Taiwanese semiconductor foundries are facing price pressure in mature process as demand remains sluggish, according to a report from the Economic Daily News. Sources indicate that local foundries are offering discounts on mature process orders in Q4, marking a shift from the relatively stable pricing seen in Q3. Prices could continue to decline into the first quarter of next year, marking two consecutive quarters of downward pressure.

United Microelectronics Corp. (UMC), Vanguard International Semiconductor Corp. (VIS), and Powerchip Semiconductor Manufacturing Corp. (PSMC) are the key players in Taiwan’s mature process foundry space. UMC told the Economic Daily News that its Q3 pricing remained stable, with Q4 details to be revealed in its next earnings call. Vanguard also said it would disclose its Q4 outlook during its earnings release.

The report notes that VIS previously indicated the competitive pricing environment would ease this quarter, with utilization rates improving to around 70% or higher. The company expects utilization rates to rise to 70-80% next year, though whether they reach the higher end will depend on demand.

However, the pricing pressure in Taiwan’s mature foundry processes stems largely from weak demand for power management ICs and driver ICs, with some prices expected to decline by single-digit percentages over two quarters. Notably, Chinese foundries, which had previously been aggressive in cutting prices, have held firm this time, contrasting with the more flexible pricing strategies of their Taiwanese counterparts.

An unnamed source in the driver IC industry cited by the Economic Daily News said that some Taiwanese foundries are willing to offer single-digit percentage price cuts in Q4 to maintain utilization rates, while Chinese foundries are less inclined to lower prices.

Another industry source attributed Chinese foundries’ reluctance to cut prices to improved utilization rates and the fact that previous rounds of price cuts had already created a significant gap between their pricing and that of Taiwanese competitors.

According to the report, negotiations over mature process pricing are ongoing, with volume playing a key role in securing discounts. Some microcontroller unit (MCU) makers revealed that certain foundries are offering project-based discounts of single-digit percentages for large orders in Q4, while keeping base prices steady.

The industry is currently negotiating pricing for the first quarter of next year, with expectations that some foundries may continue to lower prices, though likely not by a significant margin.

(Photo credit: UMC)

According to a report from TechNews citing industry sources, the US is considering expanding sanctions, with the next focus on China’s mature semiconductor processes. In addition to imposing tariffs, the determination of the chip’s origin will be strictly enforced. The standard, which previously considered the final packaging point, will now trace back to the front-end manufacturing and photomask origin.

Reportedly, it is believed that the US will significantly escalate the trade war after the presidential election, intensifying export restrictions on China. Currently, new tariffs of over 10% are being imposed on products from countries other than the US, and there are plans to impose tariffs of 60% or higher on Chinese goods.

It is noteworthy that the US government previously announced the imposition or increase of tariffs on Chinese electric vehicles, semiconductors, lithium batteries, and other products, with the semiconductor tariff rate set to rise from 25% to 50% by 2025.

The sources cited by the report believe that tariffs do indeed reduce imports and encourage the production of industries such as semiconductors, computer equipment, and steel in US factories. However, the cost is very high, potentially offsetting any overall benefits. Research indicates that tariffs lead to higher prices for US consumers and factories that rely on foreign inputs, and reduce exports of certain US goods that face retaliatory measures.

Meanwhile, for the future direction of the US, it can be inferred that chips manufactured in Taiwan and South Korea may also face tariffs.

Due to the intensification of the US-China tech war, the US is considering expanding export restrictions, targeting the mature processes that China is starting to shift towards. There have been continuous reports of China expanding its mature processes, raising global concerns about overcapacity in mature processes. The US government may in the future use tariff barriers to prevent products containing chips made with Chinese mature processes from being sold overseas at low prices.

The sources cited by TechNews further report that the determination standard will change from the final packaging location to whether the origin of the chip and photomask is manufactured in China.

In addition, Bloomberg also reports that the US administration is considering using the “Foreign Direct Product Rule” (FDPR). Under this rule, if a product uses any US technology, the US can implement controls. The US government has also notified companies such as Tokyo Electron and ASML that if they continue to supply advanced chip technology to China, the US will consider imposing the strictest trade control measures.

