(AmCham Taiwan｜Contributing Writer: Angelica Oung) The immediate cause of Taiwan’s latest major blackout is indisputable – in fact, it was caught on camera. In a closed-caption video, the supervisor on shift at Kaohsiung’s 4,326MW Hsinta Power Plant is seen hovering in front of a control panel for 20 minutes before turning on a switch labeled 3541. The adjacent switch 3540 had had its insulation gas drained as a part of routine maintenance, which caused 3541 to short out when it was tripped. The video went dark shortly after as the power went out for almost 5.5 million users across Taiwan.

Some households in Kaohsiung, the most severely affected region, lost power for more than 12 hours. Although it is difficult to estimate the actual economic damage, the state-owned Taiwan Public Television Service quoted a figure of NT$6 billion (US$204 million). There was a human toll too, as two older men in Kaohsiung passed away after the outage caused their respiratory support equipment to fail.

The incident occurred at 9:16 a.m., when Taipower was showing a comfortable 24% in operational reserves, and electricity output from Hsinta Power Plant accounted for less than 3% of Taiwan’s grid. So then how was it possible for one user error to cause the collapse of Taiwan’s power supply in such a catastrophic manner? The authorities and experts agree: At least part of the problem lies with Taiwan’s increasingly fragile grid infrastructure.

Loss of power at Hsinta was the first of a series of unfortunate events that triggered the island-wide rolling blackout, according to Taipower’s report to the legislature following the incident. A protective relay – a component designed to trip a circuit breaker when a fault is detected – should have taken Hsinta off the grid, but ironically the new digital protective relay misinterpreted the signals from Hsinta’s older equipment, and the crisis point reached the Lunchi Ultra High Voltage (UHV) substation, near Tainan.

Even then, disaster might have been averted if the Lunchi Substation had not been undergoing major maintenance at the time. Four of Lunchi’s eight connection buses were offline, reducing the substation’s ability to separate the rest of the grid from the effects of Hsinta’s blackout. All major power stations south of Lunchi took themselves offline as a protective measure, as any “backflow” of electricity could cause significant damage to power-producing equipment.

The grid north of Lunchi was successfully isolated from the cascading collapse. But unfortunately, the Lunchi substation was the southernmost node that collected energy from the power-producing south to the power-consuming industrial north. The grids of northern and central Taiwan were forced to enter rolling blackouts because they were starved of power imports from the southern part of the grid, though they managed to recover more quickly as no power plants north of Lunchi needed to be taken offline.

Taiwan’s grid is both isolated and relentlessly centralized, with heavy reliance on larger plants like Hsinta in the south to be the workhorses that power the island. Of the more than 30 high-power voltage substations that gather and distribute power, two stand out in particular: Lunchi in the south and the Longtan UHV substation in the north, with the Zhong Liao switching station in between. Together, those three critical pieces of infrastructure form Taiwan’s electric superhighway, and traffic flows only one way: from south to north. If any of the three nodes falter, as one wrong switch flipped at the Hsinta power plant caused Lunchi to do, there is no way around this massive central artery. The result? An electrical heart attack.

“Taiwan must accelerate the development of regional smart grids that can operate both independently and in tandem with one another to improve grid resilience,” says Chiang-Chien Le Ren, professor of electrical engineering at National Cheng Kung University (NCKU). “If regions of the grid can self-isolate and protect the provision of electricity locally, we can reduce the spread and impact of future blackouts.”

The goal of a smart grid is to automatically monitor energy flows and adjust to changes in energy supply and demand in real-time with the aid of digital connectivity and battery energy storage systems. In good times, smart grids can be power savers as they enable electricity to be aggregated and distributed more seamlessly. This is important for accommodating intermittent electrical generation from increasingly important renewable energy sources. It can also aid in “demand response” – shifting electricity demand from peak to off-peak hours. In the case of a systemic failure, smart grids would make Taiwan’s grid more robust by allowing regional grids to function in the event of central failure.

However, Taiwan still has a long way to go before achieving such a system, according to Yeh Tsung-kuang, a professor at National Tsing Hua University’s Department of Engineering and System Science. “The persistent reliance of northern Taiwan on electricity imports from the south is both the biggest source of fragility in the grid and something that cannot be solved through grid improvements alone,” he notes.

