Japan’s industrial production declined in August, according to data released by Japan’s Ministry of Economy, Trade and Industry (METI) on October 15. Industrial production in August fell by 4.9% year-over-year, a 6% drop compared to the previous month.

On a month-over-month basis, industrial production decreased by 3.3% in August, down 6.4% from the prior month, and below the market expectation of -0.5%.

By sector, approximately 80% of industries saw a decline in output. The automotive industry, in particular, saw a monthly drop of 10.7% (previously 1.9%) and an annual decrease of 15.4% (previously 2.0%), reflecting the impact of halted production due to data falsification by automakers and weak overseas car sales.

Meanwhile, machinery production fell by 7.8% month-over-month (previously -4.6%) and by 7.8% year-over-year (previously 0.9%), driven by weakening overseas demand.

METI forecasts industrial production to increase by 2.0% in September and by 6.1% in October. However, even if production rises as expected in September, third-quarter output may still be lower than in the second quarter.

Industrial production accounts for approximately 40% of Japan’s GDP. With uncertainty in domestic demand from both the U.S. and China, coupled with the potential end of the global manufacturing growth cycle, Japan’s export and production outlook remains uncertain, adding further pressure on its economic growth.

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At the moment, the DRAM market has formally entered a new cycle of rising prices, and 2Q21 will see larger QoQ price increases compared with 1Q21, according to TrendForce’s latest investigations. Looking ahead to 2Q21, shipments of various end products are expected to remain fairly strong. At the same time, clients in the data center segment will resume large-scale procurement. Hence, DRAM buyers across different application segments will be under pressure to stockpile. After experiencing QoQ increases of 3-8% for 1Q21, the average contract prices of different kinds of DRAM products are forecasted to rise more significantly by 13-18% QoQ for 2Q21.

PC DRAM contract prices are projected to rise by 13-18% QoQ due to urgent demand from notebook manufacturers driven by bullish notebook market

Notebook computer production on the whole will maintain a fairly healthy momentum in 2Q21. The demand for PC DRAM products therefore continues to grow as PC OEMs have been raising their annual production targets. Since buyers of PC DRAM products are now carrying a relatively low level of inventory (i.e., around 4-5 weeks) and anticipating that DRAM prices will keep rising in the foreseeable future, they have been further ramping up their DRAM procurement activities. With regards to supply, the three dominant DRAM suppliers retain a conservative approach for raising bit output. The production capacity share of PC DRAM could experience a squeeze in the future because of robust demand in other application segments. For instance, some smartphone brands continue to vigorously stock up on memory components. Also, the demand for server DRAM products are expected to warm up rapidly in 2Q21. All in all, contract prices of PC DRAM products will register significant QoQ increases of 13-18% for 2Q21.

Server DRAM prices are projected to rise by nearly 20% QoQ due to cyclical upturn in server shipments

With regards to the demand for server DRAM, the second quarter is traditionally the peak season for server shipments while also being a fairly busy period within the year for the procurement of other kinds of DRAM products. Hence, the situation of different sources of demand competing for DRAM suppliers’ production capacity becomes more evident in this period. TrendForce expects server DRAM buyers to be more aggressive in inventory building during 2Q21 and begin to raise the procurement quantity on a monthly basis. This, in turn, will sustain the uptrend in server DRAM prices. With regards to supply, the server DRAM production capacities of the three dominant suppliers will still not return to the level that existed in the middle of 2020, although these suppliers will slightly increase the share of server DRAM in their overall DRAM production capacities in 2Q21. In addition to the peak-season effect, the COVID-19 pandemic continues to influence server manufacturers as well. Server manufacturers have intentionally extended their component inventories by several more weeks because of the pandemic-induced uncertainties. TrendForce is therefore not discounting the possibility of server DRAM contract prices registering a QoQ increase as large as around 20% for 2Q21.