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• [News] Taiwanese Foundries and Networking Companies to Benefit amid Escalating US-China Tech War
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(Photo credit: iStock)

As memory prices and demand rise, memory manufacturers Nanya Technology and Winbond have resumed normal production, no longer reducing output as they did last year. TrendForce and industry sources cited in a report from Liberty Times Net also indicate that memory shipments will continue to recover in the third quarter.

Reportedly, memory manufacturers’ utilization rates have reached 90% to 100%, surpassing the 60% to 70% utilization rates of mature process foundries.

Last year, in response to market conditions, Winbond adjusted its inventory and reduced production at its Taichung plant by up to 30-40%. This year, as market demand has rebounded, production has resumed, with capacity now at full utilization, producing 58,000 wafers per month.

Moreover, Winbond’s Kaohsiung plant has introduced new capacity equipment, increasing monthly production from 10,000 to 14,000 wafers and upgrading processes from 25nm to 20nm.

Winbond’s General Manager, Pei-Ming Chen, stated that the company is currently operating at full capacity utilization, with shipments exceeding production. This indicates a continuous decrease in inventory levels and a rise in customer demand. He then expected the second half of the year to be better than the first, with DDR3 and DDR4 contract prices increasing each quarter, aiding the company’s core profitability.

Nanya Technology Increases Production, Aims to Turn Losses into Profits in Q3

Nanya Technology adjusted production levels dynamically last year, reducing output by up to 20%. However, production has gradually increased this year.

Nanya Technology anticipates improving DRAM market conditions and prices quarter by quarter, with the industry overall trending positively and a chance to return to profitability in the third quarter.

Nanya Technology reported consolidated revenue of NTD 3.363 billion (roughly USD 103 million) for June, up 0.35% month-on-month and 36.83% year-on-year, marking the second-highest level this year. Accumulated consolidated revenue for the first half of the year was NTD 19.424 billion (roughly USD 596 million), an increase of 44.4% year-on-year.

On the other hand, chairperson Doris Hsu of GlobalWafers, a major silicon wafer manufacturer, recently stated that currently, there is stronger demand for high-performance computing (HPC) and memory applications, while demand in automotive and industrial applications is weak. Demand for mobile applications is increasing, and customers are continuing to digest inventory, leading to a more conservative approach towards procurement.

TrendForce reports that a recovery in demand for general servers—coupled with an increased production share of HBM by DRAM suppliers—has led suppliers to maintain their stance on hiking prices. As a result, the ASP of DRAM in the third quarter is expected to continue rising, with an anticipated increase of 8–13%. Among this, DDR3 & DDR4 prices expected to increase by 3–8% in Q3.

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(Photo credit: Nanya Technology)

The intense price competition among Chinese mature process foundries is nearing its end. According to a report from the Economic Daily News, it has indicated that Hua Hong Semiconductor, the second-largest foundry in China, plans to raise prices by 10% in the second half of the year.

This marks the end of a two-year decline in mature process foundry prices, signaling that the industry is emerging from its correction phase and moving towards a healthier path. Consequently, Taiwanese foundries specializing in mature processes, such as UMC, VIS, and PSMC, are also expected to see a rise in their prices, boosting their operations.

Industry sources cited in the same report also note that due to geopolitical factors, Chinese foundries primarily focus on the domestic market, which is gradually diverging from the customer base of Taiwanese foundries. However, if Hua Hong’s price increase materializes, it would be a significant indicator.

Since the end of the COVID-19 pandemic, mature process foundry prices have been continuously adjusting downward. A price increase would indicate a rebound in demand for consumer electronics.

Reportedly, the industry sources believe that if the market for mature process foundries rebounds, UMC will be the primary beneficiary. As demand for consumer electronics and mobile phones picks up, related products such as OLED panel driver ICs, image signal processors (ISP), and WiFi chip will see improvements in inventory levels across the computer, consumer, and communication sectors, reaching healthier levels.

