TrendForce reports that from 2023 to 2027, the global ratio of mature (>28nm) to advanced (<16nm) processes is projected to hover around 7:3. Propelled by policies and incentives promoting local production and domestic IC development, China’s mature process capacity is anticipated to grow from 29% this year to 33% by 2027. Leading the charge are giants like SMIC, HuaHong Group, and Nexchip, while Taiwan’s share is estimated to consolidate from 49% down to 42%.

Expansion predominantly targets specialty processes such as Driver ICs, CIS/ISPs, and Power Discretes, with second and third-tier Taiwanese manufacturers at the forefront

Within the Driver IC sector, the spotlight is on high voltage (HV) specialty processes. As companies aggressively pursue the 40/28nm HV process, UMC currently dominates, trailed by GlobalFoundries. Yet, SMIC’s 28HV and Nexchip’s 40HV are gearing up for mass production in 4Q23 and 1H24, respectively—narrowing their technological gap with other foundries. Notably, competitors with similar process capabilities and capacities, such as PSMC, and those without twelve-inch factories like Vanguard and DBHitek, are poised to face challenges head-on in the short term. This trend may also have long-term implications for UMC and GlobalFoundries.

In the realm of CIS/ISP, 3D CIS structure comprises a logic layer ISP and CIS pixel layer. The primary demarcation for mainstream processes is around 45/40nm range for the logic layer ISP, which continues to progress toward more advanced nodes. Meanwhile, the CIS pixel layer, along with FSI/BSI CIS, predominantly uses 65/55nm and above processes. Currently, TSMC, UMC, and Samsung are the frontrunners in this technology. Yet, Chinese players like SMIC and Nexchip are hot on their heels, swiftly closing the gap. Their ascent is further fueled by Chinese smartphone titans OPPO, Vivo, and Xiaomi. Additionally, domestic shifts prompted by governmental policies are positioning Chinese CIS companies like OmniVision, Galaxycore, and SmartSens to rally behind local production.

Power Discretes mainly encompass products like MOSFETs and IGBTs. Vanguard and HHGrace have been deeply involved in Power Discrete processes for some time, boasting a more comprehensive process platform and vehicle certification than many competitors. However, a wave of Chinese contenders, backed by national policies favoring EVs and solar initiatives, are ready to stake their claim, intensifying global competition in this sector. This includes mainstream foundries like HHGrace, SMIC, Nexchip, and CanSemi. Additionally, smaller Chinese IDMs and foundries, such as GTA and CRMicro, are also entering the competitive landscape. If China massively ramps up its production capacity, it will intensify global competition in Power Discrete manufacturing. The impact will not only spark price wars among local Chinese businesses but could also erode the order books and clientele of Taiwanese companies.

In a nutshell, while China actively courts both global and domestic IC designers to bolster its local manufacturing presence, the ensuing massive expansion could flood the global market with mature processes, potentially igniting a price war. TrendForce notes that as China’s mature process capacities continue to emerge, the localization trends for Driver IC, CIS/ISP, and Power Discretes will become more pronounced. Second and third-tier foundries with similar process platforms and capacities might face risks of client attrition and pricing pressures. Taiwan’s industry leaders, renowned for their specialty processes—UMC, PSMC, Vanguard to name a few—will find themselves in the eye of the storm. The battle ahead will hinge on technological prowess and efficient production yields.

TrendForce research indicates that in 1H23, the utilization rate of 8-inch production capacity primarily benefited from sporadic inventory restocking orders for Driver ICs in the second quarter. Additionally, wafer foundries initiated pricing strategies to encourage clients into early orders, offering solid backup. However, in 2H23, persistent macroeconomic and inventory challenges led to the evaporation of an anticipated demand surge.

Meanwhile, stockpiles in automotive and industrial control segments grew after meeting initial shortages, tempering demand. Under fierce price competition from PMIC leader Texas Instruments (TI), inventory reductions for Fabless and other IDMs were drastically inhibited. With IDMs ushering in output from their new plants and pulling back outsourced orders, this compounded reductions to wafer foundries. This dynamic saw 8-inch production capacity utilization dipping to 50–60% in the second half of the year. Both Tier 1 and Tier 2/3 8-inch wafer foundries saw a more lackluster capacity utilization performance compared to the first half of the year.

Heading into 2024, with the prevailing economic turbulence, the overall semiconductor foundry capacity utilization rate will face challenges in recovery. The 8-inch capacity utilization for 1Q24 is poised to mirror—or potentially dip below—4Q23 figures, revealing a glaring lack of recovery indicators.

