The application period for the tax incentives under Taiwan’s Chip Act ended in late May. According to a report from the Economic Daily News, the Ministry of Economic Affairs announced on June 3rd that four semiconductor-related companies have applied, with the review process expected to be completed by mid to late July. Reportedly, it is said that major semiconductor companies, such as TSMC and MediaTek, have submitted their applications.

Under this act, eligible companies can benefit from certain tax deduction measures, including a 25% tax deduction for expenses on cutting-edge innovative R&D expenses and a 5% deduction on expenses of advanced process equipment, reportedly to be the most generous tax deduction measures ever in Taiwan.

The first round of applications from enterprises was accepted in February of this year, with the deadline on May 31st.

Regarding the eligibility criteria, according to the investment deduction measures announced by the Ministry of Economic Affairs, an eligibility company’s R&D expenses must reach NTD 6 billion, while its R&D intensity be at least 6%, and expenditures on equipment for advanced processes must reach NTD 10 billion.

The aforementioned criteria are not restricted by industry category. However, an effective tax rate of 12% for 2023 is required to qualify for the tax reductions under Article 10-2 of the Statute for Industrial Innovation.

Per the same report, it is understood that in 2023, there are nine listed companies meeting the two major thresholds, namely, reaching the NTD 6 billion threshold for R&D expenses and an R&D intensity of 6%, of which TSMC and MediaTek may potentially benefit from.

The Industrial Development Bureau stated that only four companies have applied for the tax benefits under the Taiwan Chip Act. They did not disclose the names of these companies, only mentioning that all applicants are semiconductor-related firms. It is widely anticipated that TSMC and MediaTek, the two most competitive companies in the country with the highest investment in R&D, are likely to benefit from the Taiwan Chip Act.

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• [News] Taiwan’s Chip Act Takes Effect in February, TSMC to Benefit from Historic Tax Incentives

(Photo credit: TSMC)

DRAM giant Nanya Technology held its shareholder meeting earlier today, during which Chairman Chia-Chau Wu reported on the company’s operations. According to a report from UDN, He mentioned that despite challenges such as unfavorable market conditions, geopolitical tensions, and the US-China trade conflict, Nanya Technology experienced a transition from profit to loss last year.

Nevertheless, the company continues to possess strong technological capabilities. This year, Nanya plans to introduce more products using the 10nm 1B process. Additionally, the 10nm 1C process is set to complete its first product design by the end of this year and begin trial production early next year. In 2026, Nanya will introduce new facilities, and by integrating miniaturization and Through-Silicon Via (TSV) processes, it will enter the high-capacity DRAM module market to meet the demand from the server market.

Wu emphasized that the 1B process products are Nanya Technology’s key expansion focus this year. In addition to promoting 8Gb/4Gb DDR4 to the personal computer and bare die application markets, the 16Gb DDR5 will initially target mainstream markets, including personal computers and servers.

Wu further highlighted that Nanya Technology continues to invest in research and development during the industry’s adjustment period to strengthen its future competitiveness.

Currently, in addition to developing three products under the second-generation 10nm (1B) process, Nanya Technology is also developing four other products: 16Gb DDR5 and miniaturized versions, 16Gb LPDDR4, 16Gb LPDDR5, and 4Gb DDR3, which will also gradually enter trial production.

He added that this year, Nanya Technology will simultaneously develop Through-Silicon Via (TSV) process technology. In the future, by combining the miniaturized DDR5 with the TSV process, Nanya aims to produce high-capacity DRAM modules to meet the demand of the server market.

Furthermore, the third-generation 10nm (1C) process technology is on track, with the design of the first 16Gb DDR5 product expected to be completed by the end of the year and trial production beginning early next year.

To support the transition to the 1B process and the construction of new facilities, Nanya Technology’s capital expenditure for this year is approximately TWD 26 billion (roughly USD 805.2 million), with less than half of the budget allocated to production equipment.

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• [News] Apple Reportedly Releases Supply Chain List, Nanya Technology, Lotes, and Novatek Not Included

(Photo credit: Nanya Technology)

Apple has released its supply chain list for the 2023 fiscal year, with notable changes compared to the 2022 list. According to a report from CNA, Major IC substrate manufacturer Nan Ya PCB has returned to Apple’s supply chain list, while Nanya Technology, Lotes, Novatek are no longer included. TSMC, Foxconn, Advanced Semiconductor Engineering (ASE), Pegatron, Compal, Wistron, and YAGEO remain part of Apple’s supply chain.

Apple’s 2023 fiscal year supply chain list covers approximately 98% of the materials, manufacturing, and assembly related to Apple products globally.

