A small subtropical island off the coast of southeast China, Taiwan is subject to certain cyclical weather changes throughout the year, the most notorious of which is its yearly typhoons that at different times benefit its agricultural industry and cause various natural disasters.

Much like everything else that happened in 2020, last year marked a stark exception for the island’s climate, which saw no typhoons, resulting in a relatively dry year. Compounding the issue is the current season of low precipitation. Taken together, these factors have since resulted in a significant drought that required an all-hands-on-deck approach from the government, such as rationing water on specific weekdays and advising industries to cut down on water consumption.

Meanwhile, a similar drought has been taking place in the global semiconductor world. As the arrival of the COVID-19 pandemic last year brought fundamental changes to the way we work, study, and live, so too has the general public’s consumption of electronic devices – and, in turn, the worldwide demand for chips used in these devices – risen.

If there are bumps in the road to Taiwanese foundries’ continued dominance, lack of rain certainly isn’t one.

Seeing as how Taiwan is the central hub of the world’s advanced semiconductor technologies, acts as home to industry leader TSMC (which is the exclusive supplier of Apple’s M1 processors), and accounts for more than half of the world’s chip manufacturing capacity, industries and media alike are fearing that the domestic drought will exacerbate the current global chip shortage, since chip fabrication processes require enormous amounts of clean water.

However, true to its market leadership, the Taiwanese semiconductor industry has so far remained unaffected, at least on the supply side, by the water shortage. This is in part due to the fact that domestic foundries (i.e., chip manufacturers) have previously completed numerous drills related to worst-case scenarios of long droughts and are accordingly well prepared in these extenuating circumstances. Furthermore, the foundries also signed contracts with utility companies to ensure an ample supply of water to keep fabs (semiconductor fabrication plants) running via water tank trucks.

TrendForce therefore expects domestic foundry operations to continue unabated for the time being. Case in point, on April 15, TSMC announced an increased capital expenditure of US$30 billion for 2021. The foundry is also actively expanding its production capacity of mature technology processes in response to the growing demand from clients worldwide.

In the world of semiconductors, advancements in process technologies occupy merely one part of the equation when it comes to long-term success. Other requirements pertain to governmental, infrastructural, climate, procedural, and talent-related dimensions, just to name a few.

While Taiwanese foundries look for a way out of the ongoing drought, they are not only acing these requirements in spades, but also staying in the spotlight of the electronics supply chain in light of geopolitical tensions, oligopolistic market trends, and the persistent global health crisis. If there are bumps in the road to Taiwanese foundries’ continued dominance, lack of rain certainly isn’t one.

（Cover image source：TrendForce）

A fire broke out at the 12-inch wafer production line of Renesas’s Naka Factory on March 19 due to an overcurrent in the plating equipment. Renesas said that the fire burned about 5% of the total area of the first floor. The Naka fab mainly manufactures MCUs and SoCs for automotive, industrial, and IoT-related applications. While Renesas officially aims to get the fab back to full operation within one month, TrendForce expects the immediate task of restoring the cleanroom and installing new equipment systems to take much longer than that. The repair of the production line will have to proceed meticulously so as to avoid the risks of manufacturing-related problems in the mass production of automotive chips later on. Three months is TrendForce’s conservative estimate for the fab to regain its former level of wafer-start capacity, meaning the tight supply of automotive MCUs will be further exacerbated going forward.

The Naka incident is not expected to result in additional orders for other foundries, given the current tight wafer-start capacity across the foundry industry

TrendForce indicates that the 12-inch Naka fab’s process technologies likely range from the 90nm node to the 40nm node. With regards to Renesas’s production lines for automotive chips, TrendForce expects the fire to impair the fab’s wafer-start capacities for products including automotive PMICs, certain V850 automotive MCUs, and first-generation R-Car SoCs. Other foundries, in particular TSMC, are able to support some of Renesas’s production, since 2/3 of their technologies are interoperable. However, it is exceedingly difficult for other foundries to allocate spare wafer-start capacities to make up for Renesas’s shortfall due to the existing wafer-start capacity crunch across the foundry industry.

Ranked third among automotive semiconductor suppliers in 2020, Renesas is also currently one of the top five largest automotive MCU suppliers at the moment. Other automotive MCU suppliers include STMicroelectronics, Infineon, NXP, TI, and Microchip. Although most of STMicroelectronics’ automotive MCUs are manufactured in-house, TrendForce believes that the Naka fire will not result in additional orders for Renesas’s competitors, including STMicroelectronics, since automotive semiconductors are currently in extreme shortage.

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

Among the various display technologies used for smartphones in 2021, AMOLED models are expected to account for a 39% penetration, thanks to smartphone brands’ increasing adoption of this technology, according to TrendForce’s latest investigations. In the entry-level and mid-range segments, the smartphone demand for a-Si LCD models remains strong, although this technology’s penetration rate is expected to undergo a slight decrease to 28%. On the other hand, LTPS LCD models are continuing to lose market share to competing technologies, resulting in a 33% penetration rate, while LTPS HD LCD models will occupy a growing share of this segment.

