According to a Financial Times report on October 24, 2022, as the U.S. Department of Commerce moves to restrict U.S. personnel from supporting semiconductor manufacturing “facilities” located in China to develop or produce chips without Department approval, Yangtze Memory Technologies Co., Ltd. (YMTC) has taken steps to avoid violating the ban and allowed a number of core employees with U.S. citizenship to resign.

YMTC is a domestic NAND flash memory chip manufacturer in China. In 2018, it only possessed the ability to produce 32-layer MLC 64Gb products. At that time, mainstream products offered by international manufacturers were 92-layer/96-layer TLC 256Gb/512Gb. Since then, YMTC has continued to catch up in terms of technology. By 2020, it had the capacity to mass-produce 128-layer TLC 512Gb products. The company’s new X3-9070 product, released in 3Q22, is estimated to have 232 stacked layers, equaling major international manufacturers if only in the amount of layers.

U.S. personnel played a key role in the process of YMTC’s continuous technological breakthroughs including Simon Yang, CEO since 2016. On the eve of the latest U.S. sanctions, Simon Yang resigned as CEO to become managing director. After the ban came into effect, a number of core personnel of U.S. nationality who assisted in the development of process technology resigned in succession. As sanctions continue to roil, technological development at YMTC may be delayed as a result.

Under the influence of the U.S. ban, YMTC not only faces brain drain, but will also experience difficulties expanding mass production of mainstream products and next-generation products. Since the U.S. Department of Commerce not only placed restrictions on equipment utilized to produce 128-layer (or more) NAND flash memory chips, but also maintains a “presumption of refusal” when reviewing the export of such equipment to China, YMTC may be unable to obtain sufficient equipment to produce next-generation 232-layer products or expand the production of mainstream 128-layer products.

As international NAND flash memory chip manufacturers continue to mass-produce products with more than 200 layers and move towards 300+ layers, if YMTC cannot manufacture products over 128 layers because the company continues to be limited by talent and equipment restrictions, the technological divide between YMTC and major international manufacturers will widen again and its recent efforts to keep up with technology will also come to nothing.

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The U.S. Department of Commerce announced new semiconductor restrictions on October 7 in the United States. In addition to existing restrictions on the logic IC sector, this new update extends to the memory category. In addition to Chinese-funded enterprises, the extent of these restrictions stipulates foreign-owned production centers located in China will also need to apply for approval on a case-by-case basis in order to continue to obtain manufacturing-related equipment. The US ban has far-reaching effects and may extend to the global chip industry.

U.S. ban hobbles China’s semiconductor industry, affecting foundry and memory industries

The U.S. Department of Commerce announced a series of chip export control measures on the 7th, which mainly restrict China’s ability to obtain advanced computing chips, develop supercomputers, and manufacture advanced semiconductors.

However, relevant restrictions also prohibit third-country companies such as TSMC from using US-made equipment to service Chinese customers without U.S. approval in some cases. According to TrendForce, a market research agency, the ban will expand the scope of these restrictions. In the future, it will target American companies, including CPUs, GPUs, and AI accelerators, used in HPC fields such as datacenters, AI, and supercomputers. All of these items will require review before export to China. In addition, foundries may no longer be able to manufacture any of the above-mentioned HPC-related chips for any Chinese IC design house.

TrendForce believes, regardless of whether the client is a Chinese or American IC design house, most HPC-related chips are currently manufactured by TSMC with mainstream processes at the 7nm, 5nm, or certain 12nm nodes. In the future, whether the situation is American factories no longer being able to export to the Chinese market or Chinese factories being unable to initiate projects and mass produce wafer starts, it will all have a negative impact on the future purchase order status of TSMC’s 7nm and 5nm processes.

In terms of memory, according to the new specifications announced by the U.S. Department of Commerce, the DRAM portion of sanctions will be limited to the 18nm process (inclusive) and equipment must be reviewed by the Department before import. This move will greatly restrict or delay the sustainable development of China’s DRAM sector and China’s memory manufacturers will be the first to bear the brunt of these sanctions.

TrendForce indicates that CXMT possesses the largest memory market share for a Chinese company in the domestic Chinese market. Since 2Q22, the company has been committed to moving from the 19nm process into the 17nm process. Although the purchase of machinery to fulfill future needs had been accelerated before the ban, volume is still insufficient. CXMT continues to build new plants, including Phase 2 in Hefei and SMBC (SMIC Jingcheng), which is in discussion with SMIC. All of these projects will face difficulties in obtaining equipment in the future.

