exceeding expectations at 5.5 trillion won.

During their earnings call on October 31, Samsung highlighted the uncertainty in the recovery of the storage chip market. However, they remain optimistic about increased demand in Q4, driven by year-end promotions, new product releases from major clients, and growing demand for generative AI.

SK Hynix: Positive Signs in Market Conditions

SK Hynix’s report for the Q3 2023 fiscal year indicates improving market conditions, particularly due to increased demand for high-performance memory, especially in AI-related products. DRAM and NAND flash memory sales have grown, with a significant 20%  QoQ increase in DRAM shipments. Rise of average prices also impacts the results. In the second half of the year, customers with reduced inventory are progressively increasing their procurement demands, leading to stable developments in product prices.

Micron’s performance for the Q4 2023 fiscal year shows revenue of $4.01 billion, a 40% year-on-year decrease but better than market expectations. The DRAM business accounts for 69% of revenue, with $2.8 billion in revenue, an increase in bit shipments but a decrease in average selling price. NAND Flash revenue is $1.2 billion, with an increase in bit shipments but a decrease in ASP.

Micron expects Q1 revenue for the 2024 fiscal year to reach $4.2~4.6 billion, anticipating a recovery in the storage market in 2024 and further improvement in 2025.

Kioxia: Rebound in NAND Prices

Kioxia released its financial report for July to September 2023, with revenue of 241.4 billion yen, a 3.9% decrease QoQ and a 38.3% YoY decrease. Due to a decline in demand for smartphone and PC memory chips, the operating loss was 100.8 billion yen in the Q2. However, benefiting from the improvement in storage supply-demand balance, optimized storage portfolio, and the performance of the yen exchange rate, the operating loss has improved.

Although NAND shipments have decreased, the situation has improved due to the rebound in NAND prices. NAND bit shipments decreased by approximately 13%, and NAND ASP increased by about 8%. Looking ahead to 2024, Kioxia expects NAND prices to continue to rise with the original equipment company’s production reduction strategy and customer inventory normalization. Confidence in the NAND market’s recovery is expected, especially in data centers and enterprise SSD demand, after the first half of 2024.

Western Digital: Cloud Market Continues to Grow

Western Digital announced Q1 revenue for the 2024 fiscal year, totaling $2.75 billion, a 3% increase QoQ and a 26% YoY decrease. In the end market, the decline in flash memory prices was offset by the growth in flash memory shipments, driving some business growth on a QoQ basis.

CEO David Goeckeler stated that Q1 performance exceeded expectations, with profit margins for flash memory and HDD business continuously improving. He pointed out that the consumer and end-user markets performed well, and the cloud market is expected to continue growing. With market improvement, an improved cost structure enables the company to increase profitability.

2. Changing Supply and Demand Dynamics: Some Applications Boosting

Storage companies are adapting to the market by reducing capital expenditures and adjusting inventory, leading to a more normalized market inventory. Simultaneously, increased demand in AI servers, high-performance computing, and automotive intelligence instills confidence in the market.

In the second half of the year, there are clear signs of improvement in the supply and demand dynamics of storage chips. Demand for smartphones, laptops, and new product releases is driving positive trends. Some companies are witnessing strengthened customer demand, even accepting price increases.

In the server sector, AI servers are boosting demand for high-bandwidth memory (HBM), and DDR5 adoption is accelerating. In the automotive storage sector, electric vehicles, intelligence, and networking are propelling in-car storage demand, indicating promising developments in the automotive storage market. Other applications such as big data, cloud computing, and wearable devices related to high-speed storage, reliability, and data security also present growth potential, benefiting storage companies.

3. Comprehensive Rise in Storage Chips: Is a Turning Point Near?

According to TrendForce, the global NAND Flash market has experienced a comprehensive price increase in the Q4, driven by suppliers’ active production reduction strategies in 2023. Data from TrendForce indicates a general rise in Q4 NAND Flash contract prices, with an increase of about 8-13%.

TrendForce estimates a negative annual growth rate of -2.8% for supply in 2023, the first in several years. This has pushed the overall sufficiency ratio to -3.7%, forming the basis for stabilizing NAND Flash prices in the second half. However, the sustainability of the current upward trend remains unclear due to the lack of substantial terminal demand.

