TrendForce’s latest research indicates that, as production cuts to DRAM and NAND Flash have not kept pace with weakening demand, the ASP of some products is expected to decline further in 2Q23. DRAM prices are projected to fall 13~18%; NAND Flash is expected to fall between 8~13%.

DRAM Spot Market

In the spot market, the trajectory of prices of DDR5 chips is going to be a highlight in the short term. Some sellers are now willing to lower quotes on DDR5 products that have been enjoying price hikes for many consecutive days. However, there have been few to no actual transactions, so TrendForce will continue to closely monitor changes in the prices of these products. As for spot prices of DDR3 and DDR4 products, they are still on a downward trajectory with no sign of easing. The average spot price of mainstream chips (i.e., DDR4 1Gx8 2666MT/s) fell by 1.33% from US$1.575 last week to US$1.554 this week.

NAND Flash Spot Market
Suppliers continue to enlarge in production cuts. Despite the insignificant increase in spot market demand, the continuously shrinking output of small-capacity wafers, as well as the attempt at price revitalization among a number of suppliers, have pulled up demand and transactions of low-priced inventory within the spot market, which led to a small price increment. However, mainstream wafer prices have yet to suspend in decline. 512Gb TLC wafer has dropped by 0.21% this week, arriving at US$1.427.

The excitement surrounding ChatGPT has sparked a new era in generative AI. This fresh technological whirlwind is revolutionizing everything, from cloud-based AI servers all the way down to edge-computing in smartphones.

Given that generative AI has enormous potential to foster new applications and boost user productivity, smartphones have unsurprisingly become a crucial vehicle for AI tech. Even though the computational power of an end device isn’t on par with the cloud, it has the double benefit of reducing the overall cost of computation and protecting user privacy. This is primarily why smartphone OEMs started using AI chips to explore and implement new features a few years ago.

However, Oppo’s recent decision to shut down its chip design company, Zheku, casted some doubts on the future of smartphone OEMs’ self-developed chips, bringing the smartphone AI chip market into focus.

Pressing Needs to Speed Up AI Chips Iterations

The industry’s current approach to running generative AI models on end devices involves two-pronged approaches: software efforts focus on reducing the size of the models to lessen the burden and energy consumption of chips, while the hardware side is all about increasing computational power and optimizing energy use through process shrinkage and architectural upgrades.

IC design houses, like Qualcomm with its Snapdragon8 Gen.2, are now hurrying to develop SoC products that are capable of running these generative AI base models.
Here’s the tricky part though: models are constantly evolving at a pace far exceeding the SoC development cycle – with updates like GPT occurring every six months. This gap between hardware iterations and new AI model advancements might only get wider, making the rapid expansion of computational requirements the major pain point that hardware solution providers need to address.

Top-tier OEMs pioneering Add-on AI Accelerators

It’s clear that in this race for AI computational power, the past reliance on SoCs is being challenged. Top-tier smartphone OEMs are no longer merely depending on standard products from SoC suppliers. Instead, they’re aggressively adopting AI accelerator chips to fill the computational gap.

The approaches of integrating and add-on AI accelerator were first seen in 2017:

• Integrated: This strategy is represented by Huawei’s Kirin970 and Apple’s A11 Bionic, which incorporated an AI engine within SoC.
• Add-on: Initially implemented by Google Pixel 2, which used a custom Pixel Visual Core chip alongside Snapdragon 835. It wasn’t until the 2021 Pixel 6 series, which introduced Google’s self-developed Tensor SoC, that the acceleration unit was directly integrated into the Tensor.

Clearly, OEMs with self-developing SoC+ capabilities usually embed their models into AI accelerators at the design stage. This hardware-software synergy supplies the required computing power for specific AI scenarios.

New Strategic Models on the Rise

For OEMs without self-development capabilities, the hefty cost of SoC development keeps them reliant on chip manufacturers’ SoC iterations. Yet, they’re also applying new strategies within the supply chain to keep pace with swift changes.

Here’s the interesting part – brands are leveraging simpler specialized chips to boost AI-enabled applications, making standalone ICs like ISPs(Image Signal Processors) pivotal for new features of photography and display. Meanwhile, we’re also seeing potential advancements in the field of productivity tools – from voice assistants to photo editing – where the implementation of small-scale ASICs is seriously being considered to fulfill computational demands.

