In the Q3 of 2023 (July-September), global sales of semiconductor manufacturing equipment faced a substantial 11% decline, marking the most significant drop in four years and the second consecutive quarter of contraction. Notably, Taiwan’s market saw a nearly 50% reduction in sales, while the Chinese market achieved a historic step, crossing the 40% threshold of the global sales share for the first time, according to the report by Semiconductor Equipment Association of Japan (SEAJ).

In collaboration with the International Semiconductor Industry Association (SEMI), SEAJ gathered data from over 80 global semiconductor equipment companies. According to the “Semiconductor Manufacturing Equipment(World Wide SEMS Report)” released on December 1st, global chip equipment sales for Q3 2023 dropped by 11% to USD 25.6 billion compared to the same period last year, marking the second consecutive quarter of contraction.

Analyzing regional sales, Taiwan’s market sales dwindled to USD 3.77 billion, a nearly 50% decline from the same period last year (USD 7.28 billion), ranking it as the market with the highest contraction among the top 6. Conversely, the Chinese market experienced a remarkable 42% surge, reaching USD 11.06 billion, constituting 43% of the global sales for the first time and surpassing the 40% mark. This solidifies China’s position as the world’s largest semiconductor equipment market for the second consecutive quarter. Japan witnessed a substantial 29% drop to USD 1.82 billion, North America decreased by 5% to USD 2.5 billion, Europe grew by 2% to USD 1.7 billion, and South Korea faced a significant 19% decrease to USD 3.85 billion.

SEAJ highlighted that compared to the previous quarter (April-June 2023), global chip equipment sales in the last quarter decreased by 1%. In this context, the Chinese market saw a remarkable 46% increase, Taiwan witnessed a steep 34% decrease, South Korea plummeted by 32%, Europe grew by 5%, North America saw a significant 15% decrease, and Japan experienced a substantial 19% increase.

TEL’s Revised Outlook and China’s Rising Impact

Tokyo Electron Limited (TEL), a major player in the Japanese semiconductor equipment industry, released financial data on November 10. Despite delays in investments for advanced process and foundries, the company is experiencing a substantial increase in investments from Chinese customers, especially in mature process. Consequently, TEL has revised its global market size estimate for semiconductor front-end manufacturing equipment (wafer fab equipment, WFE) for the year 2023. The initial estimate made in August, which projected a market size of USD 70-75 billion (a YoY decrease of 25-30%), has been adjusted to USD 85-90 billion (a YoY decrease of 10-15%). Notably, in the last quarter (July-September), the Chinese market’s contribution to TEL’s overall revenue exceeded 40% for the first time.

TEL CEO Toshiki Kawai said, “We have seen around 20 to 30 new customers, and going forward we expect to see the Chinese market grow even further.” Kawai also added, “We have already received inquiries from China for CY2024, so we can expect some visibility. Our forecast for the first half of CY2024 in particular shows that China will continue to represent around 40% of sales by region.”

Not only did automotive market take a downward turn starting in 2018, but the severe impact of the COVID-19 pandemic in 2020 also led to noticeably insufficient procurement activities from major automotive module suppliers, according to TrendForce’s latest investigations. However, as the automotive market is currently set to make a recovery, TrendForce expects yearly vehicle sales to increase from 77 million units in 2020 to 84 million units in 2021.

At the same time, the rising popularity of autonomous, connected, and electric vehicles is likely to lead to a massive consumption of various semiconductor components. Even so, since most manufacturers in the automotive supply chain currently possess a relatively low inventory, due to their sluggish procurement activities last year in light of weak demand, the discrepancies in the inventory levels of various automotive components, along with the resultant manufacturing bottleneck, have substantially impaired automakers’ capacity utilization rates and, subsequently, vehicle shipments.

The recent shortage situation in the IC supply chain has gradually extended from consumer electronics and ICT products to the industrial and automotive markets. In the past, manufacturers in the automotive semiconductor industry were primarily based on IDM or fab-lite business models, such as NXP, Infineon, STMicroelectronics, Renesas, ON Semiconductor, Broadcom, TI, etc. As automotive ICs generally operate in wide temperature and high voltage circumstances, have relatively long product lifecycle, and place a heavy demand on reliability as well as longevity support, it is more difficult for the industry to alternatively transition its production lines and supply chains elsewhere.

Automotive semiconductor remains in shortage as production capacities remain fully loaded across the global foundry industry

Nevertheless, given the current shortage of production capacities across the foundry industry, wafer capacities allocated to automotive semiconductor components have been noticeably crowded out by other products. Some of these examples include automotive MCU and CIS manufactured in 12-inch fabs, as well as MEMS, Discrete, PMIC, and DDI products manufactured in 8-inch fabs. TrendForce indicates that automotive semiconductor products manufactured at the 28nm, 45nm, and 65nm nodes in 12-inch fabs are suffering the most severe shortage at the moment, while production capacities at 0.18µm and above nodes in 8-inch fabs have also been in long queue by other products.

As in-house IDM fabrications have relatively high CAPEX, R&D expense, and operating overhead, automotive IC vendors have in recent years outsourced some of their products to TSMC, GlobalFoundries, UMC, Samsung, VIS, Win Semiconductor and so on. In particular, TSMC specifically indicated during its 4Q20 earnings conference that wafer starts for automotive semiconductors reached rock bottom in 3Q20, while additional orders began arriving in 4Q20. As such, the company is currently considering allocating some of its production capacities from logic ICs to specialty foundry, in order to meet sudden demand from its long-term customer relationship.

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