However, starting from 2Q24, TrendForce posits that while clarity on end sales remains murky due to overarching economic risks, inventory levels are expected to wane, returning to a healthier equilibrium. The ensuing periodic restocking and the added momentum from orders shifted to Taiwanese foundries (owing to decoupling from China), should keep the 8-inch utilization rate from diving further. The average annual utilization rate for 8-inch wafers in 2024 is pegged around 60–70%. A swift return to yesteryear’s peak capacity seems difficult for now.

Taiwanese and Korean semiconductor foundries face the brunt of order curtailments

A closer look reveals Chinese foundries, such as SMIC and HuaHong Group (primarily HHGrace for 8-inch), exhibiting marginally superior 8-inch utilization rates than their Taiwanese and Korean peers. The proactive pricing approaches of Chinese foundries and China’s push for domestic IC substitution and production are key drivers. However, despite price reduction across foundries in 2H23, a predominantly conservative market outlook from clients, combined with the absence of urgent orders, meant these reductions rendered limited assistance to the 8-inch wafer utilization rate in the latter half of the year.

Panning to 2024, SMIC and HHGrace are forecast to outpace their Taiwanese and Korean counterparts in an 8-inch utilization rate resurgence. HHGrance could even see a stellar rebound, reaching 80–90%. On the Taiwanese front, TSMC grapples with PMIC order pullbacks, predicting an expected drop in 8-inch utilization to below 60% from 4Q23 to 1Q24. UMC and PSMC, in the same span, are gearing up to maintain levels above 50%.

Furthermore, even traditionally resilient Japanese and European IDMs commenced their inventory recalibration in 3Q23, potentially further stalling the recovery timeline for the 8-inch capacity utilization rate. TrendForce insights suggest that, with mounting inventory pressures, Infineon is curtailing orders to external foundries such as UMC and Vanguard. This strategy will likely suppress Vanguard’s 8-inch utilization rate into 1Q24, casting a gloomier shadow than earlier projections.

Korean heavyweight, Samsung, has prioritized its 8-inch production for large-sized Driver ICs, CIS, and smartphone PMICs. However, the persistent softness in consumer demand has prompted their clientele toward a more guarded-order strategy. Furthermore, Chinese CIS patrons, aligning with local manufacturing inclinations, are transitioning toward native foundries. Consequently, Samsung’s 8-inch utilization rate has languished in 2H23, with expectations set at approximately 50% throughout 2024.

Source to China Times, the International Semiconductor Industry Association (SEMI) forecasts that from 2023 to 2026, the global semiconductor industry will add 12 new 8-inch wafer fabs, with 8-inch fab monthly production capacity increasing by 14% to a historic high of 7.7 million wafers. In response, UMC stated that from a supply and demand perspective, capacity growth still lags behind demand growth. UMC emphasized that it remains optimistic about the future of the 8-inch wafer market, thanks to ongoing advancements in special processes and differentiation.

SEMI notes that the continuous rise in the penetration rate of electric vehicles (EVs) worldwide is driving substantial growth in the demand for inverters and charging stations. The future mass adoption of EVs is the primary driver for increased investments in 8-inch fabs and the continued expansion of global 8-inch fab capacity.

Examining the situation of new 8-inch fabs in various countries, Southeast Asia will see the largest capacity increase, with a growth rate of approximately 32%. SEMI predicts that China’s 8-inch fab capacity will follow, with an increase of about 22%, reaching a monthly production capacity of 1.7 million wafers. The United States, Europe, the Middle East, and Taiwan are expected to have growth rates of approximately 14%, 11%, and 7%, respectively.

SEMI reports that by 2023, China’s 8-inch fab capacity will account for approximately 22% of the global total, with Japan at around 16%, Taiwan at around 15%, and Europe, the Middle East, and the United States each at about 14%. Furthermore, to meet future market demand, suppliers such as Bosch, Infineon, Mitsubishi, Onsemi, and STMicroelectronics are accelerating their 8-inch fab capacity expansion. It is estimated that from 2023 to 2026, the 8-inch fab capacity for automotive and power semiconductors will increase by 34%.

Concerns have been raised about potential oversupply as global 8-inch fabs expand, but UMC, a major semiconductor foundry, states that given the current rate of 8-inch fab expansion worldwide, the increase in capacity is relatively modest compared to demand. From a supply and demand perspective, it is certain that capacity growth will not keep pace with the growing global demand for 8-inch wafers.

UMC further notes that while 8-inch fabs are increasing, demand is unlikely to remain stagnant. Currently, the majority of semiconductor fabs being built worldwide are 12-inch fabs, making the expansion of 8-inch fabs relatively limited, and the supply-demand balance has not worsened.