Compared to the 2022 supply chain list, for Foxconn, the updated list shows manufacturing locations for Apple products in Guangdong, Henan, Jiangsu, Shaanxi, Sichuan, and Zhejiang provinces in China, with the addition of Jiangxi while Hubei continues to be excluded. In other global regions, locations in Amazonas and Sao Paulo in Brazil, as well as California in the United States, are not included in the current list. However, locations in Tamil Nadu, India, and Bac Giang province, Vietnam, remain on the list.

For ASE, related locations include Jiangsu and Shanghai in China, Yamagata Prefecture in Japan, Taiwan, and Hai Phong City in Vietnam, with Gyeonggi-do in South Korea and Singapore continuing to be excluded.

Notably, companies including FPGA designer Lattice Semiconductor’s facility in Taiwan, Nanya’s facilities in Jiangsu and Taiwan, Lotes Terminal’s facility in Guangdong, Novatek Microelectronics and Taiwanese company Triotek Technology Incorporated are no longer parts of Apple’s supply chain for the fiscal year 2023.

On the other hand, major IC substrate manufacturer Nan Ya PCB, with facilities in Jiangsu, China, and Taiwan, has returned to Apple’s supply chain list. Golden Arrow Printing Company, with locations in Jiangsu, China, and Henan Province, Vietnam, is a new addition to Apple’s supply chain list.

Regarding Taiwanese companies that were first included in Apple’s supply chain list in 2022, including Platinum Optics Technology Incorporated, Primax Electronics Limited with locations in Guangdong, Radiant Opto-Electronics Corporation with locations in Guangdong and Jiangsu, Trinseo in Taiwan, and Winbond Electronics Corporation, these companies remain on Apple’s supply chain list for the 2023 fiscal year.

Furthermore, major Taiwanese companies such as TSMC, Catcher, Foxlink, Compal, Compeq, Delta Electronics, Largan Precision, Lite-On Technology Corporation, Pegatron, Shin Zu Shing, TXC Corporation, Unimicron Technology Corporation, Unitech, Wistron, and YAGEO continue to be included in Apple’s supply chain list.

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• [News] Apple’s Abandonment of Micro LED Watch Project Reportedly Results in Further Impact
• [News] Foxconn Capitalizes on AI Opportunities? Reportedly Looking at Apple’s AI Server Market, B200 Also Poised to Succeed

(Photo credit: Apple)

Pei-Ing Lee, the General Manager of Nanya Technology, a major DRAM manufacturer, mentioned on January 10th that this year has seen an upward trend in DRAM prices

According to Economic Daily News citnig from Nanya Technology’s earnings call for 23Q4,  this trend is attributed to the resurgence of the smartphone market, increased demand fueled by AI, and the three major memory manufacturers pivoting towards DDR5 production. This shift is advantageous for depleting DDR4 inventory and could potentially result in a supply shortage.

Having endured over a year of downturn in the memory market, Lee expressed an optimistic outlook by stating that “there is a possibility of future supply shortages,” revealing an overall positive trajectory for the DRAM market.

Lee acknowledged that the DRAM market faced challenges last year, resulting in stagnant bit sales for Nanya Technology. However, he anticipates a better scenario this year, noting the upward trend in DDR4 pricing. The timing for DDR3 price increases is expected to follow but at a slower pace. Lee further stated that DDR3 constituted about 40% of Nanya Technology’s revenue  in the past, but it is expected to decrease, with DDR4’s share rising.

Due to major international players focusing on High-Bandwidth Memory (HBM) and DDR5, he anticipates a potential supply shortage for DDR4 this year.

Lee pointed out that the growth in AI demand is positively impacting the DRAM market. The shift from high-end HBM and DDR4 to DDR5 is influencing demand, showing improvement quarter by quarter.

Regarding pricing trends, he confirmed a rebound in prices in the fourth quarter of 2023 and expressed optimism for a gradual upward trend in 2024. However, Lee cautioned that external variables such as geopolitical tensions, the war in Europe, and the U.S.-China trade dispute could still impact the market’s recovery momentum.

In terms of demand, Lee highlighted four key points. Firstly, server demand is driven by AI servers, with a focus on observing IT spending by U.S. cloud companies. Secondly, the introduction of new smartphones, leading to an increase in average DRAM capacity, especially in AI smartphones boosting the high-end smartphone market. Presently, improving smartphone sales in China are observed, and the recovery momentum of the Chinese economy is crucial.

In the PC application sector, Lee mentioned that inventory is gradually returning to normal levels, and AI PCs will simultaneously boost the high-end PC market. As for consumer electronic terminal products, demand for IP cameras, networking, industrial control, and automotive applications is relatively healthy, with consumer electronic products expected to show stable growth in 2024.

In terms of technological advancements, Nanya Technology aims to begin small-scale production of DDR5 products at the end of the third quarter of this year. Initially applied in servers and partly in PCs, the first product is expected to achieve a bandwidth of 5600MHz, while the second product is currently in the design phase, with an estimated bandwidth of 6400MHz.