Before finalizing any plans for better grid distribution, the authorities will also need to ensure that power plants are distributed in clusters in the island’s north. “We have an enormous amount of power going from south to north – around three gigawatts in the summer,” says Yeh. “That amount is only going to increase.”

On the day of the 303 blackout (named for March 3, 2022, the date on which it occurred), Taiwan’s grid north of the Lunchi UHV substation could have been spared if the north generated enough electricity to meet its own needs, notes Yeh. “It’s true we have underinvested in our grid infrastructure, but while we have a grid problem, we also have a capacity problem,” he says. “Our capacity problem will make the grid worse; however, just making the grid better will not solve our power generation capacity problem.”

Human errors

One way grid and power generation capacity issues intersect is in the human element of the grid: the Taipower staff who physically operate the equipment. Due to operator error – the proximate cause of both the 303 blackout and last year’s 513 blackout – Taipower staff have come under unprecedented scrutiny. In fact, the Kaohsiung Ciaotou District Prosecutors’ Office announced it would investigate the three staff members involved in the 303 blackout for violation of Article 176 of the criminal code – intentionally or negligently causing the destruction of something by means of gunpowder, steam, electricity, gas, or another explosive substance. The charge’s seriousness reflects the damage done by the outage, but frontline Taipower employees say they are terrified and exhausted as they work overtime in their struggle to keep the lights on.

“It’s like we are walking on a high wire,” says one Taipower engineer who wishes to remain anonymous. “Because power supply is so tight, we’ve been pressured to shorten the maintenance period for our power plants.”

In engineering, there is an old saying: If you don’t schedule your maintenance, it will schedule itself. And no one is more aware of that than the engineers and technicians at Taipower. “From the point of view of system stability, the maintenance period should never be skimped, says the engineer. “The inevitable result will be more accidents. And once another accident inevitably occurs, the blame will fall on another lower-level Taipower staff. This is a gross injustice.”

A culture of high-pressure deadlines and blame, including the possibility of facing criminal charges, has crushed the morale of Taipower workers, says another frontline employee. “We’re scared. We seem to be to blamed no matter what happens. And for the sake of our jobs, we stay silent, but if things go on like this, a lot of Taipower staff will go elsewhere. We don’t feel safe.”

But help is on the way, said Deputy Minister of Economic Affairs and Taipower Interim Chairman Tseng Wen-sheng in a briefing to the legislature in March. During the briefing, Tseng said an infusion of NT$100 billion from the general budget would be allocated to improving Taiwan’s grid.

Due to the woeful state of Taipower’s finances, driven in part by Taiwan’s low electricity prices, the company, while well-aware of grid issues, has not been able to address them. In the wake of gangbuster economic growth and increased demand for power, it is essential for the Taiwan government to allocate resources to help the wounded giant.

The draft plan to improve the grid has three main goals. The first is to alleviate the pressure on the “south-to-north superhighway” with additional power transmission lines. The second is to connect power plants with industrial and technology parks directly, allowing some industrial power use to bypass the main grid completely. The third is to initiate the installation of smart grids, like those suggested by NCKU’s Chiang-Chien. But Tseng posits that the current budget allocation is still insufficient. “It will probably take more than NT$100 billion,” he says. Parts of the ambitious overhaul will also take time – as long as 10 years for some reforms. In addition, Taiwan’s power problems are more than grid-deep, notes Tseng. “As long as we are relying on using power generated in the south up in the north, the burden on the central north-south artery will continue.”

(Source: https://topics.amcham.com.tw/2022/05/fixing-taiwans-grid-issues-requires-redistribution/)

(AmCham Taiwan｜Contributing Writer: Angelica Oung) Last September, an article in Taiwan Business TOPICS posed the question of whether Taiwan is facing a looming power crunch. Just half a year later, the question has changed to “is Taiwan’s power crunch already here?” Indeed, the authorities have also rephrased their assurances from future tense (“Taiwan will not run short of electricity”) to present tense (“Taiwan isn’t short of electricity”). Despite the reassurances, repeated outages, pressure to curb consumption, and government projections all show that the adequacy of Taiwan’s power supply is becoming increasingly precarious.

