Apple’s upcoming iPad Pro, featuring an OLED screen for the first time, is scheduled to be released in March or April. However, recent market reports suggest a potential 30% reduction in the estimated order volume, indicating Apple’s cautious outlook on the new product. It’s anticipated that suppliers in the supply chain such as LG Display (LGD), TSMC, Foxconn, and Novatek will also be affected.

Aju Korea Daily, citing industry sources, reported that Apple has reduced the OLED screen orders for its new iPad Pro. The initial order of 10 million units has been adjusted to a range of 7 million to 8 million units. LGD is expected to be the most impacted, with the supply scale decreasing from 6 million units to a minimum of 3 million units, while Samsung maintains a supply of 4 million units.

Industry speculation suggests that the reduction in the initial order may be due to a cautious outlook on the demand in the early stages of the product launch. The pricing of the new iPad Pro has not been determined, but it is likely to be higher than the current iPad with an LCD screen.

Historically, all iPad models from Apple have utilized LCD panels. However, this year’s release of the 11-inch and 12.9-inch iPad Pro models marks the first time Apple is incorporating OLED panels.

On another note, in addition to applying OLED screens to the iPad Pro this year, Apple reportedly plans to use them in future laptop products such as the MacBook. Therefore, the performance of the OLED iPad in terms of sales will serve as a significant market indicator for Apple’s future ventures into OLED technology.

Additionally, the adoption of OLED screens will result in an increase in the price of the iPad Pro. The loyalty of iPad consumers has traditionally been lower than that of iPhone users, posing a challenge for Apple in achieving strong performance this year.

The estimated order volume reduction is expected to have an impact on the iPad Pro supply chain, affecting key manufacturers such as TSMC, Foxconn, and Novatek.

According to sources cited by the Economic Daily News, TSMC is the exclusive supplier of Apple’s chips, while Foxconn is the main assembly plant for the iPad Pro. Novatek is a supplier of OLED screen driver ICs for the Korean market. However, the mentioned companies have refrained from commenting on specific clients and products.

TSMC has been the primary manufacturer of main chips for various Apple devices. Last year, there were reports in the market that Apple secured TSMC’s 3-nanometer production capacity for at least a year.

Despite current market uncertainties, TSMC estimates that the semiconductor market will see a growth of over 10% this year, with the foundry industry expected to grow by 20%. TSMC’s financial performance is projected to outpace industry standards, demonstrating quarterly growth.

Novatek previously indicated that there might be competition in the OLED driver IC sector this year. Nevertheless, the company plans to continue its strategic focus on advanced products such as applications for foldable devices, OLED touch, and integrated touch and display driver ICs (TDDI).

As for Foxconn, the company is gradually entering the traditional off-season. Seasonal performance is expected to be similar to the past three years. In the first quarter of 2023, higher shipment volume resulting from the resumption of normal production in Chinese factories post-pandemic is anticipated to lead to a year-on-year decline in performance for the first quarter of this year.

Read more

• [News] Leak Reveals LGD as the Largest Supplier of Apple’s OLED iPad Pro Screen
• [News] TSMC Reportedly Attracts Influx of 3nm Customers, Predicts Production Capacity Utilization to Surge to 80% by Year-End

(Photo credit: Apple)

Non-Apple IC manufacturers are reporting positive business performance this quarter. Chinese brands are experiencing a revival driven by the release of new Huawei smartphones, and a resolution in inventory clearance in emerging markets. This has led to an increase in orders. Additionally, Samsung’s success in foldable phones is contributing to the upsurge. This overall trend is benefiting companies like MediaTek and Novatek in the smartphone-related IC manufacturing sector.

As reported by CTEE, China holds about 25% of the global smartphone market, with industry analysts predicting sales of 260 million units in China for 2023. Huawei’s re-entry into the smartphone market will significantly impact the smartphone SoC market share in 2024. This development will challenge Apple’s market share in China, and Huawei’s upcoming Nova mid-range smartphones will also affect brands like Honor, OPPO, Vivo, Xiaomi, and others, as they vie for market share.

Key drivers of the smartphone industry’s recovery

According to Economic Daily News, many Chinese smartphone brands are optimistic about the local market’s improvement following the launch of Huawei’s new smartphones. Beyond flagship models like the Mate 60, mid-range series like Nova are also showing increased activity. Leading non-Apple smartphone manufacturers are gearing up for a surge in demand and are actively stocking up on top-tier flagship chips, thus stimulating the supply chain’s demand for additional orders.

At the same time, Taiwanese manufacturers mention that Chinese smartphone brands that primarily target emerging markets have already digested their accumulated inventory and are now starting to replenish their stocks. Some smartphone-related chip manufacturers have also pointed out that Samsung and other Korean smartphone giants are enjoying good sales of foldable phones and have recently conveyed messages about increasing orders.

