Despite the ongoing intensity of the US-China tech war, Apple has been gradually leaning towards a more diversified supply chain, especially in the production of its latest head-worn device, Vision Pro. As per a report from Commercial Times, upon examination, it is revealed that the major supplier in chip manufacturing for this device is Texas Instruments (TI).

However, other components, such as the NOR Flash memory, originate from Chinese manufacturer GigaDevice, with the assembling being shifted from Taiwan-based facilities, previously relied upon, to Luxshare Precision.

On February 7th, following an in-depth teardown of internal components by the repair website iFixit, it was discovered that within the Vision Pro main unit, speakers, and external power supply, there are not only Apple’s self-developed processor chips but also multiple Apple-designed power management chips. It’s noteworthy that TI serves as the primary chip supplier in the Vision Pro.

Yet, surprisingly, there are NOR Flash from the Chinese memory manufacturer GigaDevice. As the US-China tech war continues to escalate, Apple’s use of memory from a Chinese manufacturer raises concerns in the market about whether it may cross the red line set by the US government.

In fact, in recent years, Apple’s products such as the iPhone, MacBook, iPad, Apple Watch, and AirPods have leaned towards Chinese suppliers like Luxshare, Wingtech, BYD, and GoerTek in the assembling sector, while Taiwanese suppliers like Foxconn, Quanta, Pegatron, and Compal, which Apple used to heavily rely on, are gradually fading out of the supply chain.

The assembly for Vision Pro has also shifted from Pegatron to Luxshare. While Taiwanese suppliers are gradually reducing their reliance on Apple, they are simultaneously diversifying into emerging fields such as artificial intelligence, electric vehicles, and smart healthcare.

On the other hand, despite the strong sales of Vision Pro since its launch in the United States in mid-January, reports surfaced of a wave of returns within just two weeks. The most cited reasons by consumers include discomfort when wearing, eye fatigue, and unsatisfactory software experiences, prompting buyers to opt for returns within the 14-day return window.

Some early adopters also expressed that the current productivity and entertainment experiences offered by Vision Pro do not justify its high price point. Additionally, they find its interactive features insufficiently convenient for tasks such as programming, design, and presentation editing.

TrendForce has previously reported that one of the main issues impacting the Vision Pro is its hefty price tag. The $3499 price point, although seemingly steep, is expected to resonate with the market, especially given the promise of ample applications, a quality user experience, and Apple’s established brand loyalty.

Additionally, should Apple introduce a more budget-friendly version as speculated, the premium pricing of the Vision Pro could serve to accentuate the value proposition of the more economical model, potentially driving consumer interest towards it.

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(Photo credit: Apple)

On February 15^th, U.S. chip equipment giant Applied Materials released financial results that surpassed expectations, accompanied by an optimistic revenue forecast for the current quarter.

In the previous quarter (Q1 of the fiscal year), Applied Materials recorded a revenue decline of less than 1%, totaling USD 6.71 billion, surpassing the market anticipated USD 6.48 billion. Net profit amounted to USD 2.02 billion or USD 2.41 per share, exceeding the USD 1.72 billion or USD 2.02 per share reported in the same period last year. On an adjusted basis, earnings per share stood at USD 2.13, compared to USD 2.03 in the corresponding period last year, surpassing the previous market expectation of USD 1.90 per share.

Applied Materials forecasts sales for the current quarter (Q2) to range between USD 6.1 billion and USD 6.9 billion, with the midpoint of USD 6.5 billion exceeding market consensus projection of USD 6.34 billion.

Excluding certain items, earnings per share for the quarter ending in April are expected to be between USD 1.79 and USD 2.15. The market anticipated earnings per share of USD 1.80, is at the lower end of this range.

This optimistic outlook suggests a faster-than-expected rebound in the chip industry. As Applied Materials provides equipment to major semiconductor manufacturers, including Samsung Electronics, TSMC, and Intel, its financial forecasts serve as a crucial indicator of future demand in the semiconductor industry’s supply chain.

China emerged as a notable highlight, with sales more than doubling to USD 3 billion, comprising 45% of the company’s overall revenue. CEO Gary Dickerson attributed this surge to a rush to enhance capacity for IoT appliances, communications, the automotive industry, as well as power and sensors. In the telephone interview, Dickerson mentioned this sector as ICAPS.

Although the growth rate in this sector may not be sustained at its current level, the requirement for more chips per device will continue to propel the market forward, indicating that the current expansion is not a bubble.

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• [News] ASML Points to Chip Industry Recovery Amid Export Control Risks

(Photo credit: Applied Materials)

The demand for Dutch semiconductor equipment manufacturer ASML serves as a trend indicator for the industry. The company optimistically stated in its annual report that the chip industry has hit rock bottom and is beginning to show signs of recovery. However, it also cautioned that geopolitical tensions and the potential expansion of US export controls on China remain operational risks.

ASML’s Chief Financial Officer, Roger Dassen, stated in the annual report for 2023 released on the 14th, “We believe that the market has now reached the lowest point of the dip, and although we cannot predict the exact nature of the slope ahead, the recovery is nascent.”

He further pointed out, “The longer-term trends are unmistakable – artificial intelligence, electrification, and the energy transition are happening,” which bodes well for ASML’s business.

However, the ASML annual report mentioned, “The list of Chinese entities impacted by export control restrictions has increased since 2022,” and “The list of restricted customers and the scope of the restrictions were subject to change.”

According to TrendForce’s analysis, while Chinese semiconductor fabs will be unable to purchase NXT:2000i series tools and newer from 2024 onwards, they will still have access to older models like the NXT1980i. This allows them to continue expanding their capacity for manufacturing processes of 28nm and above.