A major blackout in early March added to the list of recent major outages, which also included two island-wide rolling blackouts that occurred within a week in May last year. Even before the March incident, however, AmCham’s 2022 Business Climate Survey found that energy security was a top-of-mind issue for members, with 61% asking the Tsai Ing-wen administration to prioritize energy even over COVID-19 pandemic control, cross-Strait relations, and trade agreements with the U.S. and other partners. A total of 78% of respondents expressed concern about power supply sufficiency, while 70.9% said they worried about the resiliency of Taiwan’s grid.

The three major blackouts, now known as 513, 517, and 303 for the dates on which they occurred, have been joined by a series of minor outages that have become a staple of media coverage.

“Power outages don’t mean we have a power shortage,” said Minister of Economic Affairs Wang Mei-hua in a recent television appearance. “Rather, we need to improve on aspects of our power delivery.” Operator errors, a fragile grid, and animal disturbance of electrical equipment are to blame, said the minister – not insufficiency of power generation.

Yeh Tsung-kuang, a professor at National Tsing Hua University’s Department of Engineering and System Science, disagrees. “Accidents have always happened, but now they have an outsized impact because we no longer have enough spare power capacity in our system to act as a buffer,” he says. As long as the government remains “in denial” about Taiwan’s “escalating power shortfall,” Taiwan’s power woes will only worsen, he adds. “As it is, it’s already too late for Taiwan to avert a crisis.”

To back up his assertion, Yeh points to a report on Taiwan’s electricity supply and demand published by the Bureau of Energy last May. Specifically, he points to a graph showing power-producing facilities that are slated to either go offline or be added to Taiwan’s grid through 2027.

Six more natural gas plants totaling 7.23GW should be completed according to the schedule. But Yeh warns that there is unlikely to be enough fuel to keep them running. “In a way, it doesn’t matter how many new natural gas generators we build,” he says. “Until 2025, we won’t be able to import enough gas to satisfy more than our existing generators.”

The use of natural gas for power generation is a crucial part of President Tsai’s energy policy. When she came into office in 2016, Tsai announced that nuclear power, which then accounted for 12% of Taiwan’s power mix, would be phased out by 2025. The use of dirty, polluting coal would decrease from around 45% to 30%. The proportion reserved for gas, which burns cleanly and releases only around half the greenhouse gas that coal does, would be raised from about 31% to 50%. The remaining 20% would consist of renewable energy sources.

For this “50/30/20 by 2025” plan to work, Taiwan will need to “step on the gas.” But every single molecule of natural gas coming to Taiwan will have to be in the form of liquefied natural gas (LNG), and the infrastructure to receive those shipments is already stretched thin.

Taiwan receives about 300 LNG shipments a year, according to a major energy executive who wishes to remain anonymous. “We can’t afford to miss a single one,” he says.

There are currently only two LNG receiving terminals in Taiwan, both operating at above 100% of their registered capacity. Together, they can hold around a 14-day supply of gas in the winter, and seven days in the summer, when demand is higher. It is impossible to safely reduce that reserve, the executive says. And at the earliest, relief will not come until 2025 when construction of the third LNG terminal, in Taoyuan’s Datan, is due to be completed.

Will a third terminal solve Taiwan’s gas shortage problem? Not completely. Ideally, six terminals would be required to accommodate the amount of natural gas Taiwan aspires to burn, while allowing a one-month supply of LNG to be kept in reserve. But the fourth and fifth receiving terminals have not yet emerged from the Environmental Impact Assessment planning stage, and the location of the sixth remains a question mark.

The problem has been years in the making. It seems that nobody in Taiwan wants to live near any kind of power infrastructure. Local NIMBY (“not in my backyard”) opposition and environmental concerns have been a potent combination that has stalled the construction of everything from LNG terminals to wind farms. It takes at least 48 months to build an LNG receiving terminal after all the permissions have been obtained, estimates the executive.

Delayed renewables

At the start of the Tsai administration, renewable energy was held out as the solution to the power production gap that would be left by the phaseout of nuclear energy. However, Minister Wang told the legislature in March that Taiwan would miss its target of renewable energy accounting for 20% of power generation by 2025; she subsequently lowered the expected proportion to 15%. “The goal for installed capacity remains unchanged,” said Wang. “The denominator just got bigger.”