Mobile DRAM contract prices are projected to remain bullish due to smartphone brands’ expanded procurement activities in advance of market risks

With regards to mobile DRAM demand, smartphone brands will not relax their inventory-building efforts in 2Q21 as the production capacity crunch in the foundry market has made them more vigilant in maintaining a stable component supply. The quarterly total smartphone production volume for 2Q21 is forecasted to exceed 300 million units. Although the three dominant DRAM suppliers have yet to adjust their product mixes for 2Q21, they will probably have to later on because the ASPs of server DRAM and other kinds of DRAM products are rising faster than the ASP of mobile DRAM. Hence, the production capacity share of mobile DRAM could be scaled back so that the production capacity share of server DRAM could grow. Additionally, the behavior of mobile DRAM buyers has been influenced by the cyclical upturn in prices and the anxiety over a tightening of supply in the future. They will continue to procure in large quantities so as to avoid the risks of a supply shortage and larger price hikes. This means that mobile DRAM prices will be on the uptrend as buyers stock up in advance.

Graphics DRAM contract prices are projected to rise by 10-15% QoQ due to high demand for graphics cards from cryptocurrency miners

With regards to demand, the three growth pillars of the graphics DRAM market are graphics cards, game consoles, and cryptocurrencies. At the same time, the mining of various cryptocurrencies has become a lucrative activity. Besides graphics cards that represent the more conventional mining technologies, miners are buying notebooks for this purpose as well. Sensing opportunities, Nvidia has launched CMP (cryptocurrency mining processor) cards and thereby taken up more of DRAM suppliers’ resources. This, in turn, has led to small- and medium-sized OEMs and ODMs experiencing a widening supply gap for graphics DRAM. With regards to supply, the three dominant DRAM suppliers have all reassigned their production capacity for graphics DRAM from GDDR5 to GDDR6, resulting in an increasingly lopsided discrepancy between the two products’ bit supplies, so there is no effective resolution to the ongoing shortage of GDDR5 products. As for GDDR6, demand remains strong as cryptocurrency mining is keeping the demand for graphics cards at a high level, although Nvidia is hogging much of the existing production capacity for graphics DRAM. Looking ahead to 2Q21, the supply situation will still be very strained unless the values of the mainstream cryptocurrencies undergo a drastic change. TrendForce forecasts that contract prices of graphics DRAM will rise by about 10-15% QoQ during this period.

Consumer DRAM contract prices are projected to rise by up to 20% QoQ due to intensifying shortage

With regards to consumer DRAM demand, the demand for TVs, set-top boxes, and networking devices remains strong due to the prevailing stay-at-home economy. Additionally, the build-out of 5G infrastructure and the rapid migration to Wi-Fi 6 contribute to the brisk demand for low-density consumer DRAM products. The supply gap in consumer DRAM market is already significant at this moment and will likely widen in 2Q21. With regards to supply, the overall production capacity for DDR3 products is gradually shrinking. The three dominant suppliers are migrating to the more advanced processes such as the 1Z-nm and 1-alpha nm while reassigning the wafer production capacity of the older processes such as the 20nm and 25nm to CMOS image sensors. Also, Taiwan-based suppliers have allocated some wafer production capacity to products with higher margins (e.g., logic ICs and Flash memory). As a result, the consumer DRAM market is in a rare situation of experiencing a supply shortage and a demand rebound at the same time. There is a strong likelihood that prices of some consumer DRAM chips will register a QoQ increase of almost 20% for 2Q21 contracts, and there is room for further hikes following quarterly contract negotiations.

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

The Line S2 fab of Samsung in Austin, Texas sustained a power interruption, which has forced it to suspend operation since mid-February, under the impact from the winter storm. TrendForce’s latest investigations indicate that the capacity utilization rate for the entire fab is not expected to climb back to over 90% until the end of March. In particular, Samsung manufactures several products that are highly important for the production of smartphones, including the Qualcomm 5G RFIC, Samsung LSI OLED DDIC, and Samsung LSI CIS Logic IC. Supply-wise, the first two products sustained the brunt of the winter storm’s impact, and global smartphone production for 2Q21 is therefore expected to drop by about 5% as a result.

According to TrendForce’s investigations, Samsung was able to prepare for the power interruption ahead of time as the company had been forewarned by the local utility. Hence, the loss of WIP (work in progress) wafers caused by the incident was minimal. However, the delay in the resumption of full operation at the plant is expected to last more than two weeks, during which the fab will suspend its wafer input. The incident on the whole will have a definite impact on the global foundry industry that is already experiencing a serious capacity crunch. In terms of wafer input, the Qualcomm 5G RFIC, Samsung LSI OLED DDIC, and Samsung LSI CIS Logic IC account for 30%, 20%, and 15% of the Line S2’s monthly production capacity, respectively.