The C2 plant of SK hynix’s DRAM production center in Wuxi is also affected by the restriction order. The factory accounts for approximately 13% of the world’s total DRAM production capacity and its process has evolved to 1Ynm and more advanced nodes.

In terms of NAND Flash, TrendForce indicates that the import of NAND production equipment into China will be further restricted in the future, especially for equipment used in the manufacture of product of 128 layers and above (inclusive), requiring prior approval before import. It is estimated that this ban will significantly impact the long-term plans of China’s YMTC to upgrade its factory campuses, restrict YMTC from further expanding its customer base as the ban may will greatly limit non-Chinese customers’ adoption and consideration of YMTC products, and impact Samsung’s Xi’an plant and Solidigm’s process migration plan in Dalian.

U.S. temporarily exempts several suppliers as ban disrupts supply chains

In order to mitigate excessive impact of the U.S. imposed China chip ban on the semiconductor industry, the U.S. recently exempted several semiconductor companies (including in the United States, Taiwan, and South Korea) from certain restrictions.

According to Wall Street Jounal, Intel, SK Hynix, and Samsung have all received one-year exemptions. SK Hynix also issued a statement stating that the company has completed negotiations with the U.S. Department of Commerce and has obtained approval to provide equipment and items required for the development and production of DRAM semiconductors in Chinese manufacturing plants without additional licensing requirements. The authorization period is one year.

In addition, Nikkei Asia News also quoted sources as saying that TSMC has also received a one-year exemption to continue ordering U.S. chip manufacturing equipment to expand its Chinese plant. According to people familiar with the matter, the U.S. government has assured TSMC that the equipment will be shipped to its Nanjing fab, which means the company’s China’s development plan remains unchanged and is progressing smoothly.

（Image credit: iStock）

The U.S. Department of Commerce announced new semiconductor restrictions on October 7 in the United States. In addition to existing restrictions on the logic IC sector, this new update extends to the memory category. In addition to Chinese-funded enterprises, the extent of these restrictions stipulate foreign-owned production centers located in China will also need to apply for approval on a case-by-case basis in order to continue to obtain manufacturing-related equipment. In addition, the new restrictions increase the difficulty for China to obtain any chips that may be used for military purposes through imports.

According to TrendForce research, the scope of this update is primarily limited to 16nm, 14nm, or more advanced proceses for logic ICs (such as FinFET or GAAFET), 18nm or more advanced processes for DRAM, and 128-layer or higher products for NAND Flash chips.

Analysis of impact on foundry industry

In terms of foundry equipment supply, after SMIC was included on the Entity List in 2020, according to TrendForce investigations, the US Department of Commerce targeted US equipment manufacturers who wished to export equipment used for processes below 16nm (inclusive) to Chinese fabs not included on the Entity List including HuaHong Group, etc., and even foreign-owned production centers located in China, instituting a review before export can be implemented. Therefore, most Chinese fabs are currently focusing their production expansions on processes 28nm and above. As for non-Chinese wafer foundries, only TSMC Nanjing is focused on 28nm expansion and has no plan for advanced processes.

TrendForce indicates, although Chinese fabs are actively partnering with domestic Chinese, European, and Japanese equipment manufacturers in an attempt to develop non-US centric production lines and have turned to the development of 28nm and above processes, the ban is completely stifling the possibility for China to develop and expand advanced processes 16nm and below and the expansion of processes 28nm and above is also subject to a protracted review process.

In addition, the US ban will expand the scope of its restrictions following the inclusion of high-end GPUs such as NVIDIA’s A100/H100 and AMD’s MI250 in the HPC sector into the range of sanctions at the end of August. In the future, it will target US manufacturers, including HPC sector CPUs, GPUs, and AI accelerators used in datacenter, AI, and supercomputer applications, requiring review before such items can be exported to China. In addition, foundries may no longer be able to manufacture any of the above-mentioned HPC-related chips for any Chinese IC design houses. TrendForce believes, regardless of whether the client is a Chinese or American IC design house, most HPC-related chips are currently manufactured by TSMC with mainstream processes at the 7nm, 5nm, or certain 12nm nodes. In the future, whether the situation is American factories no longer being able to export to the Chinese market or Chinese factories being unable to initiate projects and mass produce wafer starts, it will all have a negative impact on the future purchase order status of TSMC’s 7nm and 5nm processes.

