Intel and AMD will be releasing new CPUs that support DDR5 DRAM solutions for PCs and servers this year. In response, the DRAM industry led by South Korean suppliers is developing solutions to complement the arrival of the new CPUs. In the midst of the gradual shift to DDR5, DRAM suppliers will also scale back the supply of DDR3 solutions, according to TrendForce’s latest investigations. With Korean suppliers accelerating their withdrawal from DDR3 production, Taiwanese suppliers yet to kick off mass production using newly installed capacities, and Chinese suppliers falling short of their expected yield rate, the global supply of DDR3 solutions will undergo an impending decline. With respect to the demand side, however, not only has the supply of networking chips been ramping up, but material shortage issues are also gradually easing. As such, buyers are now procuring DDR3 solutions ahead of time, resulting in a tight supply and demand situation in the DDR3 market. TrendForce therefore expects DDR3 DRAM prices to recover from a bearish first quarter and undergo a 0-5% QoQ increase in 2Q22.

On the supply side, Samsung and SK hynix have begun scaling back their DDR3 production while also planning to declare EOL (end of life) for their DDR3 offerings, such as 1/2Gb and 4Gb chips. It should be noted, however, that Micron’s DDR3 solutions will not reach EOL even by 2026, meaning the company will still offer DDR3 solutions long after its two Korean competitors have stopped doing so, according to TrendForce’s understanding. Also worth noting is that Micron is migrating its DDR3 production to a US-based fab that mainly manufactures specialty DRAM solutions. Nevertheless, since this fab’s production capacity will be divided between products for consumer and automotive applications, TrendForce believes that the aforementioned migration will tighten Micron’s supply of consumer DRAM solutions because the US fab will give priority to automotive DRAM solutions that offer a higher gross margin and are currently enjoying surging demand.

Although Taiwan-based DRAM suppliers that focus on promoting DDR3 solutions, namely, Nanya Tech and Winbond, are in the process of capacity expansion, their new production lines will not be operational until 2023-2024. Hence, the contribution from the newly added capacities is not expected to drive up DDR3 supply substantially this year. Chinese suppliers, including CXMT and GigaDevice, are continuing to collaborate in DDR3 development, though their capacity increases and yield rate improvements have both fallen short of market expectations. After being added to the Entity List, JHICC, yet another China-based DRAM supplier, is now dealing with severe restrictions with respect to procuring equipment, making it difficult for JHICC to raise its wafer input. Furthermore, the company has no spare resources that can be allocated to R&D and pilot runs. As a result, JHICC still primarily manufactures DDR4 4Gb chips at its initial 25nm node, with no DDR3 production at the moment.

With regards to demand, DDR3 consumer DRAM is primarily used in end-devices such as STBs and networking products (e.g., GPON, routers, and modems), which do not require high-performance SoCs. While the foundry industry suffered a severe shortage of wafer capacities allocated to logic ICs in 4Q21, production capacities for relatively low-margin chips were noticeably impacted in turn. Along with a preexisting component mismatch situation, most manufacturers found themselves unable to assemble end-devices. Moving into early 2022, however, the supply of certain materials, including those used in foundry operations, saw a gradual improvement. As various components needed for device manufacturing became available after Lunar New Year, certain buyers have once again kicked off their consumer DRAM procurement activities.

In addition, DRAM spot prices shifted from a prior decline to a strong upturn at the end of last year as the Chinese government ordered a month-long lockdown in Xi’an. The ensuing price hike, which has lasted for two months, subsequently led buyers to procure even more DRAM ahead of time in anticipation of further price hikes. Hence, although the demand for end-products has yet to make a full recovery, buyers are now slowly and steadily procuring consumer DRAM in order to avoid either higher upcoming prices or even an inability to secure consumer DRAM inventory.

Regarding rising tensions stemming from the Russian-Ukrainian war, TrendForce indicates that Russia is not one of the Taiwanese foundry industry’s primary markets. Hence, while sanctions against Russia continue to pile up, their impact on Taiwanese foundries will likely remain limited, though the war may potentially result in a decline in sales of end-devices, thereby indirectly reducing manufacturers’ component demand and, subsequently, wafer inputs at foundries.