Of the three aforementioned products, the Qualcomm RFIC is primarily supplied to smartphone brands to be used in 5G handsets. This product is delivered to clients as part of either AP bundles or 5G modems. The winter storm’s impact on the production of the Qualcomm RFIC is expected to take place in 2Q21, resulting in a 30% decrease in 5G smartphone production for the quarter. However, TrendForce expects this incident to impair the 2Q21 production of all smartphones by only about 5%, given smartphone brands’ existing inventory of 5G AP bundles and 5G modems, in addition to the fact that smartphone brands are likely to keep up their quarterly smartphone production by increasing the production of 4G handsets to make up for the shortfall in 5G handsets. Furthermore, TrendForce expects the Line S2 fab to prioritize resuming the production of RF products ahead of other products, in turn further mitigating the winter storm’s impact on global smartphone production.

On the other hand, the Samsung LSI OLED DDIC is primarily used in Apple’s iPhone 12 series. The winter storm’s impact on these DDICs will similarly take place by the end of 2Q21. Even so, Apple likely possesses sufficient DDIC inventory, at least in the short term, since the period of peak DDIC demand for the company’s existing smartphone models has already passed. Moreover, the iPhone 12 mini may reach EOL earlier than expected due to disappointing sales. Should Apple decide to cut iPhone 12 mini production, the company will be able to further minimize the impact of OLED DDIC undersupply. Finally, as sales of the iPhone 11 (which is equipped with an LCD, instead of OLED, panel and therefore does not require OLED DDIC) have been resurging recently, Apple may increase the share of iPhone 11 in its total smartphone production in order to keep up its quarterly production volume. In light of these factors, TrendForce believes that the production volume of iPhones in 2Q21 will suffer only limited impact from OLED DDIC supply disruptions.

On the whole, although the production of 5G smartphones will face a relatively considerable challenge in 2Q21, smartphone brands will be able to keep up their quarterly production volume by raising the production share of 4G smartphones instead. TrendForce thus projects the winter storm to impair smartphone production for 2Q21 by no more than 5%, while maintaining the previous forecast of 1.36 billion units produced for 2021. However, TrendForce also does not rule out the possibility that the winter storm will lower the penetration rate of 5G smartphones in 2021 from 38%, as previously forecasted, to 36.5%.

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

Owing to high sales of the iPhone 12 series as well as an aggressive device production strategy by Chinese smartphone brands in response to sanctions on Huawei, which has lost considerable market share as a result, global smartphone production for 1Q21 is likely to reach 342 million units, a YoY increase of 25% and a QoQ decline of just 6%, according to TrendForce’s latest investigations. Historically, smartphone production tends to experience a QoQ drop of around 20% for the first quarter as demand collapses from the peak-season level of the fourth quarter of the preceding year. However, the performance of the first quarter of this year is expected to defy seasonality.

Smartphone production for 4Q20 is estimated at 364 million units, while Apple ranked first in terms of production volume

Even though the share of high-end models in global smartphone sales shrank in 2020 due to the COVID-19 pandemic, Apple was able to push through the headwinds and capture market share by introducing 5G models and adopting an aggressive pricing strategy. Apple produced 77.6 million units of iPhones in 4Q20, an 85% increase QoQ, thereby overtaking Samsung and ranking first amongst all smartphone brands. It should also be pointed out that iPhone 12 devices accounted for about 90% of the iPhone production in 4Q20. For 1Q21, sales of iPhone 12 devices remain strong, and total iPhone production is expected to reach 54 million units, with iPhone 12 models again accounting for about 80% of this figure. Looking further ahead, Apple plans to launch four new flagship iPhone devices in 2H21 and is likely to adhere to its aggressive pricing strategy. Regarding hardware advances, Apple will upgrade its mobile SoC to the A15 bionic SoC. Other than that, it will optimize various existing functions of the iPhone device. On the whole, the four upcoming flagship models can be regarded as extensions to the iPhone 12 series.