TrendForce indicates that smartphone brands’ procurement activities for components in 2H20 will persist throughout 2021 for two reasons: First, the industry on the whole expects demand for smartphones to ramp up considerably this year. Second, production capacities across the entire semiconductor supply chain have been tight, with some segments even showing severe shortage, thus prompting downstream clients such as smartphone brands to stock up on certain components in order to mitigate the potential risk associated with component shortages.

With regards to the development of smartphone display technologies, panel suppliers have been regaining client orders for rigid AMOLED panels through aggressive pricing since 2H20. Owing to increased adoption by smartphone brands this year, rigid AMOLED models are expected to maintain a strong market presence in the mid-range and premium mid-range segments. Flexible AMOLED models, on the other hand, will likely dominate the high-end and flagship segments. Going forward, AMOLED models will gradually cannibalize the market shares of LTPS LCD models in the mid-range and premium mid-range segments, in turn forcing LTPS LCD models into a lower price segment.

Market demand for entry-level and mid-range smartphones, especially for HD models, has remained strong since 2020, due to the impact of the COVID-19 pandemic. However, the supply of key components in these smartphones (including a-Si LCD panels as well as DDI and TDDI ICs) has been in shortage in light of the foundry industry’s tight production capacities. As prices of a-Si LCD panels and ICs spiked, panel suppliers saw this upturn as the perfect opportunity to fulfill the existing demand for a-Si products with LTPS products and in turn expend their production capacity for LTPD LCD panels. Smartphone brands began adopting a-Si HD and LTPS HD LCD panels interchangeably in an increasing number of models, thus giving TDDI ICs flexibility to be used in a greater number of compatible handsets.

At the moment, IC supply remains the greatest bottleneck in the overall smartphone supply chain; case in point, TDDI supply is tight to the point of shortage. TrendForce believes that two key factors will exert significant influence over the smartphone panel industry going forward: First, Chinese IC design companies are likely to obtain wafer input priorities in Chinese foundries thanks to government policies. These IC design companies may potentially experience considerable growth as a result and disrupt the predominant oligopoly of Taiwanese IC design companies in the smartphone panel market. Second, once the ongoing capacity expansion effort of Chinese foundries concludes, their additional production capacities will alleviate the current shortage of IC supplies, with IC prices subsequently entering a downward trajectory. As a result of lowered IC prices, the relationship between LTPS HD panels and a-Si HD panels will likely shift from complementary to competitive, with both product categories struggling for dominance in the HD smartphone model segment.

For more information on reports and market data from TrendForce’s Department of Display Research, please click here, or email Ms. Vivie Liu from the Sales Department at vivieliu@trendforce.com

As the three dominant DRAM suppliers (Samsung, SK Hynix, and Micron) are currently experiencing a shortage in their production capacities, the corresponding shortage situation in the DRAM market has yet to be resolved, according to TrendForce’s latest investigations. Taking advantage of the fact that the whole DRAM market has entered a period of cyclical upturn in 1Q21, DRAM suppliers have significantly raised quotes for specialty DRAM products. This extraordinary development has led to price hikes that are almost double digits for some specialty DRAM chips. Furthermore, the magnitude of the price hike especially widens for products belonging to the lower part of the density range and the more niche applications. Looking at MoM changes in contract prices of specialty DRAM products for February, DDR2 and DDR3 chips saw the largest price hikes. Prices of DDR4 chips also went up due to the influence of the rising quotes for DDR3 chips. The average contract price of DDR3 4Gb chips, which are still mainstream for specialty applications, jumped 6.8% MoM.

As for DDR3 2Gb chips that are primarily promoted by Taiwan-based suppliers, TrendForce indicates that there is not enough supply even as quotes are being offered. With this situation becoming the norm, the price range (i.e., the difference between the high and low prices) has also expanded dramatically. The average contract price of DDR3 2Gb chips rose by nearly 9% MoM in February. Samsung significantly raised quotes for DDR4 4Gb chips in response to the sharp upswing in prices of DDR3 chips. The low and average prices of DDR4 4Gb chips for specialty applications both climbed around 6% MoM. The average price of DDR4 8Gb chips went up by around 4% MoM as the price trend of this product aligns with the general price trends of mainstream PC DRAM and server DRAM products. However, it should be pointed out that the hikes in contract prices of specialty DRAM chips were mainly the result of the adjustments made to monthly contract deals and thus reflected the market situation of February. By contrast, prices held steady for quarterly lock-in deals with tier-1 clients.