In other words, Taiwan is projected to use a lot more electricity in 2025 than initially anticipated. The government has taken advantage of the U.S.-China trade dispute to welcome home manufacturers pulling up stakes from China or reducing the amount of production there. Amid a global chip shortage, Taiwan Semiconductor Manufacturing Co. (TSMC) and other semiconductor manufacturers also moved to expand production in Taiwan. Chipmaking is an especially energy-consuming industry.

In terms of solar energy, the government is retaining its goal of 20GW of installed capacity by 2025, and recently added a new goal of 30GW by 2030. These are ambitious targets that many in the solar industry consider unrealistic.

“Here we are in 2022 with around 8GWs, having already missed a number of previous goals,” says Lisa Cheng, head of Taiwan investment at Vena Energy, a renewable energy company with solar projects in Taiwan. “It’s not that government goals can’t be met, but we’re not going to do it under the current regulatory conditions.”

Developers of solar in Taiwan quickly discovered that it is almost impossible to build large-scale ground-mounted projects that are completed quickly and give the best returns. For example, the Council of Agriculture has blocked large solar projects that it believes encroach on its territory by taking up farmland, even if the land is not currently under cultivation. Instead, solar development in Taiwan has been relegated to initiating projects that are smaller and less controversial but also slower to install and less efficient, such as rooftop installations and aquavoltaics (solar panels placed above fish farms).

The situation never fully returned to normal after the 513 and 517 blackouts of 2021. Veteran energy reporter Liu Kwang-yin happened to be in the office of a petrochemical executive the day after the 303 blackout when an aide came in with a message from the Vice Premier: would the executive take a call from a manager at Taiwan’s state-owned energy utility, Taipower?

“Absolutely not!” said the executive unequivocally, “I won’t take calls from any of them!”

Liu, who wrote about the incident for Commonwealth Magazine, explains that Taipower was hoping to persuade the executive to cut production during peak hours, when demand on the grid is most likely to exceed supply.

There is already a “demand response” mechanism in place to tempt significant users to shift their power use to off-peak windows. Taipower offers a discount of up to NT$10 per kilowatt-hour (kWh), almost five times the usual commercial rate, for large users not to use power when the grid is likely to be stressed. But that is generally not enough of an incentive for industry, which loathes taking production offline.

“Each Taipower manager is responsible for negotiating with their own list of large users,” explains Liu. “They try to form relationships so that when push comes to shove, those large users are more inclined to help out.” The calls started around the time of the 2021 blackouts and have since become routine.

This is not the only extreme measure Taipower has taken to make electrical ends meet since the blackouts. If you live in Taiwan and notice your lights dimming slightly before returning to full strength, you are not imagining things. Taipower sometimes reduces the grid’s voltage as a last resort if the island is running low on power. Legally, it can drop the voltage by up to 3%.

“They are doing that more and more often, and it could harm appliances such as compressors for refrigerators,” says Yeh. “But what’s more serious is that it shows how tight the power supply already is right now.”

“What’s interesting is that the voltage reduction sometimes happens even while Taiwan’s grid is ‘green’ for adequate capacity,” says Liu. “Why is that?”

Electricity is a unique commodity that in practice must be produced just before it is consumed. (Although storage is a potential future option and battery technology for electric storage systems has advanced in recent years, such facilities are still too expensive and limited in capacity to have an impact at grid scale). Because of the disastrous consequences of demand outpacing supply, more electricity must always be produced than consumed. To ensure a surplus of energy, utilities such as Taipower maintain what is called an “operating reserve,” or the ability to generate power beyond the anticipated peak demand.

At an operating reserve of 10%, the grid is considered to be at a “green light.” When the operating reserve reaches 6-10%, the grid is at a “yellow light.” If it ever dips below 6%, that is grounds for an “amber light” and is considered an emergency. And yet, both the 513 and 303 blackouts happened during a “green light,” while only 517 occurred at a time of “yellow light.”

“The daily operating reserves are a sham,” says Yeh. “If you cannot ramp up a power-producing asset quickly, it shouldn’t be counted as operating reserves, but that is what Taipower does now as a matter of course.”