Analysis of impact on memory industry

TrendForce indicates, according to the new specifications announced by the U.S. Department of Commerce, the DRAM portion of sanctions will be limited to the 18nm process (inclusive) and equipment must be reviewed by the Department before import. This move will greatly restrict or delay the sustainable development of China’s DRAM sector. CXMT possesses the largest memory market share for a Chinese company in the domestic Chinese market. Since 2Q22, the company has been committed to moving from the 19nm process into the 17nm process. Although the purchase of machinery to fulfill future needs had been accelerated before the ban, volume is still insufficient. CXMT continues to build new plants, including Phase 2 in Hefei and SMBC (SMIC Jingcheng), which is in discussion with SMIC. All of these projects will face difficulties in obtaining equipment in the future.

In addition to CXMT, the C2 plant of SK hynix’s DRAM production center in Wuxi is also affected by the restriction order. The factory accounts for approximately 13% of the world’s total DRAM production capacity and its process has evolved to 1Ynm and more advanced nodes, which means that subsequent continuous addition of equipment required for production requires approval on a case-by-case basis.

TrendForce has also observed, considering geopolitics, although current market demand is sluggish and supply and demand are seriously imbalanced, the three major manufacturers in the DRAM market still plan to increase production capacity in their home countries in the next 10 years and continue to reduce the proportion of production in China.

In terms of NAND Flash, TrendForce indicates that the import of NAND production equipment into China will be further restricted in the future, especially for equipment used in the manufacture of product of 128 layers and above (inclusive), requiring prior approval before import. It is estimated that this ban will significantly impact the long-term plans of China’s YMTC to upgrade its factory campuses as well as Samsung’s Xi’an plant and Solidigm’s process migration plan in Dalian.

TrendForce indicates that this ban will restrict YMTC from further expanding its customer base. At this stage, YMTC has been aggressively sending SSD products out for verification, hoping to successfully infiltrate the supply chain of non-Chinese customers in 2023. In the future, as the impact of the ban materializes, the US government will impose stricter restrictions on the development of China’s memory industry which will greatly limit non-Chinese customers’ adoption and consideration of YMTC.

（Image credit: iStock）

Despite the forecasted 18.6% YoY growth in total DRAM bit supply next year, the global DRAM market is still expected to shift from a shortage situation to an oversupply, according to TrendForce’s latest investigations. This shift can primarily be attributed to the fact that, not only are most buyers now carrying a relatively high level of DRAM inventory, but DRAM bit demand is also expected to increase by only 17.1% YoY in 2022. On the price front, the oversupply situation will result in a drop in DRAM ASP in 2022 but not a major decline in annual DRAM revenue, thanks to the oligopolistic nature of the DRAM industry. Annual DRAM revenue for 2022 is expected to reach US$91.54 billion, which represents a slight YoY increase of 0.3%.

Based on an analysis of DRAM sufficiency ratio (which refers to the surplus of supply in comparison with demand) for each quarter in 2022, TrendForce forecasts a 15% YoY decrease in DRAM ASP for 2022, with prices undergoing the more noticeable declines during the first half of the year. Heading into 2H22, however, owing to the rise in DDR5 penetration rate, as well as the arrival of peak seasonal demand, the decline in DRAM ASP will likely narrow. TrendForce does not rule out the possibility that DRAM ASP may even hold flat or undergo an increase in 2H22.

Annual NAND Flash revenue is expected to experience yet another increase next year by 7.4% YoY while numerous suppliers compete in higher-layer NAND Flash market segment

Turning to the NAND Flash market, TrendForce forecasts a 31.8% increase in total bit supply for 2022 and a 30.8% increase in total bit demand. Hence, NAND Flash ASP will likely experience a downtrend next year as a result of the oversupply situation. In addition, due to the perfect competition in the NAND Flash market, the decline in NAND Flash ASP next year will be more noticeable than the decline in DRAM ASP. However, NAND Flash suppliers continues to make progress in the stacking of NAND Flash layers, so the growth in NAND Flash bit supply next year will therefore remain above 30%. TrendForce thus expects NAND Flash revenue to have more room for growth and reach US$74.19 billion in 2022, a 7.4% YoY increase.

TrendForce’s forecast based on an analysis of NAND Flash sufficiency ratios for each quarter in 2022 similarly points to an 18.0% YoY decline in NAND Flash ASP next year. Much like DRAM, NAND Flash prices will undergo the more noticeable declines during 1H22. Arrival of peak seasonal demand in 2H22 will potentially result in a narrowing of price drops and a potential for quarterly prices to hold flat.