(Source: https://www.chinatimes.com/newspapers/20230922000218-260204?chdtv)

According to the news from ChinaTimes, the semiconductor market is experiencing a slowdown, with Taiwan’s three major mature process wafer foundries UMC, VIS, and PSMC all reporting reduced revenues in August. VIS and UMC both posted lower revenues compared to the previous month, while PSMC managed a slight 1.2% monthly increase in August. However, this increase still falls within this year’s relatively low range. Industry experts anticipate that the semiconductor industry will maintain a subdued market outlook in the latter half of this year, with a potential recovery likely delayed until the first half of the next year.

The semiconductor industry began its correction in the second half of last year. Initially, there was optimism for inventory adjustments to conclude within four quarters by the end of this year’s second quarter, anticipating a demand rebound in the latter half of the year. However, since the second quarter, semiconductor manufacturers have grown pessimistic due to slower downstream inventory depletion and weak end-user demand. This is reflected in third-quarter revenues for mature process wafer foundries, which are expected to remain flat or slightly decline based on August revenues. A robust recovery in the fourth quarter is unlikely, suggesting that industry-wide recovery is likely postponed until the first half of next year.

UMC saw consecutive monthly revenue growth from February to July. However, following five consecutive increases, the company experienced a slight decrease in revenue in August. TSMC previously stated in a conference that the current market recovery falls short of expectations, with an unclear outlook for wafer demand. It anticipates a 3~4% quarter-on-quarter decrease in wafer shipments in the third quarter, which aligns with the market’s expectations for a slight decline in August revenue.

UMC forecasts a 3~4% quarter-on-quarter decrease in wafer shipments in the third quarter, a 2% quarter-on-quarter increase in the average wafer price in USD, a low single-digit percentage decrease in the average gross margin, and an approximate 65% capacity utilization rate. Overall, industry insiders expect TSMC to face slight downward pressure on third-quarter revenue.

VIS reported July revenue reaching NT$3.596 billion, marking a new high for the first seven months of the year. However, its August revenue showed a decline, with a 2.23% month-on-month decrease to NT$3.516 billion. This is significantly different from the typical revenue growth momentum observed during the third-quarter peak season in previous years. Cumulative revenue for the first eight months of this year also decreased by 34.54% compared to the same period last year.

VIS anticipates a 4~6% quarter-on-quarter increase in wafer shipments in the third quarter, with a capacity utilization rate similar to that of the second quarter, around 60%. The average selling price (ASP) is expected to remain stable. However, due to increased production costs and depreciation expenses, the gross margin is estimated to decline to 25~27% in the third quarter, putting more pressure on profitability compared to revenue.

As for PSMC, although its August revenue saw a slight 1.2% month-on-month increase, the company has maintained around NTD 3.4 billion in monthly revenue from June to August, which is considered a low level compared to the second quarter when monthly revenue was approximately NTD 3.8 billion. The third quarter is expected to continue to exert downward pressure on revenue compared to the previous quarter. The company has also previously stated that it does not rule out the possibility of a quarterly loss in its core business during the third quarter.

(Source: https://www.chinatimes.com/newspapers/20230911000124-260202?chdtv)

According to the news from Liberty Times Net, NVIDIA’s Q2 financials and Q3 forecasts have astounded the market, driven by substantial growth in their AI-centric data center operations. NVIDIA addresses CoWoS packaging supply issues by collaborating with other suppliers, boosting future capacity, and meeting demand. This move is echoed in South Korea’s pursuit of advanced packaging strategies.

South Korea’s Swift Pursuit on Advanced Packaging

The semiconductor industry highlights that the rapid development of generative AI has outpaced expectations, causing a shortage of advanced packaging production capacity. Faced with this supply-demand gap, TSMC has outsourced some of its capacity, with Silicon Interposer production being shared by facilities under the United Microelectronics Corporation and Siliconware Precision Industries. UMC has also strategically partnered with Siliconware Precision Industries, and Amkor’s Korean facilities have joined the ranks of suppliers to augment production capacity.

Due to equipment limitations, TSMC’s monthly CoWoS advanced packaging capacity is expected to increase from 10,000 units to a maximum of 12,000 units by the end of this year. Meanwhile, other suppliers could potentially raise their CoWoS monthly capacity to 3,000 units. TSMC aims to boost its capacity to 25,000 units by the end of next year, while other suppliers might elevate theirs to 5,000 units.

According to the source South Korean media, Samsung entered the scene, competing for advanced packaging orders against NVIDIA. South Korea initiated a strategic research project to rapidly narrow the gap in packaging technology within 5~7 years, targeting giants like TSMC, Amkor, and China’s JCET.

(Source: https://ec.ltn.com.tw/article/paper/1601162)