TrendForce indicates that the smartphone industry will be noticeably affected by the ongoing war. Take the ranking of smartphone brands by market share in Russia and Ukraine last year, for instance; the top three brands sold included Samsung, Xiaomi, and Apple, which had a combined annual sale of about 45 million units for 2021. Since the inception of the armed conflict, there have been continued fluctuations in currency exchange rates, with the Ruble plummeting in value, and this devaluation has been noticeably reflected in retail sales of iPhones. More specifically, the retail price for the iPhone 13 Pro 128 GB has risen by almost 50% in Russia. Such price hikes pertaining to electronic items will likely prompt consumers to reallocate a rising portion of their spending to other daily necessities instead. Therefore, the two countries’ demand for chips is expected to rapidly shrink, in turn leading IC design companies to reduce their wafer input at foundries.

With foundries terminating their supply to Russia, will Chinese companies subsequently benefit from redirected orders?

Although Russia is not a major market for the Taiwanese foundry industry, certain Elbrus-branded chips, used in military and networking applications, are manufactured by TSMC. Notably, the Washington Post indicated that TSMC is no longer manufacturing and shipping Elbrus products, while there have also been rumors suggesting Chinese semiconductor companies may reap benefits in response. TrendForce, however, believes that, even though Chinese foundries are able to provide the 1Xnm and more mature process nodes necessary for Elbrus chip production, the requisite redesign and verification processes will likely take at least one year. As such, Russia will have a difficult time immediately redirecting orders for Elbrus chips to Chinese foundries, and the Chinese semiconductor industry will not be able to take advantage of these orders in the short-term.

Escalating warfare places significant stress on transportation, logistics, and supply chains

In light of the ongoing conflict, various parties have been imposing diverse sanctions on Russia, and the shipping industry has, in turn, sustained both direct and indirect ramifications pertaining to their businesses’ stability and safety. Logistic disruptions and skyrocketing prices, for instance, represent some of the issues that have emerged post-conflict and placed undue stress on the global supply chains. As a hotbed of semiconductor production, then, Taiwan would naturally be assumed to have domestic semiconductor companies stockpile component inventories. However, according to TrendForce’s investigations, not only do most of these companies currently possess healthy inventory levels, but Russia and Ukraine also do not represent the sole sources of semiconductor materials for Taiwan, since Taiwanese companies have been sourcing materials from China as well. Hence, the Russian-Ukrainian war has caused neither noticeable stock-up activities nor production bottlenecks for Taiwanese semiconductor companies.

（Image credit: shutterstock）

Global smartphone production came to 356 million units for 2021, showing a QoQ increase of 9.5%, according to TrendForce’s latest investigations. The second half of last year saw demand injections related to the peak promotion season for e-commerce platforms and year-end holiday sales. These factors thus bolstered smartphone production and resulted in 4Q21 seeing the highest QoQ growth rate for the year. Apple’s new iPhones were the primary growth driver. On the other hand, the performances of a few smartphone brands were constrained by the shortage of some key components. Hence, the total smartphone production for 4Q21 was slightly lower compared with 4Q20 or even 4Q19.

Apple took production leadership in 4Q21 with record high of 85.5 million units

After unveiling the iPhone 13 series in September, Apple started aggressively ramping up the shipments of these new devices to meet market demand. Owing to its fast-paced sales and marketing rhythms, Apple has been able to take first place in the quarterly ranking of smartphone brands by production market hare for many fourth quarters, and 4Q21 was no exception. Besides maintaining its top position in the fourth-quarter brand ranking, Apple raised its quarterly iPhone production to a new record high of 85.5 million units, a 66.0% QoQ increase. In the aspect of pricing strategy, the prices of the new iPhone 13 models were reasonable for consumers, while the price reductions for the older iPhone models were noticeable as well. Moreover, the capturing of the market share left by Huawei can be considered as the main factor behind Apple’s stellar performance in 4Q21. Over time, the orders for Huawei’s flagship models (i.e., the P and Mate series) have been gradually replaced by iPhone orders. In terms of annual production, Apple reached 233 million units for 2021, up from almost 200 million units for 2020. The growth was mainly attributed to an expansion of Apple’s market share in China from 10% to 16%. Samsung took second place in the global brand ranking for 4Q21 with 71 million units, a 2.9% QoQ increase. In 2Q21, the spread of COVID-19 outbreaks in Vietnam affected smartphone production facilities in the country and lowered Samsung’s capacity utilization rate. But apart from that quarter, Samsung’s performance remained stable for the other three quarters of last year. For the ranking of smartphone brands by annual production, Samsung was still the leader for 2021 with 275 million units.