Power plants that are slow to ramp up and down, like coal or nuclear, are known as “baseload.” Plants like combined-cycle gas turbine facilities take a moderate amount of time to warm up and are considered “mid-load.” Finally, power sources that are quickly adjustable, such as hydroelectricity and open-cycle gas turbine generators, are considered “peak-load.” In order to maximize grid stability, operators generally rely chiefly on solidly-firing baseload generators, while leaving slack in the mid-load and peak-load for either unforeseen demand or an accident that unexpectedly interrupts power generation or transmission.

This scenario is not necessarily the norm in Taiwan, however. Because coal plants are so polluting and contribute to serious health complications for nearby residents, there is tremendous political pressure to burn as little coal as possible while vigorously turning to gas-fired plants to meet demand.

An unexpected surge in demand is the biggest challenge. If the source of the operating reserve is a combined-cycle gas plant, production can be ramped up in less than 30 minutes. But if the operating reserve comes from an inactive coal plant, it could take at least three to six hours before any electricity is produced – too long to prevent a blackout. Nevertheless, Taipower includes spare coal capacity in its daily operating reserves.

In the case of 513, even the hydroelectricity capacity in the operating reserve failed to come through. Taiwan was in the middle of a historic drought last spring, and Taipower was unable to use that reserve as nearly parched dams needed the water. Yeh estimates that if Taipower counted only capacity that could truly be dispatched in a timely manner in its calculation of the daily reserve, Taiwan’s operating reserve would be “under 6% most days.”

Taipower’s response

“I don’t think the media scrutiny is fair,” says Taipower Spokesman Chang Ting-shu. “If some bird strike causes a localized outage, that is seized upon as more proof that we’re out of power. The press magnifies every minor incident.”

The official Taipower response is that operator errors caused the 513 and 303 blackouts, while 517 was caused by “a faulty estimate of peak use” due to an unseasonably hot May last year. Basically, the utility denies that insufficient power supply was ever the issue for those events, though Chang confirms that Taipower does make calls to large users to request that they avoid using power at peak times.

“Demand response is a legitimate avenue of power management, something that advanced countries do and something Taiwan is trying to do more of,” he says. “It’s about shaving the peaks and filling in the valleys.”

As for voltage drops, Chang notes they have become less common this year, as the rainy 2022 Taiwan is enjoying allows for the liberal use of hydropower to bridge any last-minute gaps between supply and demand.

“It’s true that last year when it was very dry, we had a lot of difficulties,” says Chang. “Supply got tight, and we had to drop voltage quite a few times.” However, with the dams replete with water that can be used for hydroelectric generation almost instantaneously, he is cautiously optimistic. “I think we are going to be okay this summer,” he says.

To Liu of CommonWealth, it is not productive to dwell on whether Taiwan is indeed short on electricity. “If a household has to make calls every day to make sure they don’t default on their loans, we can argue whether that family is technically solvent, but obviously they are not in great financial shape,” she says. And just like a struggling household, the first order of business for Taiwan should be to implement some fiscal discipline. “There are so many things they should do, but the first must be to raise the price of electricity,” she maintains.

Tsing Hua’s Yeh, who is also a professor of nuclear engineering, has a different view. “The most obvious thing would be to not retire the power plants we plan to retire,” he says, suggesting Taiwan’s existing nuclear power plants could have their life extended by 20 years or more. “Many plants just like them have received such extensions in the U.S., but I’m afraid they’ll just extend the life of the coal plants instead.” Meanwhile, Vena’s Cheng posits that with greater political will from the government, renewable energy could be a more effective option. “Please give us the land and let us build,” she says. “We could be doing so much more, faster.”

(Source: https://topics.amcham.com.tw/2022/05/how-can-taiwan-avoid-an-energy-crisis/)

In recent years, China’s IC sales have been increasing year over year. Although sales have been suppressed by the United States and the impact of the pandemic, China’s IC sales still increased by 17% in 2020. Benefiting from the development of terminal applications such as 5G, online office, and smart cars, China’s IC sales grew by 18.2% in 2021 and it is expected to rise by 11.21% in 2022.

Currently, China’s 12-inch foundries are primarily owned by SMIC and Hua Hong Semiconductor. SMIC’s 12-inch fabs are located in Beijing and Shanghai while Hua Hong’s 12-inch fab is located in Wuxi. SMIC’s annual sales revenue in 2021 was US$5.44 billion, growing 39% YoY, and it posted net profit of US$1.775 billion, growing 147.76% YoY. From the perspective of revenue structure, 12-inch products contributed approximately 60% of SMIC’s revenue in the past year.

