Sources have revealed that major Chinese chip manufacturers such as SMIC (Semiconductor Manufacturing International Corporation) and CXMT (ChangXin Memory Technologies) are striving to localize the supply of critical chip materials and chemicals. This move is expected to counteract U.S. export controls and could potentially exclude global suppliers from the Chinese market.

According to a report from Nikkei News, since last year, SMIC has accelerated its efforts to require customers to help monitor, verify, and adopt local suppliers. This adoption covers a range of materials used in the chip manufacturing process, including wafers, chemicals, gasses, and other essential materials. Since being added to the U.S. entity list at the end of 2020, SMIC has been continuously exploring local supply alternatives.

Reportedly, CXMT is also actively launching a similar initiative to investigate local suppliers to replace foreign sources.

These actions indicate that China’s latest localization efforts extend beyond merely increasing the use of local chip manufacturing equipment. They now encompass hundreds of chemicals, materials, and gasses, which could potentially push foreign suppliers out of the local market.

Another source cited in a report from Nikkei news mentioned that chip manufacturers are maintaining ties with global suppliers of chip chemicals to avoid sudden impacts on production quality. However, strong incentives are stimulating the development of Chinese material suppliers. For example, National Silicon Industry Group is growing into a competitor against industry leaders like Shin-Etsu Chemical, Sumco, and GlobalWafers.

Chinese chip manufacturers are also expanding their use of local sputter targets, polishing pads, slurry, and ultra-high purity chemicals and gasses. These critical chip manufacturing materials markets have traditionally been dominated by foreign suppliers such as 3M, DuPont, and Sumitomo Chemical.

Sources cited in Nikkei’s report further indicate that these actions initially apply to less advanced chip manufacturing processes, such as 55nm and 40nm, but will eventually extend to processes below 28nm.

However, as per another report from Economic Daily News, some Taiwanese companies have indicated that the impact is limited. The areas that Chinese manufacturers can capture are mostly lower-end products, while mid-to-high-end products still heavily rely on foreign suppliers for the time being.

Taiwanese companies cited by Economic Daily News point out that China has been promoting the localization of its semiconductor supply chain for many years. While policy does provide some momentum, the key issues remain quality and yield rates. Customers are said to be reluctant to frequently adopt new suppliers, making it difficult to achieve comprehensive replacement.

Industry sources cited in the same report further note that China’s localization efforts in semiconductors are primarily focused on mature processes, with more noticeable progress in the mid-to-low-end sectors. For advanced materials like photoresists and polishing slurry, products from Japan and Western countries still hold a competitive advantage in terms of yield.

Additionally, industry sources mention that China is advancing its localization efforts more rapidly in the area of small-sized silicon wafers, which are mainly used for testing rather than production. However, for 8-inch and 12-inch silicon wafers, the market is still predominantly controlled by major foreign manufacturers.

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• [News] China Reportedly Demands Automakers Increase Local Chip Procurement to 25%
  
• [Insights] Chinese Government Invests in Huawei Supply Chain; Semiconductor Self-sufficiency for China’s Long-Term Growth

(Photo credit: SMIC)

Fab inventories have declined for two consecutive quarters, indicating that reducing excess stock may currently be the semiconductor industry’s top priority. According to industry sources cited in a report from Commercial Times, fabs are predicted to wait until the second half of 2024 to resume ordering silicon wafers.

According to the latest quarterly analysis report from SEMI, a major microelectronics association, global silicon wafer shipments in the first quarter of 2024 reached 2,834 million square inches (MSI), marking a 5.4% decrease from the previous quarter and a 13.2% decrease from the same period last year.

SEMI attributes this decline in silicon wafer shipments to the continuing decline in IC fab utilization and inventory adjustments. Consequently, shipments of silicon wafers of all sizes experienced negative growth in the first quarter of 2024.

Industry sources cited by the same report note that, based on recent trends in foundry orders, apart from TSMC, other semiconductor manufacturers have seen capacity utilization rates around 70%. Among these, DRAM and Flash memory wafer shipments have shown year-on-year increases of 20.3% and 1%, respectively, indicating better performance compared to previous periods.

Japanese silicon wafer manufacturer Sumco recently announced in its financial report that in the first quarter, overall demand for 12-inch silicon wafers had bottomed out. Demand for logic chips used in AI and DRAM had increased. However, for applications outside of AI, customers continued to adjust their production.

Sumco estimates that due to customer production adjustments and the recovery of silicon wafer demand, it may take until the second half of 2024 for the situation to improve.

Industry sources cited by Economic Daily News believe that most IC design companies have returned to normal days of inventory (DOI) and are prioritizing urgent orders for foundries. However, the inventory levels of fabs and memory fabs remain historically high, so they will primarily focus on digesting existing long-term contracts (LTA) in the short term.

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• [News] Silicon Wafer Long-Term Contracts Unstable, Major Foundry Seeks Price Cut from Japanese Suppliers

(Photo credit: TSMC)

According to the news from Money UDN, amid a tough semiconductor market, once-stable long-term contracts for silicon wafer makers have turned uncertain. A major Taiwanese foundry seeks price cuts in upcoming contracts from a Japanese supplier. Intense negotiations are ongoing, potentially affecting industry dynamics and pricing strategies due to the Japanese suppliers’ pivotal role in the supply chain.

