Market conditions in 2022 are chaotic and demand for chips fluctuate according to application. However, the IC design industry is driven by major manufacturers and the sales performance of high-end product portfolios such as data center, server, networking, industrial computing, automotive, and high performance computing will remain stable The overall market will grow to $182.9 billion, an annual increase of 14.4%.

At present, the overall industry is being negatively affected by weak demand for consumer electronics. In addition, the tightening of financing and the expectation of a wider economic recession further strengthen pessimistic attitudes. There is no opportunity for chip demand to reinvigorate in the short term, not to mention that the supply chain is already dealing with full inventories. A return of the traditional industry peak season in 2H23 will stabilize purchasing power while flat to single-digit growth in the IC design industry would be a relatively good scenario.

R&D expenses positively correlated with manufacturer revenue, AMD posts best performance in 1H22

In 1H22, R&D expenses at major IC design houses were positively related to revenue in general. The use of advanced manufacturing processes requires strong R&D capabilities, accounting for 15-35% of revenue. AMD is the most active among U.S. companies. After acquiring Xilinx and Pensando, AMD has aggressively invested in the research and development of data center-related product portfolios. In 2Q22, R&D expenditures increased by 97.2% YoY. In terms of Asian manufacturers, the impact of the poor consumer electronics market is severe and revenue growth momentum has all but disappeared. Therefore, the synchronization of R&D expenditure with revenue is also more conservative. Novatek, Willsemi, and LX Semicon product portfolios are dominated by mature processes such as DDIC and CIS with R&D/ revenue ratios below 15%.

IC design industry inventory on red alert, inventory adjustment to become a challenge by 2Q23

The IC design industry has accumulated inventory since 3Q21 and the annual growth rate of inventory has climbed to more than 50% in 1H22. Compared with the annual growth rate of revenue, the difference among American manufacturers is 20% and the difference among Asian manufacturers is 46%, indicating that inventory issues among Asian manufacturers is more serious.

The inventory levels of consumer electronics-related industries such as Smartphone, TV, Tablet, PC/notebook, and Panel, are at a 6 month level. The supply chains of IC design houses and distributors/agents are also holding substantial inventory. The inventory-to-revenue ratio of IC design houses has reached a red alert threshold of over 50%. With no improvement in demand, expectations that inventory destocking will be completed by the end of 2022 may be dashed. At present, IC design houses are desperately reducing booked foundry production capacity for high-inventory mid-level AP, DDIC, and Consumer PMIC/GPU products. If the consumer electronics market outlook remains poor in 4Q22, IC design houses could also claim a greater amount of inventory depreciation as losses. In general by 2Q23, IC design houses will continue to test their strategies for new product development, production planning, and product sales during the process of destocking the overall supply chain.

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According to TrendForce research, due to the vigorous stocking of various terminal applications causing a shortage of wafers in 2021, the global IC industry was severely undersupplied. This, coupled with spiking chip prices, boosted the 2021 revenue of the global top ten IC design companies to US$127.4 billion, or 48% YoY.

TrendForce further indicates three major disparities from the 2020 ranking. First, NVIDIA surpassed Broadcom to take the second position. Second, Taiwanese companies Novatek and Realtek rose to sixth and eighth place, respectively. Originally ranked tenth, Dialog was replaced at this position by Himax after Dialog was acquired by IDM giant Renesas.

Qualcomm continues its reign as number one in the world, primarily due to 51% and 63% growth YoY in sales of mobile phone SoC (System on Chip) and IoT chips, respectively. The addition of diversified development in its RF and automotive chip businesses was key to a 51% increase in revenue. NVIDIA implemented the integration of software and hardware, demonstrating its ambitions in creating a “comprehensive computing platform.” Driven by the annual growth of gaming graphics card and data center revenue at 64% and 59%, respectively, NVIDIA successfully climbed to second place. Broadcom benefited from the stable sales performance of network chips, broadband communication chips, and storage and bridging chips, with revenue growing 18% YoY. AMD’s computer and graphics revenue grew by 45% YoY due to strong sales of the Ryzen CPU and Radeon GPU and rising average selling price. Coupled with accelerating demand from cloud companies, the annual revenue of AMD’s enterprise, embedded, and semi-customized divisions increased by 113%, driving annual growth of total revenue to 68%.

In terms of Taiwanese firms, MediaTek’s strategy of focusing on mobile phone SoC has produced miraculous results. Benefiting from an increase in 5G penetration, the sales performance of MediaTek’s mobile phone product portfolio surged by 93% and the company has committed to increasing the proportion of high-end product portfolios, resulting in 61% annual revenue growth. Novatek’s two major product lines of SoC and display driver IC have both grown significantly. Due to improved product specifications, increased shipments, and beneficial pricing gains, revenue grew by 79% YoY, the highest among the top ten. Realtek has been driven by strong demand for Netcom and commercial notebook products, while the performance of audio and Bluetooth chips remains quite stable, conferring an annual revenue growth of 43%. Himax joins the top ten ranking for the first time in 2021. Due to significant annual revenue growth in large-sized and medium/small-sized driver IC of 65% and 87%, respectively, and the successful introduction of driver IC into automotive panels, total revenue exceeded US$1.5 billion, or 74% YoY.