TrendForce notes that the current revival on demand side in the global smartphone market is primarily driven by inventory restocking. The potential for sustained orders remains uncertain due to the prevailing economic challenges.

(Image: MediaTek)

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• OLED Penetration in Smartphones to Exceed 50% in 2023

Market conditions in 2022 are chaotic and demand for chips fluctuate according to application. However, the IC design industry is driven by major manufacturers and the sales performance of high-end product portfolios such as data center, server, networking, industrial computing, automotive, and high performance computing will remain stable The overall market will grow to $182.9 billion, an annual increase of 14.4%.

At present, the overall industry is being negatively affected by weak demand for consumer electronics. In addition, the tightening of financing and the expectation of a wider economic recession further strengthen pessimistic attitudes. There is no opportunity for chip demand to reinvigorate in the short term, not to mention that the supply chain is already dealing with full inventories. A return of the traditional industry peak season in 2H23 will stabilize purchasing power while flat to single-digit growth in the IC design industry would be a relatively good scenario.

R&D expenses positively correlated with manufacturer revenue, AMD posts best performance in 1H22

In 1H22, R&D expenses at major IC design houses were positively related to revenue in general. The use of advanced manufacturing processes requires strong R&D capabilities, accounting for 15-35% of revenue. AMD is the most active among U.S. companies. After acquiring Xilinx and Pensando, AMD has aggressively invested in the research and development of data center-related product portfolios. In 2Q22, R&D expenditures increased by 97.2% YoY. In terms of Asian manufacturers, the impact of the poor consumer electronics market is severe and revenue growth momentum has all but disappeared. Therefore, the synchronization of R&D expenditure with revenue is also more conservative. Novatek, Willsemi, and LX Semicon product portfolios are dominated by mature processes such as DDIC and CIS with R&D/ revenue ratios below 15%.

IC design industry inventory on red alert, inventory adjustment to become a challenge by 2Q23

The IC design industry has accumulated inventory since 3Q21 and the annual growth rate of inventory has climbed to more than 50% in 1H22. Compared with the annual growth rate of revenue, the difference among American manufacturers is 20% and the difference among Asian manufacturers is 46%, indicating that inventory issues among Asian manufacturers is more serious.

The inventory levels of consumer electronics-related industries such as Smartphone, TV, Tablet, PC/notebook, and Panel, are at a 6 month level. The supply chains of IC design houses and distributors/agents are also holding substantial inventory. The inventory-to-revenue ratio of IC design houses has reached a red alert threshold of over 50%. With no improvement in demand, expectations that inventory destocking will be completed by the end of 2022 may be dashed. At present, IC design houses are desperately reducing booked foundry production capacity for high-inventory mid-level AP, DDIC, and Consumer PMIC/GPU products. If the consumer electronics market outlook remains poor in 4Q22, IC design houses could also claim a greater amount of inventory depreciation as losses. In general by 2Q23, IC design houses will continue to test their strategies for new product development, production planning, and product sales during the process of destocking the overall supply chain.

（ Image credit: shutterstock）

According to TrendForce research, in general, revenue of Taiwanese IC design companies grew significantly in 2021 with many hitting record highs due to active procurement of various terminal applications and the effect of product price inflation. These companies also performed well in terms of gross profit margin and profitability. The top 10 Taiwanese IC design companies generated revenue of NT$906.16 billion, or 54.3% YoY. In recent years, MediaTek has contributed more than half of the output value of Taiwan’s top ten IC design companies and has become a primary factor in the growth of Taiwan’s IC design industry.

Looking at Taiwan’s top three IC design companies, MediaTek, Novatek, and Realtek, in 1Q22, MediaTek benefited from the increase in 5G penetration and successive shipments of Dimensity 9000. A mobile phone release in March 2022 produced revenue growth which can offset lower demand for certain consumer products due to seasonal factors while the proportion of high-margin products in each revenue category will increase. Thus, annual revenue growth is expected to exceed 20% this year.

As for Novatek, although DDI and TDDI stocking has entered the off-season for traditional industries and demand for consumer electronics has weakened, overall market demand is still greater than supply and Commercial Notebook and Automotive demand remain strong. New products such as OLED FoD, OLED TDDI, FTDDI, and Mini LED will drive continued revenue stability. This year, Novatek will integrate TCON, PMIC, etc. for package sales, so that there is a relative price support, but the company must still dynamically adjust its product mix according to market changes.

In terms of Realtek, positive demand in the enterprise, industrial, and automotive sectors in 2H21 will continue to 1H22. With the pandemic slowing down, purchasing of commercial laptops and equipment has ramped up, wired and wireless network infrastructure is being upgraded, the automotive market continues to grow, and relevant products such as Wi-Fi 6, Wi-Fi 6E, 5G Ethernet, and the new LE Audio Bluetooth IC are being launched successively, which will continue to improve Realtek’s performance. On the consumer market side, demand in the PC and consumer electronics markets will return to normal in 2022 and the TWS Bluetooth headset market will face a price war, which will lead to a suppression of Realtek’s shipments in relevant sectors. Regarding foundry price hikes, some customers have reported that they cannot afford further price inflation and are still in the process of negotiating terms of cooperation. In addition, Realtek has been destocking in 1Q22 due to the customer yearend inventory audits and component mismatching.