If demand recovers as expected in the second half of 2024, especially with the momentum of AI-related orders for server SSDs and a cautious approach by suppliers in resuming capacity utilization, the overall sufficiency ratio is expected to be controlled at -9.4%, accelerating the balance between supply and demand, and NAND Flash prices may show an upward trend throughout the year.

For DRAM, TrendForce predicts a seasonal increase of about 3-8% in DRAM contract prices in the Q4. The continuation of this upward trend depends on whether suppliers maintain their production reduction strategy and the actual recovery of demand, particularly in the general server.

During the MTS 2024 Storage Industry Trends Seminar, TrendForce highlighted three concerns for the memory market in 2024:

(1) Despite the reduction in inventory levels, it is essential to observe whether this reduction can be sustained and effectively transferred to buyers.

(2) Anticipating a rise in production capacity, an early recovery in operational rates due to market improvements may lead to another imbalance in supply and demand.

(3) Whether the demand from various end-users will align with the expected recovery or not, particularly the sustainability of orders related to AI.
(Image: Samsung)

Against the backdrop of geopolitical influences, the concentration of advanced semiconductor manufacturing processes in Taiwan has raised concerns among international companies. According to TrendForce data, as of the end of 2024, over 70% of global advanced process manufacturing capacity is still located in Taiwan.

Governments worldwide have responded by offering generous subsidy policies to attract semiconductor foundries to establish plants locally. The dynamics of Taiwan’s semiconductor fabs in the global setting and changes in the global production landscape have become a focal point of industry attention.

Per TrendForce’s data, when considering the equivalent 12-inch wafer production capacity, in 2023, Taiwan held a global share of approximately 47%, followed by China at 26%, South Korea at 12%, the United States at 6%, Singapore at 4%, Japan at 2%, Germany at 1%, and others at 2%. By 2027, the distribution is expected to shift, with Taiwan’s share decreasing to 42%, China increasing to 28%, South Korea at 10%, the United States at 7%, Singapore at 6%, Japan at 3%, Germany at 2%, and others at 1%.

Examining recent developments in the overseas expansion of Taiwan’s semiconductor foundries, Powerchip Semiconductor Manufacturing Corporation (PSMC) has officially announced the establishment of its first 12-inch fab, JSMC, in Sendai, Miyagi Prefecture, Japan. According to TrendForce’s research, the plant is planned to have a total capacity of around 40Kwspm, starting with a 40nm node and gradually transitioning to 28nm, primarily serving domestic clients in Japan while seeking subsidies and tax incentives for semiconductor.

JSMC’s construction is scheduled to commence in 2024, with full-scale production expected by 2027. With the establishment of PSMC’s overseas fab, TrendForce estimates that PSMC’s overseas production capacity will grow from 0% in 2023 to 9% in 2027.

The progress of TSMC’s second fab in Kumamoto, Japan, has garnered significant industry attention recently. On another note, The German cartel office has approved Bosch, NXP, and Infineon’s investment in TSMC’s German fab, ESMC. Each company will acquire a 10% stake, while TSMC will retain substantial control with over 50% ownership.

According to TrendForce’s research, ESMC’s total planned capacity is around 40Kwspm, focusing on 28/22nm and 16/12nm processes, with construction expected to start in the second half of 2024 and mass production in 2027. TrendForce predicts that TSMC’s overseas production capacity will increase from 9% in 2023 to 15% in 2027.

As for UMC, TrendForce’s research indicates that the overseas production capacity is projected to increase from 42% in 2023 to approximately 47% by 2027. Additionally, UMC’s Fab12i in Singapore has a production capacity of approximately 60Kwspm, with plans for manufacturing processes ranging from 55/40nm to 28/22nm. Moreover, UMC’s Fab12M in Japan is expanding its capacity by around 10Kwspm in collaboration with Denso.

Regarding Vanguard International Semiconductor (VIS), it was previously reported by Nikkei that VIS plans to construct its first 12-inch wafer fab in Singapore, primarily focusing on the demand for automotive chips. However, VIS has not yet officially announced any related developments. According to TrendForce’s research, if VIS does not have new plans for investment in a 12-inch fab, its estimated spending required for the operation of various fabs in 2024 is approximately $94 million, representing a nearly 70% decrease compared to previous years.