While the three dominant DRAM suppliers have been slowing down their DDR3 manufacturing, Taiwanese suppliers are constantly adjusting their capacity allocation to maximize profits

With demand getting hotter in the specialty DRAM market, DDR3 products are starting to surpass DDR4 products and logic ICs in profit margin. Consequently, DRAM suppliers are also changing their strategies. Looking at South Korean suppliers, Samsung will continue shifting the wafer production capacity of Line 13 to CMOS image sensors over the long term. However, this reassignment has now been scaled down for this year due to the recent surge in specialty DRAM prices. Likewise, SK Hynix will keep the DRAM production capacity of its older fab M10 relatively constant through 2021 after reducing it in 2020. As for Micron, it has raised the yield rates of the 1Z-nm and 1-alpha processes, so the output shares of products based on these more advanced technologies will gradually expand. Since the available fab space in Taiwan is limited, Micron will relocate the 20nm and more mature processes to Fab 6 in the US. In sum, the output of DDR3 products from the three dominant suppliers will continue to shrink, but the pace of the reduction is now slower than originally expected.

Regarding Taiwan-based suppliers, Nanya has shifted some 20nm and 30nm production capacity from DDR4 products back to DDR3 products. Winbond has been focusing on Flash products in the recent years, and its DRAM production capacity will remain fairly limited until the completion of its new fab in Kaohsiung. Nevertheless, Winbond is concentrating its DRAM production efforts on low-density DDR2 and DDR3 products (i.e., 1Gb and 2Gb chips). It actually has the advantage of being able to raise prices as its market share for low-density products is fairly large. As for PSMC, it has been focusing on foundry manufacturing of logic ICs for a while. However, with prices now rising for foundry manufacturing of DDR3 products, PSMC now wants to shift some wafer production capacity back to DRAM. Going forward, the three Taiwan-based suppliers will keep adjusting their capacity allocation strategies in accordance with changes in the profit margins of different products. Nevertheless, even as suppliers are now changing their product mixes to take advantage of the latest market situation, TrendForce projects that specialty DRAM products will be in undersupply at least through 1H21. The magnitudes of price hikes for various types of specialty DRAM products will depend on suppliers’ capacity allocation strategies.

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

While major OEMs such as Apple and Samsung prepare to release their new notebook computers, tablets, and TVs that are fully equipped with Mini LED backlights this year, various companies in the LED supply chain began procuring Mini LED chips ahead of time in 4Q20, leading to an explosive demand growth for these chips, which in turn crowded out the LED suppliers’ production capacities for other mainstream LED chips, according to TrendForce’s latest investigations. Given this structure-wide shortage of LED chips, certain LED chip suppliers have been raising the quotes on chips supplied to non-core clients and chips with relatively low gross margins. This price hike is estimated at about 5-10%.

TrendForce further indicates that companies in the downstream LED supply chain have started to aggressively procure components in order to mitigate the impending price hike on raw materials and shortage of components due to manufacturers’ tight production capacities after the Chinese New Year. However, products of certain serial numbers or specifications are already in shortage at the moment, therefore prompting these downstream companies to raise quotes first for small- and medium-size clients who place relatively low-volume orders. As for tier one clients who have relatively higher bargaining power, should they reject such a price hike, they would then need to wait for more than two months in lead times, which is significantly longer than the average of two weeks.

Epistar is currently shipping about 150,000 pcs of Mini LED wafers (4-inch equivalent) per month. As Mini LED chips yield far higher gross margins than do traditional LEDs, Epistar has reallocated some of its production capacities for the latter, less profitable products to Mini LED chip manufacturing instead. On the other hand, San’an and HC SemiTek are directly benefitting from Epistar’s order transfers. In addition to persistently growing demand for traditional LED backlights and RGB LED chips for video walls, San’an and HC SemiTek are also shipping several tens of thousands of Mini LED wafers per month (4-inch equivalent) owing to skyrocketing Mini LED demand.

Worth mentioning is the fact that HC SemiTek’s product strategy of focusing on LED chips for display applications is paying off noticeably. By leveraging its competitive advantage of highly cost-effective products, HC SemiTek’s capacity utilization rates have been fully loaded for two consecutive quarters since 3Q20. On the other hand, about 400,000 pcs in PSS production capacity was suspended last month due to the fire at GAPSS’ fab. This incident led to a 5-10% price hike in key upstream LED chip materials including sapphire wafers and PSS, likely to further exacerbate the price hike and shortage of LED chips.

TrendForce believes that the structural shortage taking place in the LED industry, which led to a price hike for LED chips, can primarily be attributed to the that fact the industry underestimated the production capacity needed for key parts of the supply chain during the infancy of pandemic-related emerging applications, in addition to the corresponding production capacity squeeze, although these issues are expected to be resolved within half a year. As well, the downturn experienced by the LED industry within the past few years led to a clearance of excess capacities and subsequently a highly concentrated supply of key materials in the upstream LED supply chain, including sapphire wafers and PSS. As a result, the suppliers of these key materials now enjoy increased bargaining power in price negotiations. Given the simultaneous increase in material costs and limited material supplies, TrendForce thus forecasts a price hike for LED chips.

For more information on reports and market data from TrendForce’s Department of Optoelectronics Research, please click here, or email Ms. Grace Li from the Sales Department at graceli@trendforce.com