From Xiaomi’s collaboration with Altek and Vivo’s joint effort with Novatek to develop ISPs, the future looks bright for ASIC development, opening up opportunities for small-scale IC design and IP service providers.

Responding to the trend, SoC leader MediaTek is embracing an open 5G architecture strategy for market expansion through licensing and custom services. However, there’s speculation about OEMs possibly replacing MediaTek’s standard IP with self-developed ones for deeper product differentiation.

Looking at this, it’s clear that the battle of AI chips continues with no winning strategy for speeding up smartphone AI chip product iteration.

Considering the substantial resources required for chip development and the saturation of the smartphone market, maintaining chip-related strategies adds a layer of uncertainty for OEMs.With Oppo’s move to discontinue its chip R&D, other brands like Vivo and Xiaomi are likely reconsidering their game plans. The future, therefore, warrants close watch.

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AI Sparks a Revolution Up In the Cloud

In the bustling tech bazaar, the iPhone 14 Pro and AirPods 3 are pioneering the tech industry by incorporating InP(Indium phosphide)-based EEL(Edge Emitting Laser). These devices are leveraging the unique attributes of long-wavelength technology for skin detection, which is a strategic move that highlights the gradual emergence of InP material in the consumer market.

Historically, data communication and telecom industries have acted as the primary fuel for the InP market, their demand for backbone network photoelectric and 400G/800G optical modules in data centers has been consistent. However, as the quality and refinement of 6-inch InP single-crystal growth technology advance, we see a reduction in production costs, thus unlocking a gateway to consumer applications.

Emerging Dual Frontiers: Consumer and Photonic Applications

Apple and other savvy smartphone OEMs are contemplating the introduction of long-wavelength InP-based EEL in their next-gen products. This would be used for physiological sensing in proximity sensors or possibly to replace the currently used 940nm GaAs-based VCSEL(Vertical Surface Emitting Laser) in 3D sensing.

Simultaneously, the evolution of autonomous driving is nudging automotive laser radars towards the 1550nm wavelength, a departure from the former 905nm. This shift promises increased detection range and improved protection for human eyes.

In the realm of photonics communication technology, a more significant growth driver stems from the trend of high-end EML(Electro-absorption Modulated Laser) replacing traditional DFBs(Distributed-feedback laser).

As next-gen data center applications are steered towards 400G/800G transmission speed solutions, EML laser chips promising high bandwidth performance and high yield will take the spotlight. They are anticipated to realize the high-speed transmission characteristics of single-wavelength 100G.

It is also worth noting that as fiber-optic access in the PON (Passive Optical Network) market gradually upgrades to the 25G/50G-PON solution, there is an evident trend towards integrated solutions combining laser chips and SOAs (Semiconductor Optical Amplifiers). This shift is driven by the increasing demands for higher transmission rates and output power, leading to the replacement of discrete DFB solutions.

Supply Chain Over-centralization: A Precursor to a Sellers’ Market?

This cornucopia of application scenarios signals tremendous market potential for InP-based components. However, one must question whether the supply chain is prepared for this windfall.

One of the concern is that the industry chain’s over-centralization might usher in a seller’s market situation.

InP substrate materials and epitaxial silicon wafers pose a high technological threshold and are primarily monopolized by few manufacturers, particularly those from Europe, the U.S. and Japan.

• The InP substrate material market is highly monopolized by Sumitomo Electric Industries, AXT, and JX NMM, which collectively account for 90% of market share in 2020.
• The epitaxy process is the crux of photonic chip production, with tech prowess directly impacting product performance and reliability. Key suppliers capable of providing InP epitaxy silicon wafers include IQE, Lumentum, and Sumitomo, among others.
• In terms of photonic chip technology, its value lies more in added functionality, necessitating process integration. This gives rise to IDM giants dominating the market. For instance, Lumentum, Sumitomo, and Mitsubishi dominate the 25G DFB laser chip market.

While the influx of newcomers from China is seen in the lower-tech optical module packaging sector, the core technologies upstream are still held firmly by international industry leaders, posing a challenging breakthrough for newcomers in the short term.