Market insiders suggest silicon wafer makers may resist price reductions due to their vital role in foundries. Reports hint at foundries’ challenges and the ripple effects on critical materials suppliers.

Globally, Japan’s Shin-Etsu and SUMCO are top silicon wafer suppliers, trailed by Taiwan’s GlobalWafers, Germany’s Siltronic, and South Korea’s SK Siltron. And Taiwan SUMCO joint venture with Formosa Plastics Group as “Formosa Sumco Technology”, and other companies like Wafer Works. With over 30% market share, Shin-Etsu leads, closely followed by SUMCO, combining for around 55% to 60% global share.

Taiwan’s foundries include TSMC, UMC, VIS, and PSMC, among others. TSMC, with a global market share exceeding 50%, holds a leading position in the industry.

Silicon wafers are essential raw materials for semiconductor foundries, integrated device manufacturers (IDMs), and memory manufacturers. Presently, the standard duration for silicon wafer long-term contracts ranges from three to 8 years, specifying annual supply and demand quantities. In the previous semiconductor boom, these long-term contracts often featured escalating prices year by year.

Semiconductor market shifts led to reduced foundry capacity use, heightening tensions with silicon wafer makers’ clients. Delays emerged in the last quarter, leading to agreements between manufacturers and clients. This trend has persisted into the first half of this year. Silicon wafer industry insiders acknowledge slow end-market demand recovery and relatively high client inventories.

Amidst this situation of overflowing inventories, reports indicate that a major Taiwanese silicon wafer foundry is requesting Japanese silicon wafer suppliers to not only agree to further delays in this year’s contracted shipments but also to lower prices for next year. However, no formal agreement has been reached by the silicon wafer manufacturers at this stage.

A juridical person suggests that the negotiations are currently at a deadlock, and the situation might become clearer in the fourth quarter. If the silicon wafer manufacturers eventually concede, they are unlikely to publicly admit it, in order to prevent other clients from seeking similar adjustments and causing wider disruptions.

Market insiders also reveal that the Japanese silicon wafer manufacturers facing price reduction demands are currently operating relatively well and are adopting a firm stance. From the perspective of the foundries, they are hoping for support from their supply chain partners to alleviate the pressure. Normal silicon wafer inventories typically span two to three months, yet certain silicon wafer foundries are already grappling with high inventory levels, particularly for 8-inch wafers, which might persist throughout this year.

(Source: https://money.udn.com/money/story/5612/7366962)

A powerful magnitude 7.3 earthquake occurred off the coast of Fukushima, Japan on the evening of March 16th (CST). Most of northeastern Japan is a production center for global upstream semiconductor raw materials. According to TrendForce investigations, in the main quake zone, only Kioxia’s K1 Fab (located in Kitakami) will face the possibility of a further downgrade to 1Q22 production. Some of the remaining memory or semiconductor companies in the region are conducting machine inspections but the overall impact has been muted.

In terms of memory, the intensity of the earthquake at Kioxia’s K1 Fab reached magnitude 5. When the earthquake occurred, wafer input was partially damaged. At present, K1 Fab has been shut down for inspection. The 1Q22 production capacity of the K1 Fab had been downgraded following the recent contamination incident and accounts for approximately 8% of Kioxia’s 2022 production capacity. Operating under a cloud of possible aftershocks, Kioxia’s capacity utilization rate may be slow to recover in the next week, causing further downward revision of K1 Fab’s 1Q22 production. The remaining Kioxia factories are unaffected, as is Micron’s Hiroshima plant.

Looking at the market spot price, pricing has moved up since February due to the contamination of Kioxia’s raw materials. The Russian-Ukrainian war did not trigger significant upward or downward movements in spot price. After last night’s Fukushima earthquake, pricing remains stable. TrendForce asserts, overall spot demand remains weak and prices are not prone to drastic changes.

In terms of raw wafers, SUMCO’s Yonezawa Plant in Yamagata and Shin-Etsu’s Shirakawa Plant in Fukushima are both within the affected area, experiencing an earthquake intensity of magnitude 5. Due to the extremely high stability required in the crystal growth process, the industry has not yet announced the impact of the quake. TrendForce specifies, in addition to shutdown inspections, damage to machines and silicon wafer input is inevitable. However, in addition to redistributing production plans, buildings were reinforced after the 2011 Tohoku earthquake and tsunami in Japan, so overall damage may be minor.

In terms of foundries, there are two 12-inch wafer fabs and two 8-inch wafer fabs in Japan, including UMC Fab12M (12-inch), Tower Uozu (12-inch), Tonami (8-inch), Arai (8 inches), located in Mie, Toyama, and Niigata prefectures, respectively, and separately experiencing quake magnitudes from 1 to 3. At present, these fabs are operating normally and any impact of the quake on the plants are largely insignificant. However, IDM manufacturer Renesas’ Naka plant is within the magnitude 5 zone and they have also shut down and reduced production to confirm the impact of the quake.