Looking forward to 2022, after AMD completes the acquisition of Xilinx, other players will fill out the rankings. In the broader picture, intensifying demand for high-specification products such as high-performance computing, Netcom, high-speed transmission, servers, automotive, and industrial applications will create good business opportunities for IC design companies and drive overall revenue growth. However, terminal system manufacturers face the correction of component mismatch issues. In addition, growing foundry costs, intensifying geopolitical conflicts, and rising inflation will all be detrimental to global economic growth and may impact an already weakened consumer electronics market. These are the challenges IC design companies face in 2022 and by what means can product sales momentum be maintained within existing production capacity, R&D efficacy strengthened, and chip specifications upgraded, will become the primary focus of development in 2022.

Intel and AMD will be releasing new CPUs that support DDR5 DRAM solutions for PCs and servers this year. In response, the DRAM industry led by South Korean suppliers is developing solutions to complement the arrival of the new CPUs. In the midst of the gradual shift to DDR5, DRAM suppliers will also scale back the supply of DDR3 solutions, according to TrendForce’s latest investigations. With Korean suppliers accelerating their withdrawal from DDR3 production, Taiwanese suppliers yet to kick off mass production using newly installed capacities, and Chinese suppliers falling short of their expected yield rate, the global supply of DDR3 solutions will undergo an impending decline. With respect to the demand side, however, not only has the supply of networking chips been ramping up, but material shortage issues are also gradually easing. As such, buyers are now procuring DDR3 solutions ahead of time, resulting in a tight supply and demand situation in the DDR3 market. TrendForce therefore expects DDR3 DRAM prices to recover from a bearish first quarter and undergo a 0-5% QoQ increase in 2Q22.

On the supply side, Samsung and SK hynix have begun scaling back their DDR3 production while also planning to declare EOL (end of life) for their DDR3 offerings, such as 1/2Gb and 4Gb chips. It should be noted, however, that Micron’s DDR3 solutions will not reach EOL even by 2026, meaning the company will still offer DDR3 solutions long after its two Korean competitors have stopped doing so, according to TrendForce’s understanding. Also worth noting is that Micron is migrating its DDR3 production to a US-based fab that mainly manufactures specialty DRAM solutions. Nevertheless, since this fab’s production capacity will be divided between products for consumer and automotive applications, TrendForce believes that the aforementioned migration will tighten Micron’s supply of consumer DRAM solutions because the US fab will give priority to automotive DRAM solutions that offer a higher gross margin and are currently enjoying surging demand.

Although Taiwan-based DRAM suppliers that focus on promoting DDR3 solutions, namely, Nanya Tech and Winbond, are in the process of capacity expansion, their new production lines will not be operational until 2023-2024. Hence, the contribution from the newly added capacities is not expected to drive up DDR3 supply substantially this year. Chinese suppliers, including CXMT and GigaDevice, are continuing to collaborate in DDR3 development, though their capacity increases and yield rate improvements have both fallen short of market expectations. After being added to the Entity List, JHICC, yet another China-based DRAM supplier, is now dealing with severe restrictions with respect to procuring equipment, making it difficult for JHICC to raise its wafer input. Furthermore, the company has no spare resources that can be allocated to R&D and pilot runs. As a result, JHICC still primarily manufactures DDR4 4Gb chips at its initial 25nm node, with no DDR3 production at the moment.

With regards to demand, DDR3 consumer DRAM is primarily used in end-devices such as STBs and networking products (e.g., GPON, routers, and modems), which do not require high-performance SoCs. While the foundry industry suffered a severe shortage of wafer capacities allocated to logic ICs in 4Q21, production capacities for relatively low-margin chips were noticeably impacted in turn. Along with a preexisting component mismatch situation, most manufacturers found themselves unable to assemble end-devices. Moving into early 2022, however, the supply of certain materials, including those used in foundry operations, saw a gradual improvement. As various components needed for device manufacturing became available after Lunar New Year, certain buyers have once again kicked off their consumer DRAM procurement activities.

In addition, DRAM spot prices shifted from a prior decline to a strong upturn at the end of last year as the Chinese government ordered a month-long lockdown in Xi’an. The ensuing price hike, which has lasted for two months, subsequently led buyers to procure even more DRAM ahead of time in anticipation of further price hikes. Hence, although the demand for end-products has yet to make a full recovery, buyers are now slowly and steadily procuring consumer DRAM in order to avoid either higher upcoming prices or even an inability to secure consumer DRAM inventory.

The semicondustor market in 3Q21 is red hot with total revenue of the global top 10 IC design (fabless) companies reaching US$33.7 billion or 45% growth YoY, according to TrendForce’s latest investigations. In addition to the Taiwanese companies MediaTek, Novatek, and Realtek already on the list, Himax comes in at number ten, bringing the total number of Taiwanese companies on the top 10 list to 4.