On the whole, the revenue performance of the DRAM industry and that of the NAND Flash industry over the years show that the annual total DRAM revenue is growing at more stable pace. Again, this has to do with the oligopolistic structure of the DRAM market. Since the DRAM market has a different competitive landscape, the fluctuations in the overall DRAM ASP have been relatively modest over the long run. However, the development of the DRAM manufacturing technology is approaching a physical bottleneck as process nodes shrink below the 20nm level. This means that the bit growth derived from the deployment of a more advanced process is becoming more and more limited over the years. On the other hand, not only are NAND Flash suppliers relatively more unstable in their capacity expansion plans compared to the DRAM industry, but further improvements in NAND Flash layer-stacking technology also remains feasible. Hence, the fluctuations in the overall NAND Flash ASP have been relatively more volatile over the long run. On account of these factors, the DRAM industry generally has smaller YoY revenue growth rates compared with the NAND Flash industry, although the DRAM industry continues to surpass the NAND Flash industry in terms of profitability.

Profitability of suppliers may be constrained if total revenue fails to keep pace with continuously rising CAPEX

Regarding the CAPEX (capital expenditures) of DRAM suppliers, there has been a gradual increase in these suppliers’ CAPEX to sales ratio in recent years, for two reasons. First, the development of the DRAM manufacturing technology is approaching a physical bottleneck. Die improvements have become more and more limited after process nodes have shrunk below the 20nm level. Micron’s 1alpha nm process can offer an almost 30% increase in bits per wafer, but the 1Xnm-to-1Ynm migrations and the subsequent 1Ynm-to-1Znm migrations that the major suppliers have undertaken in the recent period have yielded increases of no more than 15% in bits per wafer. Looking at future technological developments, Samsung and SK hynix have already integrated EUV lithography into their most advanced process technologies. However, orders for EUV lithography tools have a much longer lead time, and the costs of these tools are also high. Hence, the three dominant suppliers have allocated a large chunk of capital expenditure in advance to place orders for EUV lithography tools ahead of time.

Secondly, the oligopolistic structure of the DRAM market has also helped establish a regime where there is a very low chance of a supplier’s ASP dipping under its fully-loaded cost despite the recurrence of the cyclical price downturn. Moreover, DRAM suppliers have accumulated a substantial amount of profit from their products. In view of the difficulties in die shrinking, suppliers ranging from the three dominant suppliers to others with less market share (such as Nanya Tech and Winbond) have developed tangible plans for capacity expansions. These plans have, in turn, become the other main driver behind the ongoing increase in the CAPEX to sales ratio.

The CAPEX to sales ratio of NAND Flash suppliers have likewise risen substantially following the transition to 3D NAND technology in 2017. Notably, the average CAPEX to sales ratio fell within the 25-30% range prior to 2017, but it has since climbed to nearly 40% as of now. This growth can primarily be attributed to the fact that, as the number of 3D NAND layers increases, there is a corresponding increase in the lead times of NAND Flash products and in the degree of precision as well as difficulty involved in the etching process. While the mainstream layer count of NAND Flash products approaches 1YY layers, suppliers are currently planning to move forward with the development of products with 2XX layers, which place an ever-increasing demand on etch depth. The CAPEX of NAND Flash suppliers will continue to grow alongside increases in layer count and revenue.

TrendForce indicates that NAND Flash layer-stacking technology will continue to progress, meaning suppliers will continue to pursue the stacking of additional layers as a way to lower their manufacturing cost per GB. As such, the NAND Flash industry’s CAPEX will have additional potential for growth going forward, with a CAPEX to sales ratio of close to 40% or above. It should be noted, however, that if total NAND Flash revenue fails to keep pace with the growth in CAPEX in the next few years, NAND Flash suppliers’ CAPEX to sales ratio may potentially undergo an excessive increase, thereby constraining the profitability of suppliers.

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

After DRAM prices made a rebound into an upward trajectory in 1Q21, buyers expanded their DRAM procurement activities in 2Q21 as they anticipated a further price hike and insufficient supply going forward, according to TrendForce’s latest investigations. Not only was demand robust from clients in the notebook segment, which benefitted from ongoing WFH and distance learning applications, but CSPs also sought to gradually replenish their DRAM inventories. Furthermore, demand for products that are relatively niche, including graphics DRAM and consumer DRAM, remained strong. Hence, DRAM suppliers experienced better-than-expected QoQ increases in their DRAM shipment for 2Q21. At the same time, DRAM quotes grew by a greater magnitude compared to the first quarter as well. With both shipment and quotes undergoing growths in tandem, DRAM suppliers registered remarkable growths in their revenues in 2Q21. Total DRAM revenue for 2Q21 reached US$24.1 billion, a 26% QoQ increase.