Explore more

• TrendForce Foresees China’s Mature Wafer Processes to Expand to 33% by 2027, Japan Secures Advanced Processes
• China’s Wafer Fabs Hits 44 with Future Expansion 32, Mainly Targeting on The Mature Process

On October 17th, the U.S. Department of Commerce announced an expansion of export control, tightening further restrictions. In addition to the previously restricted products like NVIDIA A100, H100, and AMD MI200 series, the updated measures now include a broader range, encompassing NVIDA A800, H800, L40S, L40, L42, AMD MI300 series, Intel Gaudi 2/3, and more, hindering their import into China. This move is expected to hasten the adoption of domestically developed chips by Chinese communications service providers (CSPs).

TrendForce’s Insights:

1. Chinese CSPs Strategically Invest in Both In-House Chip Development and Related Companies

In terms of the in-house chip development strategy of Chinese CSPs, Baidu announced the completion of tape out for the first generation Kunlun Chip in 2019, utilizing the XPU. It entered mass production in early 2020, with the second generation in production by 2021, boasting a 2-3 times performance improvement. The third generation is expected to be released in 2024. Aside from independent R&D, Baidu has invested in related companies like Nebula-Matrix, Phytium, Smartnvy, and. In March 2021, Baidu also established Kunlunxin through the split of its AI chip business.

Alibaba, in April 2018, fully acquired Chinese CPU IP supplier C-Sky and established T-head semiconductor in September of the same year. Their first self-developed chip, Hanguang 800, was launched in September 2020. Alibaba also invested in Chinese memory giant CXMT, AI IC design companies Vastaitech, Cambricon and others.

Tencent initially adopted an investment strategy, investing in Chinese AI chip company Enflame Tech in 2018. In 2020, it established Tencent Cloud and Smart Industries Group(CSIG), focusing on IC design and R&D. In November 2021, Tencent introduced AI inference chip Zixiao, utilizing 2.5D packaging for image and video processing, natural language processing, and search recommendation.

Huawei’s Hisilicon unveiled Ascend 910 in August 2019, accompanied by the AI open-source computing framework MindSpore. However, due to being included in the U.S. entity list, Ascend 910 faced production restrictions. In August 2023, iFLYTEK, a Chinese tech company, jointly introduced the “StarDesk AI Workstation” with Huawei, featuring the new AI chip Ascend 910B. This is likely manufactured using SMIC’s N+2 process, signifying Huawei’s return to self-developed AI chips.

2. Some Chinese Companies Turn to Purchasing Huawei’s Ascend 910B, Yet It Lags Behind A800

Huawei’s AI chips are not solely for internal use but are also sold to other Chinese companies. Baidu reportedly ordered 1,600 Ascend 910B chips from Huawei in August, valued at approximately 450 million RMB, to be used in 200 Baidu data center servers. The delivery is expected to be completed by the end of 2023, with over 60% of orders delivered as of October. This indicates Huawei’s capability to sell AI chips to other Chinese companies.

Huawei’s Ascend 910B, expected to be released in the second half of 2024, boasts hardware figures comparable to NVIDIA A800. According to tests conducted by Chinese companies, its performance is around 80% of A800. However, in terms of software ecosystem, Huawei still faces a significant gap compared to NVIDIA.

Overall, using Ascend 910B for AI training may be less efficient than A800. Yet with the tightening U.S. policies, Chinese companies are compelled to turn to Ascend 910B. As user adoption increases, Huawei’s ecosystem is expected to improve gradually, leading more Chinese companies to adopt its AI chips. Nevertheless, this will be a protracted process.

A global surge in data center expansion is observed in 2023, emphasizing a notable trend in the rise of Green Data Centers (Green DCs). Major players embarking on the construction of large-scale data centers encounter challenges. Power constraints affecting capacity growth, mounting pressure to enhance IT efficiency, combined with the continual increase in energy costs, amplify operational and construction difficulties in data centers.