Qualcomm has been buoyed by continuing robust demand for 5G mobile phones form major mobile phone manufacturers with further revenue growth from its processor and radio frequency front end (RFFE) departments. Qualcomm’s IoT department benefited from strong demand in the consumer electronics, edge networking, and industrial sectors, posting revenue growth of 66% YoY, highest among Qualcomm departments. In turn, this drove Qualcomm’s total 3Q21 revenue to US$7.7 billion, 56% growth YoY, and ranking first in the world.

Second ranked NVidia, is still benefiting from gaming graphics card and data center revenue as the annual revenue growth for these two primary product departments reached 53% and 48%, respectively. In addition, professional design visualization solutions only accounted for 8% of total revenue. However, due to enduringly strong demand for mining and customers actively deploying the RTX series of high-performance graphics cards, NVidia’s product department revenue grew 148% YoY with overall revenue increasing by 55% to US$6.6 billion.

Third ranked Broadcom’s main revenue stream came from their network chip, broadband communication chip and storage and bridge chip businesses. Driven by post-COVID hybrid working models, companies are accelerating migration to the cloud, increasing demand for Broadcom chips, and driving revenue growth to US$5.4 billion or 17% YoY. AMD’s Ryzen, Radeon, and EPYC series of products in the fields of games, data centers, and servers performed well, driving total revenue to US$4.3 billion, 54% growth YoY, and fifth place overall.

In terms of Taiwanese companies, MediaTek continues to expand its global 5G rollout and, benefiting from optimization of product portfolio composition, product line specification enhancement, increase in sales volume, increases in pricing, and other factors, revenue of MediaTek’s mobile phone product line increased 72% YoY. Annual revenue of other product lines also posted double digit growth with total revenue in the 3Q21 reaching US$4.7 billion or 43% YoY, a fourth place ranking. Novatek continues to focus on its two primary product lines of system-on-chip and panel driver chips. The proportion of its OLED panel driver chip shipments has increased, product ASP has risen, and shipments have been smooth with 3Q21 revenue reaching US$1.4 billion or 84% YoY. In addition, Realtek’s revenue surpassed Xilinx to take the eighth position due to higher priced Netcom chips in 3Q21. Himax also saw significant growth in its three main product lines of TVs, monitors, and notebooks due to large-size driver chips. Revenue from large-size driver chips increased 111% YoY, driving total revenue to exceed the US$400 million mark, a 75% increase, and enough to squeeze onto this year’s ranking.

Overall, 3Q21 revenue for major IC design (fabless) companies has generally reached historic levels. Rankings for the top 7 companies remained the same as in 2Q21 with change coming in ranks 8 to 10. Looking forward to 4Q21, TrendForce believes Taiwanese IC design (fabless) companies will generally lean conservative. In addition to the electronics industry moving into the traditional off-season, a slowing of demand for consumer applications and customer-end materials supply issues reducing procurement will make continued revenue growth a challenge. In addition to consumer electronic products, global industry leaders are focused on the positive development of server and data center products to maintain an expected revenue growth trend.

For more information on reports and market data from TrendForce’s Department of Semiconductor Research, please click here, or email Ms. Latte Chung from the Sales Department at lattechung@trendforce.com

This year sees the continuation of the persistent chip shortage, which entails a shortage of production capacity for not only 12-inch wafers fabricated with mature process technologies but also 8-inch wafers in particular. The shortage of 8-inch wafer production capacity initially began gestating in 2H19, owing to emerging demand from structural changes in the semiconductor industry, with 5G smartphones and PMICs used in new energy vehicles as two examples of such demand. At the same time, the consumption of semiconductor production capacity has also increased multiplicatively in recent years as a result of the aforementioned structural changes. TrendForce expects demand for semiconductor capacity from emerging applications to continue rising in the coming years.

In response to this emerging demand, foundries such as TSMC, UMC, and SMIC are currently expanding their investment in mature process technologies. TrendForce expects the industry’s total 8-inch wafer capacity to grow at a 3-5% CAGR from 2019 to 2023, while 12-inch wafer capacity is expected to grow at an 11-13% CAGR across the same period. It should be pointed out that production capacities allocated to the 0.18-0.11µm process nodes（for 8-inch wafer fabrication） and 55nm-12nm nodes（for 12-inch wafer fabrication）represent the most severe shortage among all process nodes. Hence, certain foundries are expected to gradually install additional production capacities for mature process technologies in 2H22-1H23. These installations will likely help address the ongoing chip shortage.

In addition, several foundries are focusing on expanding their 28nm manufacturing capacity, primarily because transistor architecture below the 20nm node requires a transition to FinFET architecture, which is relatively costly. The 28nm node represents the sweet spot in terms of cost/benefit and is widely used for manufacturing such mainstream products as notebook Wi-Fi chips, smartphone OLED driver ICs, automotive MCUs, and image signal processors. Furthermore, chips used for IoT applications, including smart home appliances and set-top boxes, as well as other products currently manufactured at the 40nm node will likely be migrated to 28nm manufacturing, meaning the demand for 28nm capacity will continue to grow going forward.

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