Samsung posted a QoQ decline of 14% in its smartphone production to 67 million units for 4Q20, thereby taking second place in the quarterly ranking. Its performance was affected by the competition from the new iPhone devices and the end of stock-up activities that were related to the year-end holiday season in North America and Europe. Moving to 1Q21, Samsung has released the new lineup of its flagship Galaxy S21 series in advance so as to maintain its market share in the high-end segment. At the same time, Samsung has adopted promotional pricing to boost the sales of its latest devices. Samsung’s quarterly smartphone production volume will likely reach around 62 million units for 1Q21. For the whole 2021, TrendForce expects Samsung to top the annual ranking of brands by production. Nevertheless, retaining the leadership position will be increasingly challenging for Samsung as it has been losing market share to several Chinese brands that have risen rapidly over these past few years. Regarding product strategy, Samsung will likely combine the Galaxy Fold series, equipped with foldable displays, with the Galaxy Note series, which offer large-sized displays, into the same flagship lineup. The main focus of Samsung’s sales efforts will still be on the Galaxy A series that encompasses models across the high-end, mid-range, and low-end segments of the price spectrum. To effectively compete against Chinese brands that boast better price-performance ratio for their devices, Samsung will maintain high specifications and a price advantage for Galaxy A devices.

OPPO (including OPPO, OnePlus, Realme), Xiaomi, and Vivo produced 50 million, 47 million, and 31.5 million units of smartphones respectively in 4Q20, which placed them at third, fourth, and sixth places. Looking ahead to 1Q21, the three aforementioned smartphone brands are expected to maintain an aggressive production target and actively expand in both the overseas and domestic markets. Nonetheless, potential growths in their actual production volume will be limited by the current shortage of production capacities across the foundry industry. In terms of product strategies, the three Chinese brands will remain aggressive in their R&D activities for high-end models as they seek to take over Huawei’s previous position in this segment. In particular, Xiaomi and OPPO have been seizing market shares with the highly cost-effective Redmi and Realme series, respectively. Notably, Xiaomi is expected to achieve a better performance in terms of market share for the whole year due to its earlier expansion in the overseas markets.

In response to heightened China-U.S. tensions, Huawei maintained a high inventory of components, which allowed it to effectively mitigate the impact of sanctions from the Department of Commerce. As such, Huawei recorded a quarterly production volume of 34.5 million units in 4Q20, a 21% decrease QoQ. This performance was sufficient to land Huawei in the fifth place in the production ranking for the quarter. Going forward, if suppliers of relevant smartphone components are unable to obtain approval to ship to Huawei by the end of 1Q21, then Huawei is expected to experience a noticeable cutoff of material supplies by the end of 2Q21. Furthermore, after being officially sold off by its parent company Huawei in early 2021, Honor is similarly facing the issue of foundry capacity shortage, which is projected to constrain the production volume of new Honor for the entirety of 2021.

2021 Ranking of smartphone brands by market share remains under scrutiny as LG suspends R&D of new products

LG has been considering either closing down or selling off its smartphone business since early 2021 while also suspending the R&D of new models. This has introduced additional uncertainties into the smartphone market following Huawei’s diminished presence. Although LG was relentless in innovating and developing high-end smartphones in the past, its sales performances lagged behind more competitive offerings from Samsung and Apple in the high-end segment. In the entry-level and mid-range segments, LG similarly fell short of Chinese brands, whose products enjoyed a pricing advantage. As a result, LG’s smartphone market share underwent gradual YoY declines since 2016, finally coming to ninth place in the global smartphone production ranking in 2020. Going forward, LG will concentrate its sales efforts in the Americas, while its market share is expected to fall to other brands, including Samsung, Xiaomi, and even certain telecom companies’ in-house brands.

For the rest of 2021, as the pandemic gradually slows down, the smartphone industry, which provides an essential daily necessity for the public, is likely to make a recovery as well. Given the industry’s cyclical replacement demand as well as demand from emerging regions, TrendForce projects the total smartphone production volume for 2021 to reach 1.36 billion units, a 9% increase YoY. It should be pointed out that the recent shortage in foundry capacities has led to a very limited supply of smartphone components, such as AP and TDDI. This means most smartphone brands have to make do with the materials they are able to obtain, even if such materials constitute a bottleneck in the manufacturing process. As a result, the boundaries between what would otherwise be off seasons and peak seasons will be relatively ambiguous this year, resulting in a smaller magnitude of QoQ growths.

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