From the perspective of production capacity, SMIC’s capacity utilization rate has hovered around 100% in the past year. In 1Q22, SMIC’s capacity utilization rate was 100.4%, with a monthly production capacity of 613,400 units of 8-inch equivalent. . In 2021, new production capacity was 100,000 units/month (converted to 8 inches), of which 45,000 units/month was added as 8-inch wafers. At present, SMIC is still accelerating production expansion. Its project in Lingang, Shanghai has broken ground and its two projects in Beijing and Shenzhen are progressing steadily. Production is expected at these fabs by the end of 2022, mainly as 12-inch capacity.

Hua Hong Semiconductor posted operating income of US$1.631 billion in 2021, a YoY increase of 69.64%. From the perspective of revenue structure, Hua Hong Group primarily focused on 8-inch production capacity before 2020. As production commenced at Hua Hong Wuxi’s 12-inch project, Hua Hong completed the leap from 8 inches to 12 inch wafers. In the past year, Hua Hong’s average monthly production capacity of 8-inch wafers was 194,000 units and revenue was US$1.15 billion, accounting for 70.55% of total revenue. The average monthly production capacity of 12-inch wafers was 56,000 wafers and revenue was US$480 million, accounting for 29.45% of revenue, and the proportion of 12-inch revenue is increasing. In 1Q22, Hua Hong Semiconductor’s 12-inch revenue accounted for 44.1% of total revenue, an increase of 5 percentage points from the previous quarter. With the completion of the second phase of the Wuxi project, 12-inch revenue is expected to, once again, achieve substantial growth.

It is worth noting that since the Sino-US trade war, China’s substitution of domestic products has become mainstream, especially in the foundry and packaging and testing portions of the manufacturing process. In addition, the tense relationship between supply and demand and hobbled logistics caused by the pandemic has also catalyzed an increase in the proportion of fab revenue coming from China. From the perspective of wafer foundries, Hua Hong Semiconductor’s China revenue will account for 76% of total revenue in 1Q22. In terms of SMIC, although 4Q20 was categorized by an inability to manufacture Huawei orders and the proportion of revenue from China and Hong Kong fell from 69.7% in 3Q20 to 56.1% in 4Q20, as tension rose between supply and demand, lost Huawei orders have been taken up by other Chinese IC designers. In 1Q22, SMIC’s revenue from China and Hong Kong accounted for 68.4% of total revenue, a return to its peak level in 3Q20.

Behind record high sales of semiconductors is an unrelenting spike in demand. In order to alleviate the imbalance between supply and demand, the world’s major fabs are accelerating new production capacity and China’s fabs represented by SMIC and Hua Hong are also stepping up production expansion. From the perspective of the expansion structure, the current focus of fabs is still on the expansion of 12-inch wafers. The primary reason for this is that 12-inch wafers are characterized by higher production efficiency and lower unit consumables, with a comprehensive equipment supply chain. In the past two years, China has built a total of 11 projects involving 12-inch wafers. However, due to factors such as the pandemic, tide of production expansion, and lack of chips for equipment, the lead time of semiconductor equipment has been continuously drawn out, resulting in a slowdown in fab expansion. In addition, 8-inch capacity expansion is relatively slow due to equipment constraints. From the perspective of China’s foundry market, among new wafer production capacity (8 inch equivalent) from 2020 to 2021, 12 inch capacity accounted for 58.17%, 8 inch capacity accounted for 22%, and 6 inch capacity accounted for 19.83%.

Sony stated in an earnings call that PS5 shipments totaled only 11.5 million units in the last fiscal year (2Q21 to 1Q22), missing the target of 14.8 million units. Increasing PS5 game console production will be the company’s main task for now and sales are expected to rise to 18 million units this fiscal year. In addition, Sony also stated that it will strengthen live broadcast services and extend game services to other devices, as well as step up its VR business.

PS5 sales will continue to grow in 2022 but market instability remains

Although Sony had high expectations going into the launch of the PS5 and market reception was good, the PS5’s final sales volume was stifled by production hamstrung as a result of component shortages. Therefore, Sony specifically mentioned in the Business Segment Briefings, comparing US retailer events sold PS4 to the PS5, the PS4 sold an average of 6 units per minute, while the PS5 now sells approximately 1,000 units per minute, demonstrating the strong market demand for PS5.