Taking a comprehensive look at 2022, TrendForce believes that the benefits of price inflation will gradually fade and demand for consumer electronics will moderate but not weaken significantly, while sustained strong demand for industrial, automotive, and high-speed computing will test the product portfolio optimization and cost pass-through ability of IC design companies.

（Image credit: iStock）

In view of the ongoing production capacity shortage in the semiconductor industry and the resultant price hike of chips, revenue of the top 10 IC design companies for 2Q21 reached US$29.8 billion, a 60.8% YoY increase, according to TrendForce‘s latest investigations. In particular, Taiwanese companies put up remarkable performances during this period, with both MediaTek and Novatek posting YoY growths of more than 95%. AMD, on the other hand, experienced a nearly 100% YoY revenue growth, the highest among the top 10.

TrendForce indicates that the ranking of the top five companies for 2Q21 remained unchanged from the previous quarter, although there were major changes in the 6th to 10th spots. More specifically, after finalizing its acquisition of Inphi, Marvell experienced a major revenue growth and leapfrogged Xilinx and Realtek in the rankings from 9th place in 1Q21 to 7th place in 2Q21.

Thanks to strong demand for major smartphone brands’ flagship and high-end 5G handsets, revenue leader Qualcomm’s processor and RF front-end businesses underwent remarkable growths, while its IoT business also benefitted from WFH and distance learning demands generated by the COVID-19 pandemic. Qualcomm’s revenue from its IoT business reached nearly US$1.4 billion, making IoT one of the major growth drivers for the company. For 2Q21, Qualcomm’s revenue reached US$6.47 billion, a 70.0% YoY increase. On the other hand, Nvidia’s revenues from gaming graphics cards and data center solutions each grew by 91.1% YoY and 46% YoY, respectively, in 2Q21. Strong demand from cryptocurrency miners for Nvidia’s high-end gaming graphics cards, along with the data center segment’s demand for Nvidia’s HPC products, propelled the company’s revenue for 2Q21 to US$5.84 billion, a 68.8% YoY growth, and secured the second place for Nvidia on the top 10 list.

Broadcom, which took third place on the top 10, attributed most of its revenue to wired connectivity and wireless products. Regarding wired connectivity products, the continued build-out of 5G base stations worldwide resulted in increasing demand for Broadcom’s high-speed Ethernet controller ICs, whereas for wireless products, the release of certain high-end 5G smartphones also created high demand for Broadcom’s Wi-Fi 6E chips. Similarly, Broadcom’s broadband and industrial solutions businesses both underwent double-digit growths in 2Q21, thereby driving the company’s revenue for 2Q21 to US$4.95 billion, a 19.2% YoY growth. Turning to AMD, the company’s revenue for 2Q21 reached US$3.85 billion, a staggering 99.3% YoY increase, owing to the following: first, the bullish gaming console market; second, massive earnings growths from enterprise, embedded, and semi-custom solutions; third, increased client adoption of AMD’s server CPUs (it should be noted that AMD’s server processor business grew by 183% YoY in 2Q21). AMD took fifth place in the top 10 list for 2Q21.

Regarding Taiwanese companies, MediaTek was able to sustain the momentum it gained in 1Q21 throughout 2Q21. MediaTek’s smartphone chip business, which generated the bulk of the company’s revenue, registered a 143% growth in 2Q21. At the same time, its revenues from other businesses also saw an overall double-digit growth. Hence, MediaTek posted a revenue of US$4.49 billion for 2Q21, a 98.8% YoY growth, and reached fourth place on the list. Finally, Novatek’s SoCs and display driver ICs both performed well in the market primarily due to its close partnerships with major foundries, including TSMC, UMC, and VIS. Revenue from display driver ICs, which had traditionally been Novatek’s primary revenue source, grew by 81% YoY in 2Q21.

Certain rumors in the end-devices markets indicate that demand will likely undergo a slowdown in 3Q21 and lead to decreased orders for certain components. However, given that foundries’ newly installed wafer capacities have yet to kick off mass production, the ongoing chip shortage is expected to persist for now. In addition, as some IC design companies’ client orders still remain unfulfilled, these companies’ revenues will likely experience further growths in 2H21, albeit to a relatively limited extent. It should also be pointed out that Marvell is expected to benefit from Inphi’s earnings for the next two quarters and increase its own revenue by more than 50% YoY in 2H21. Even so, Novatek’s sixth-place ranking is unlikely to be threatened by Marvell in the short run since Novatek will continue to benefit from the ongoing chip shortage and price hikes for the time being.

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