However, heading into 3Q21, the issue of mismatched component availability began surfacing in the upstream supply chain and bottlenecking the assembly of electronic devices. Some OEMs/ODMs (especially notebook manufacturers) have therefore scaled down their DRAM procurement due to their relatively high level of DRAM inventory in comparison with other components. As a result, although most DRAM suppliers remain bullish on the market’s future, the growth in demand from certain product segments is likely to slow down, since DRAM buyers still carry ample inventory. In light of suppliers’ insistence on raising quotes, TrendForce expects the overall ASP of DRAM products for 3Q21 to undergo a QoQ increase, albeit at a narrower 3-8% now compared to 2Q21.

DRAM suppliers significantly improved their earnings performances in 2Q21 due to massive price hikes and increased shipment of products manufactured with advanced process technologies

The three dominant suppliers (Samsung, SK hynix, and Micron) of DRAM products put up similar revenue performances for 2Q21 as they saw an increase in both ASP and shipment, with the latter surpassing the suppliers’ expectations. On the demand side, buyers showed an increased willingness to expand DRAM procurement because they anticipated that prices will rise even further. In addition, frequent shortages of various semiconductor components this year drove buyers to stock up on DRAM ahead of time so as to avoid potential manufacturing bottlenecks due to low DRAM inventory. Hence, each of the three suppliers increased its revenue by more than 20% QoQ in 2Q21. Samsung in particular registered the most remarkable growth, at a 30.2% QoQ increase. For 3Q21, these suppliers will not only continue to hike up quotes, but also increase their quarterly shipments by a similar magnitude. TrendForce thus expects their market shares to remain relatively unchanged from the previous quarter.

DRAM suppliers likewise experienced considerable growths in terms of profitability for 2Q21 thanks to the massive increase in DRAM quotes, along with the fact that DRAM products manufactured with advanced process technologies occupied a growing share of the suppliers’ DRAM bit shipment. For instance, while Samsung kicked off mass production with the 1Znm process in 1Q21 at a relatively low yield rate (since the technology was still in its infancy at the time), the company was able to considerably ramp up production in 2Q21, thereby raising its operating profit margin from 34% in 1Q21 to a staggering 46% in 2Q21. SK hynix similarly raised its operating profit margin to 38% in 2Q21 by improving the yield rate of its advanced process technology. Micron, on the other hand, increased its DRAM quotes by a similar magnitude compared to its Korean competitors in 2Q21 (Micron counts the March-May period as its fiscal quarter) and saw a jump in its operating profit margin from 26% in 1Q21 to 37% in 2Q21. Assuming that prices and shipment continue their upward trajectory in 3Q21, TrendForce is bullish on DRAM suppliers’ profitability for the quarter as well and expects market leader Samsung to reach 50% in operating profit margin for the first time in nearly three years.

Taiwanese suppliers delivered similar revenue growths to the three dominant suppliers’ in 2Q21 thanks to persistent market demand for specialty DRAM

Taiwanese DRAM suppliers posted a massive increase in their revenues for 2Q21 owing to persistently high specialty DRAM quotes and high demand from clients. More specifically, Nanya Tech’s revenue grew by about 28% QoQ for 2Q21, and its operating profit margin increased from 17.1% in 1Q21 to 31.2% in 2Q21. These growths can primarily be attributed to a 30% increase in the company’s specialty DRAM quotes, and Nanya Tech has expressed that it expects further earnings growth in 3Q21. Winbond, on the other hand, saw strong demand from its clients and raised its DRAM quotes by a greater magnitude than its NAND Flash quotes. Winbond’s revenue from its DRAM business not only rose by 39% QoQ in 2Q21, but also accounted for an increasing share of its total revenue, at 46%.

It should be pointed out that the two aforementioned Taiwanese suppliers are still currently facing the issue of insufficient production capacities, and their existing fabs do not have the physical space to house additional manufacturing equipment. Hence, before these suppliers finish constructing new fabs, they must rely on raising quotes in order to grow their DRAM businesses in the short run. Nanya Tech’s new fab that is currently under construction will not be able to contribute to the company’s production capacity until construction concludes in 2024. In the short run, Nanya is able to marginally increase its bit output only through migrating to advanced process technologies at the 1A/1Bnm nodes. Similarly, Winbond will not be able to resolve its issue of insufficient production capacity until its fab located in Luzhu, Kaohsiung, kicks off mass production in 2H22. As for PSMC, its revenue from sales of PC DRAM products manufactured in-house increased by about 7% QoQ in 2Q21. However, PSMC’s total revenue from both sales of in-house DRAM and its DRAM foundry business increased by 19% QoQ in 2Q21. Much like its Taiwanese competitors, PSMC must carefully allocate its limited production capacity between logic IC products and memory products.

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