At the beginning of the PS5 release, there were reports of an insufficient supply of components. When the PS5 was released at the end of 2020, it had been in production for several months and accumulated a certain amount of inventory. Even if production capacity was in short supply when the console was released, Sony could still meet some market demand in the first year with its inventory and then increase production capacity in 2021 to make up the difference. However, in 2021, semiconductor production capacity was also in short supply. Not only game console products, but numerous other products experienced a shortage of components. Naturally, Sony was unable to further increase the supply of PS5 consoles, resulting in PS5 sales coming in lower than originally expected. Sales even declined in 1Q22. As the imbalance between supply and demand of semiconductors gradually eases in 2022, Sony predicts that PS5 production will begin to increase to fulfill market demand and announced a sales target for this fiscal year of 18 million units.

Even so, there remain many uncertainties in 2022. First of all, although pandemic lockdowns in China have yet to directly affect the assembly and production of game consoles in Shandong, the risk of potential fallout still exists given the uncertainty of pandemic development. Secondly, demand from the overall consumer market may be exhausted in 2022. This is due to unfavorable factors such as inflation, wars, pandemics, and rising energy prices. Disposable income in 2022 is forecast to shrink as a result and force consumers to give up some non-essentials or delay purchases. So this may cause consumers to delay replacing their current console with a PS5. A combination of the original dearth of PS5 supply and the impact of the scalper market seriously depleted the stock of products on the market. Some consumers who were eager to enjoy new console games may have switched over to buying an Xbox Series X/S first which may contribute to PS5’s 2022 annual sales volume falling short of Sony’s estimate. TrendForce expects that volume will only reach 14.34 million units. Even if this forecast references the range of Sony’s fiscal year (2Q22 to 1Q23), estimated sales volume will only increase to 16 million units.

（Image credit: Pixabay）

According to TrendForce research, driven by strong demand for 5G mobile phones, base stations, automobiles, and HPCs, the global output value of packaging and testing (including foundry and IDM) reached US$82.139 billion in 2021, or 25.83% YoY. This upward momentum is forecast to continue in 2022, taking output value to US$101.185 billion in 2022, or 23.19% YoY. From the perspective of regional distribution, China’s IC packaging and testing output value in 2021 was approximately US$39.443 billion, increasing 31.7% compared with US$29.941 billion in 2020, becoming the world’s fastest-growing major market in terms of packaging and testing output value.

Shanghai pandemic lengthens overall lead time, hinders China’s packaging and testing growth in 2Q22

In 2Q22, Shanghai was locked down due to the COVID-19 pandemic. Although wafer fabs and packaging and testing plants were still operating normally, the pandemic hindered logistics and the materials required for packaging could not be effectively shipped from Shanghai, affecting transportation efficiency and logistics costs to a certain degree. Overall, China’s packaging and testing industry was not significantly affected by the pandemic in 1Q22 but, in 2Q22, the industry will bear the brunt of the COVID-19 situation, with packaging and testing companies experiencing prolonged overall lead times and sluggish revenue growth.

NEVs and HPCs to become new growth drivers, fabs and packaging and testing companies accelerate deployment

The growth rate of smartphones, a core driving force behind IC packaging and testing output value, is slowing down. Since smartphone shipments peaked at 14.575 million units in 2017, volume has not surpassed this number in the ensuing years. Even though the upgrade from 4G to 5G brought about a wave of replacements, the overall smartphone market has reached maturity, with slowing growth or even negative growth, so its demand on wafer manufacturing and packaging and testing is likewise slowing down.

Aside from mobile phones, growth in HPC and new energy vehicles (NEV) is becoming a new revenue engine. At present, the world’s major automobile production countries are accelerating the penetration rate of NEVs, and packaging and testing companies are also accelerating their investment in the automotive and HPC sectors. From the perspective of fabs, TSMC’s HPC revenue accounted for 41% of total packaging and testing revenue in 1Q22, surpassing mobile phones for the first time and becoming the largest source of the company’s packaging and testing revenue.

（Image credit: Unsplash）