Lee explained that their second DDR5 product will utilize third-generation processes, aiming to further improve cost structures, increase speed, achieve a target of 6400 MHz, and possess the capability for high density and 3D IC technology.

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• [News] Nanya Tech Expects Continued Conservative Spending to Balance DRAM Supply-Demand in 2024
• [News] After Memory Price Hike, Shortages Emerge in Some Products?

(Photo credit: Nanya Technology)

The pandemic has impeded the supply of many end-user devices such as smartphones, servers, PCs, and niche consumer electronics components, indirectly leading to a decline in a willingness on the procurement-end to stock relatively abundant memory chips, according to TrendForce research. This is most obvious in the stance of PC OEMs holding more than 10 weeks or more of DRAM inventory. Therefore, most DRAM fabs experienced a drop in shipments in the fourth quarter of 2021 and declining purchasing momentum has also led to a downward trend in DRAM price quotations. Total 4Q21 DRAM output value decreased by 5.8% QoQ, reaching US$25.03 billion, with only a few suppliers such as SK hynix bucking this trend.

Looking forward to 1Q22, although material shortages for some components can be alleviated, the first quarter is already an off season for demand and buyers’ inventories are still flush. Thus, the purchasing-side will largely concentrate on destocking, with overall purchasing momentum remaining sluggish. Thus, DRAM pricing in the first quarter of this year is expected to face greater pressure than in the fourth quarter of last year and overall DRAM output value may fall further.

4Q21 DRAM price drop causes downturn in manufacturer profit levels

In terms of revenue performance, price quotations from the three major DRAM manufacturers all declined with slightly differing shipments trends. Shipments from both Samsung and Micron fell due to poor end-user demand, with revenue down 9% and 8%, respectively. In terms of market share, Samsung dropped slightly to 42.3% while still ranking first, SK hynix climbed to nearly 30%, ranking second, and Micron dropped slightly to 22.3%.  Pricing gaps between these three DRAM manufacturers in 1Q22 is expected to be narrow, but since SK hynix had a relatively high base period of shipment in the 4Q21, the company expects a decline in its shipments slightly higher than the industry average which will reduce its 1Q22 market share slightly.

In terms of profit performance, the operating profit margins of Samsung, SK hynix, and Micron (September-November financial reporting) fell to 50%, 45%, and 41%, respectively, due to the cost optimization resulting from an increase in the proportion of advanced processes not being  enough to make up for the decline in price quotations. TrendForce believes that the downturn trend in profit margins is likely to intensify in 1Q22 and DRAM suppliers will face sharper profit decline. Manufacturers can only increase the proportion of advanced processes and optimize their product portfolio to reduce the impact brought on by price pressure.

Specialty DRAM market conditions also weak in 4Q21, with Taiwanese manufacturer revenue falling as well

As the demand for specialty DRAM end-user applications such as TVs and consumer electronics products dropped significantly in 4Q21, coupled with the impact of material shortages in the supply chain, client demand for DRAM shipments also cooled substantially. The 4Q21 specialty DRAM price decline was also comparable to that of mainstream products, in turn impacting the revenue performance of Taiwanese manufacturers focused mainly on the consumer market. From the perspective of Nanya Tech, the combination of falling volume and price reduced its revenue in 4Q21 by approximately 10%, while its operating profit rate fell to 37.5% due to the decline in price quotations. Winbond’s small-capacity (1/2Gb) market was also affected by components mismatch issues, but the impact was relatively small and its 4Q21 revenue fell slightly by close to 4%. PSMC’s (revenue calculation is primarily based on its self-produced standard DRAM products and does not include its DRAM foundry business) revenue fell slightly by approximately 1%. If its foundry revenue is added, then its revenue grew by 6%, reversing a downward trend. This demonstrates that locking-in long-term contracts early is a good strategy.

Faced with reversal in the DRAM market, it is TrendForce’s understanding that the solutions of the three major Taiwanese manufacturers are as follows: Nanya Tech can allocate 20nm production capacity to produce DDR3 (better gross profit) when DDR4 market conditions are poor and invest more resources in the research and development of new 1X nm processes.  If yield improves rapidly, this will provide some contribution before the completion of its new factory in 2024. In addition to continuing to focus on niche small-capacity products, Winbond is also strengthening research and development of 25 nm and next-generation 20 nm products, expected to be introduced directly when its Kaohsiung Lujhu factory starts mass production. As for PSMC, by locking clients into long-term contracts, it can plan 2022 production in advance and continue to maximize its greatest advantages. In accordance with market conditions and gross profit levels, it will allocate production capacity between logic IC and memory products.