TrendForce’s Insights:

1. Prioritizing energy efficiency and conservation in data centers

Modern enterprises heavily rely on data centers, but the associated energy costs are substantial. The market is expected to grow by over 25% from 2023 to 2030. Current strategies for improving energy efficiency encompass (1) reducing the energy consumption of IT equipment, (2) minimizing losses in distribution devices and uninterruptible power supplies, (3) implementing airflow management to optimize cooling, and (4) optimizing cooling and humidification systems through Heating, Ventilation, and Air Conditioning (HVAC).

2. Global shift to net-zero carbon emissions and the rise of low-carbon Green DCs

The construction of Green DCs with lower carbon is becoming a pivotal approach for major players, especially in the design of IT infrastructure for server rooms. This includes components such as network routers, switches, storage systems, firewalls, server racks, and redundant power supplies, all of which are subject to energy-saving requirements.

Key practices involve adopting liquid cooling and energy-efficient core IT equipment to achieve improved energy efficiency. Certification standards, such as Green Mark DC Platinum Certification, play a crucial role. The TIA-942 standard, by TIA and ANSI, distinguishing data centers into Tiers I through IV, often requires compliance with certifications like ISO 20000 and ISO 27001. Additionally, the international standard ISO/IEC 22237 lays the groundwork for globally planning, constructing, and operating data centers based on shared principles in the future.
(Image: TIA)

In the previous articles (China Strives to Break Through U.S. Restrictions in Mature Processes, Aiming for Over 30% Global Share by 2027 and China’s Wafer Fabs Hits 44 with Future Expansion 32, Mainly Targeting on The Mature Process) we explored the overall layout of Chinese wafer fab and developments in 12-inch and 8-inch wafer foundries. This article shifts to navigating the challenges of preventing oversupply while strategically pushing forward in the realm of mature processes.

Due to the counterattack of international giants in mature processes leads to fierce competition for orders, the recent surge in mature processes over the past two years in fact has brought pressure to Chinese wafer fabs. From the perspective of the industry chain, it may also cause industry overcapacity.

The popularity of mature processes can be traced back to its extensive application market, research and development of advanced processes approaching the limit of Moore’s Law.

No need to say it also reflects the regular operation of market dynamics. In the current economic downturn, the demand for automotive electronics and industrial control systems(ICS) is booming, with 80% of their demand falling under mature processes. As the AI trend rises, many high-end AI and computing chips in China cannot adopt advanced processes, prompting a reconsideration of design changes to use multiple mature process chips instead of a single high-end process chip. This not only ensures shipments but also indirectly increases the synchronous multiplier of mature process chips.

Can Specialty Processes Become a Blue Ocean for China?

With the emergence of new demands in downstream application scenarios, the variety of semiconductor products continues to increase. Industry insiders state that global foundries are competing to target mature process wafer foundries. In this context, Chinese wafer fabs should focus on creating differentiation.

Therefore, specialty processes are gradually gaining attention in the current development of wafer foundries. In comparison to advanced logic processes, specialty processes particularly emphasize the research, innovation, and application of new materials (SiC and GaN are currently popular), new structures, and new devices. Specialty processes highlight wafer processes with custom capabilities for special IP and diverse technological categories. This is considered an important development branch beyond Moore’s Law, which involves continually reducing the linewidth to enhance chip integration.

Specialty process product categories are extensive and can form a competitive advantage in specific areas. These mainly include embedded/independent non-volatile memory, power devices, analog and power management, sensors, and other process platforms.

Representative enterprises in China’s specialty process industry include SMIC, Huarun Microelectronics, and Huahong Group. These companies attach great importance to the development of specialty processes. To meet the differentiated demands for product functionality and performance in the market, enterprises continually research and innovate wafer manufacturing process technologies, evolving into differentiated manufacturing processes.

For example, Huahong Semiconductor’s specialty processes include power management, radio frequency, power devices, and other platforms, especially in wafer foundry for power devices; Huarun focuses on high-voltage power BCD, high-performance BCD, high-reliability BCD, high-precision analog, MEMS, and six major special power device simulation wafer foundry processes.

Major wafer foundries have always attached great importance to the development of specialty processes. TSMC’s specialty process is leading by far, while GlobalFoundries and UMC are also focusing on mature processes and specialty processes. It is not difficult to predict that there will be fewer and fewer participants chasing advanced processes in the future, and new entrants will compete for the market in specialty processes.
(Image: SMIC)