VIS and PSMC are also expected to benefit from the industry’s recovery trend. Although VIS does not comment on pricing issues, the company previously mentioned that inventory levels for consumer electronics are expected to return to normal by 2024. Despite ongoing adjustments in industrial and automotive inventories, the company remains optimistic about moderate growth in the second half of the year.

PSMC is anticipated to experience a gradual return of orders as well. The company emphasizes its commitment to adapting to market competition and continuously adjusting its production and sales strategies. With the positive effects of these adjustments becoming evident and customer inventory levels returning to healthy standards, along with new business opportunities at the Tongluo plant, PSMC expects its revenue to gradually recover.

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• [News] UMC Optimistic About Second Half Business Outlook, While AI Could Capture 10-20% Market Share
• [News] Foundries Face Price Pressure in Mature Process Amid Oversupply, Indicating Q3 Price Decline
  

(Photo credit: UMC)

Wafer foundries’ mature process continues to suffer from oversupply, facing further price reduction pressure. According to a report from Economic Daily News, industry sources from IC design companies revealed that in this quarter, prices for certain mature processes have dropped by single-digit percentages (1% to 3%). Given the current situation, prices in the third quarter may drop by another 1% to 3%, leading to a continuous correction in overall price trends starting from the third quarter of 2022, marking the ninth consecutive quarterly decline.

Industry sources cited by the same report pointed out that this wave of price reductions in mature process was triggered by Chinese foundries two to three years ago, with Taiwanese manufacturers subsequently following suit. Major Taiwanese foundries involved in mature processes, include UMC, Vanguard International Semiconductor (VIS), and PSMC, have all been closely monitoring the latest market changes.

Regarding rumors of further price cuts in the market, UMC stated that the company would not make further comments. VIS, on the other hand, mentioned during a recent earnings call that the price pressure from Chinese foundries has affected its operations, but the company will not engage in these price-cutting competitions. It is expected that as market inventory adjustments approach completion, prices should gradually stabilize without significant fluctuations. PSMC indicated that they have not particularly felt any price pressure.

Local foundries stated that even though customers from specific applications, including driver ICs and other IC design houses, turn to Chinese foundries in order to enjoy cheaper manufacturing prices, they will not engage in price-cutting. After all, price wars may never see an end. Instead, Taiwanese foundries will continue to increase orders from other applications to gradually boost capacity utilization rates.

In the third quarter of 2022, as market conditions reversed, Chinese foundries initiated price cuts, prompting some Taiwanese manufacturers to make slight concessions in pricing. The pricing gap between Chinese and Taiwanese foundries generally remained at double-digit percentages.

To cope with a period of market inventory adjustment, some foundries are more flexible in negotiations, while others hope for customers to “exchange volume for price.”

Overall, foundry pricing has experienced eight consecutive declines up to this quarter. However, with no significant recovery in most end-demand sectors, IC design companies assess that foundry pricing in the third quarter may continue to trend downward.

Industry sources cited by the report believe that Chinese foundries receive official subsidies, allowing them to disregard profit considerations. Previously, IC design houses’ price negotiations with Chinese foundries were mostly successful, which results in single-digit percentage price reductions recently. However, after the third quarter, the room for further price reductions may diminish, indicating that the price seems to be soon hit the bottom.

However, fin order to cope with the current macroeconomic fluctuations, some IC design companies mentioned that after suffering from being “burned” by high inventory in the past, they now tend to wait for clear demand from customers before starting production. In recent years, the proportion of production sent to Chinese foundries has been increasing due to cost considerations. With the continuous expansion of mature process capacity in Chinese foundries, the pressure of oversupply may persist for a while longer.

According to TrendForce’s previous report on the fourth quarter of 2023, global semiconductor foundry revenue rankings showed that the top three semiconductor foundries globally were TSMC, Samsung, and GlobalFoundries, which are all less exposed to mature nodes.

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(Photo credit: TSMC)