In last month’s financial report announcement, ASML indicated that it anticipates export controls from both the United States and the Netherlands to result in a decrease of approximately 10% to 15% in sales of its mid-range DUV equipment to China this year.

Regarding the 2023 record of ASML’s DUV sales, Dassen also explained in the interview accompanying the financial report that the strong performance in China’s business in 2023 actually stemmed from orders placed at the end of 2022, with the execution of these orders taking place in 2023.

In 2023, China surpassed South Korea to become ASML’s second-largest market, accounting for 26.3% of sales, while Taiwan maintained its leading position with sales accounting for 29.3%.

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• [News] Despite U.S. Semiconductor Export Restrictions, ASML Reports Doubling of Revenue Share from China in 2023
• [News] ASML Reports Partial Revocation of Export Licenses for DUV Equipment

(Photo credit: ASML)

China’s leading semiconductor foundry, SMIC International, announced its fourth-quarter financial results on February 6th. While the quarter’s revenue exceeded expectations, a significant drop in gross margin led to a sharp decrease in net profit by less than 50% to below USD 1 billion last year.

SMIC issued a warning, further revising down the gross margin for the first quarter of this year to around 10%, with single-digit figures at the lower end.

During the fourth quarter, SMIC International saw a revenue increase of over 3.5% to more than USD 1.678 billion, marking the only quarter of revenue growth last year. Net profit plummeted by 54.7% to nearly USD 175 million.

The gross margin of 16.4% was almost halved compared to the same period in 2022 and experienced a significant decline from the previous three quarters, reaching its lowest point of the year.

In the full year of 2023, SMIC International experienced a revenue decline of over 13% to USD 6.3 billion, with a net profit decrease of 50.4% to USD 900 million. The gross margin was approximately halved to 19.3%.

Regarding the decline in net profit, SMIC cited various factors including the industry downturn, weak market demand, high industry inventory, and fierce competition among peers, all contributing to reduced capacity utilization and decreased wafer shipment for the group.

Additionally, the group experienced a period of high investment during the financial reporting period, leading to increased depreciation compared to the previous year.

Looking ahead to the first quarter of this year, SMIC estimates a quarter-on-quarter revenue growth of up to 2%. For the first-quarter gross margin guidance, SMIC has provided a range of 9% to 11%, indicating a decrease of approximately 33% to 45% from the low point of 16.4% in the fourth quarter of last year.

SMIC also anticipates that, under the assumption of no significant changes, this year’s revenue growth will not be lower than the average of comparable peers, showing a mid-single-digit increase compared to last year. The capital expenditure scale is expected to remain roughly flat compared to last year.

The significant downward revision in gross margin guidance has drawn attention to SMIC’s strategic moves. According to a report by the Financial Times, SMIC is intensifying its collaboration with Huawei by establishing a new production line in Shanghai dedicated to producing chips for Huawei’s future flagship smartphones, focusing on the 5-nanometer process.

However, industry sources cited by the report have also indicated that SMIC’s prices for 5-nanometer and 7-nanometer processes are 40% to 50% higher than TSMC’s, and the yield less than one-third of TSMC’s.

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• [News] Over 350 China’s Semiconductor Industry Projects Thriving in 2023

(Photo credit: SMIC)

Industry sources cited by Reuters have revealed that Huawei, the Chinese telecommunications giant, is slowing down the production of its high-end Mate 60 series smartphone due to surging demand in the AI chip market and production constraints. Instead, the company has decided to prioritize the production of AI chips from its Ascend series, diverging from the Kirin chips used in the Mate 60 series.

According to a report by Reuters on January 5th, Huawei is utilizing a plant to simultaneously produce chips from the Ascend series and the Kirin series. The current plan is to prioritize the production of Ascend chips over Kirin chips, although the exact starting date for this arrangement has not been disclosed.

On the other hand, the production volume of Huawei’s Mate 60 series, launched in August last year, has been hampered by low chip yields. Reportedly, Huawei is actively working to improve chip yields, and it is hoped that the mentioned production adjustment will be a short-term measure.

It’s worth noting that many Huawei products have recently been affected by production bottlenecks. The computation components for Huawei’s assisted driving system have encountered production issues due to shortages of components.

This has led to delays in the delivery of flagship models from Changan Automobile, Chery Automobile, and Seres. Changan Automobile and Chery Automobile have already filed complaints and are currently in negotiations with Huawei.

Reports have indicated that since 2019, the U.S. government has imposed sanctions on Huawei, citing national security concerns, thereby cutting off Huawei’s access to advanced chip manufacturing equipment and technology and weakening its smartphone division. In response, Huawei denies posing any security risks and is actively working to rebuild its business.

In addition, Bloomberg previously reported that the Chinese government has also been directly investing to assist Huawei in building its chip supply chain since 2019, creating an exclusive supply chain for Huawei in response to the tighten restrictions.

In October 2023, the U.S. further strengthened restrictions on the export of advanced chips and chip manufacturing equipment to China, building upon previous limitations. This move forced Chinese customers to turn to domestic alternatives. Huawei’s Ascend 910B chip is considered the most competitive non-NVIDIA chip available in the Chinese market.

Huawei has maintained a low profile regarding its chip manufacturing capabilities and objectives. There is limited public information about its progress or how it successfully produces advanced chips.

In August 2023, during U.S. Commerce Secretary Gina Raimondo’s visit to China, Huawei launched the Mate 60 series, garnering significant market attention.

(Photo credit: Huawei)