The growing interest in the market for this technology indicates that end-product manufacturers developing new applications based on InP will inevitably need to double down their efforts to ensure the stability of long-term supply. It remains to be seen whether the singularity of the supply chain will further restrict the proliferation of emerging applications in the end market.

Under the grand banner of China’s domestic substitution policy, the wave of locally produced chips is swiftly spreading to the realm of Power Management ICs (PMICs).

Over the past three years, the number of fundraisings for Chinese PMIC manufacturers has shot up. We’ve seen an increase from 18 rounds in 2020 and 19 rounds in 2021 to a whopping 24 rounds in 2022 – a substantial leap from the figures in 2018 and 2019.

Looking at the number of IPO last year, 23 Chinese automotive-grade chip companies went public, with another 25 poised to follow suit. Among these 48 automotive chip firms, 12 boast PMICs, making it the largest product sector in these investments.

New Energy Vehicles Fuel China’s PMIC Market

Both the data points signal a golden era for Chinese PMIC industry, with the new energy vehicles(NEV)emerging as a key driving force.

Compared to traditional vehicles with internal combustion engines, NEV requires a greater number of PMICs, like DC/DC converters, to manage voltage conversions. This, in turn, propels overall PMIC growth. From 2021, automotive PMICs have entered a phase of rapid growth. TrendForce forecasts that the scale of automotive PMICs will reach $7.65 billion by 2023, marking a year-on-year growth of 4.2%.

Government’s subsidy incentives and a booming domestic demand for NEV are the primary reasons for nudging the Chinese semiconductor industry to embrace PMICs more quickly. This trend aligns perfectly with the growth trajectory of China’s power semiconductors.

Chinese Manufacturers Plant Flags in Automotive PMICs

Over the past year, several domestic PMIC manufacturers, including SG Micro, Etek, Shanghai Belling, and Halo Micro, have rolled out automotive-grade PMICs. Some of these chips have even entered mass production and are being adopted by domestic vehicle bands.

Foundries are equally keen to seize the golden opportunity. For instance, GTA Semiconductor has successfully raised over 10 billion yuan in recent years. The company has earmarked a portion of the funds specifically for the R&D of automotive-grade PMIC.

However, the opportunities come with their fair share of challenges. New entrants must navigate stringent automotive certifications, ensure product resilience across extreme temperature ranges from -40°C to 125°C, guarantee a product lifespan exceeding ten years, and manage prolonged validation cycles. These demanding requirements significantly raise the entry barriers for newcomers.

On a global scale, international IDM giants like Infineon, NXP, TI, and Renesas are well entrenched in the PMIC sector, boasting a diverse range of products. In contrast, Chinese PMICs supply chain are just off the starting blocks of the race. To gain trust from customers, expand their product portfolio, and penetrate the global market, they are bound to confront a succession of hurdles, which will persistently scrutinise the enduring R&D capabilities and business strategies of each manufacturer.

YMTC has officially notified a 3~5% price increase for NAND Flash in mid-May. However, the initial impact of the price hike is expected to be felt in the enterprise market, and it may take some time to reflect in the consumer spot market.

The semiconductor industry is in the midst of a correction period aimed at tackling inventory challenges, and the memory sector is feeling the impact. Major players in global memory manufacturing, including Samsung, SK Hynix, Micron, and YMTC, have recently disclosed substantial cuts in CAPEX, ranging from 45~50% starting from 4Q22. The most recent financial reports from Micron and Samsung further underscore the industry’s downward trend.

TrendForce highlights that YMTC’s decision to raise prices comes amidst market conditions marked by substantial oversupply in the second quarter. Despite Samsung’s efforts to curtail production, the positive effects of this reduction are not anticipated to materialize until the latter part of the year. Consequently, experts predict a more substantial decline in contract prices for the second quarter of 2023 than initially expected.

The market situation in 2Q23 is still oversupplied, leading to further price declines. Since October of last year, the market transaction price for wafers has been lower than the supplier’s cash cost due to selling pressure. Some suppliers used the opportunity when Samsung announced production cuts to raise the wafer price, which is likely why YMTC made this announcement. TrendForce predicts that as demand gradually recovers in the second half of the year, wafer prices will become more resilient. (Photo credit: YMTC LinkedIn)