OPPO (including Realme and OnePlus) took third place in the ranking with a quarterly production of 48 million units, a 5.9% QoQ decrease, for 4Q21. Xiaomi (including Redmi, POCO, and Black Shark) took fourth place with a production of 45.5 million units, a 2.2% QoQ increase. Fifth-ranked Vivo (including iQoo), on the other hand, reduced its smartphone production by 11.8% QoQ to 30 million units. As these three Chinese brands’ target markets and product strategies show significant overlap, their control of key components that are currently in shortage will have a direct impact on their production volumes going forward. It should also be pointed out that Honor, which was spun off from Huawei in early 2021 and underwent a period of corporate restructuring and component procurement in 1H21, experienced a meteoric rise in 2H21. Much like other Chinese brands, Honor adopts a sales strategy that primarily focuses on the Chinese market, meaning Honor’s smartphone business will continue to affect OPPO, Xiaomi, and Vivo, all of which place a top priority on domestic sales.

Annual smartphone production for 2022 will likely reach 1.381 billion units despite potential decline

Assuming that the global spread of the COVID-19 pandemic continues to slow, TrendForce expects annual smartphone production for 2022 to undergo a slight YoY increase of 3.6% to 1.381 billion units. Not only is smartphone demand expected to decline in China, which represents the largest consumer market in the world, but other markets will also exhibit only limited growth. Hence, the leading growth drivers will come from both cyclical replacement demand and new demand from emerging markets. Notably, in addition to factors such as foundry capacity allocation, global inflation, and energy shortage, whether an economic recovery will bring about positive change for the smartphone market will continue to influence the overall performance of the industry. TrendForce therefore believes that the annual smartphone production for 2022 may still face potential downside risks.

Regardless, the recent war between Russia and Ukraine has generated a host of issues including exchange rates, inflation, and logistics problems that affect smartphone sales in Eastern Europe. With regards to the market share of smartphone brands in Russia and Ukraine last year, the top three brands by sales included Samsung, Xiaomi, and Apple, with a combined 45 million units sold, accounting for 3% of the global total. Preliminary assessments indicate that the ongoing war will not have a drastic effect on smartphone production for 2022, though TrendForce also does not rule out the possibility that the resultant global economic problems may affect overall smartphone demand.

The conflict between Russia and Ukraine has escalated in recent days. In addition to the surge in natural gas and crude oil prices, the conflict may also impact the supply of non-ferrous metals including aluminum, nickel, and copper. According to TrendForce, nickel is a key upstream raw material for the manufacture of electric vehicle power batteries and mainly used in the production of ternary cathode materials. In 2021, global nickel mine production was approximately 2.7 million tons, originating primarily from Indonesia, the Philippines, and Russia. Russian nickel production accounts for approximately 9% of the world’s total (including low, medium, and high-grade nickel), ranking third globally. At present, the market penetration rate of new energy vehicles is accelerating and ternary power batteries account for nearly half of power battery market share, which signals strengthening demand for upstream raw material nickel for automotive power batteries. Although Russian nickel exports remain unaffected for the time being, if the situation on the ground between Russia and Ukraine continues to deteriorate, global nickel supply may be impacted in the short term, pushing up nickel prices, and further increase cost pressures on end product markets such as the electric vehicle industry.

TrendForce states that in the medium to long term, since the lion’s share of new nickel ore smelting and processing projects have been located in Indonesia in recent years and Indonesia’s nickel ore production accounted for approximately 37% of the world’s total production in 2021, Indonesia’s concentrated production of nickel is expected to improve supply and demand in 2H22. TrendForce also emphasizes, regarding the export ban on mines announced by Indonesia last year, this ban only prohibits the export of raw ore and does not prohibit Chinese companies such as Zhejian Huayou Cobalt, Tsingshan Holding Group, Lygend Resources, and GEM from investing in the processing end of nickel mines in Indonesia. Therefore, smelting nickel ore and highly processed products are not affected by the export ban.

From the perspective of suppliers, among the top five nickel ore manufacturers in the world, Russian manufacturer Norilsk supplies approximately 9% of the world’s raw nickel materials, or 90% of overall Russian production, and its high-grade nickel production accounts for 22% of the world’s total (Note: according to nickel content, nickel materials can be divided into high-grade nickel, medium-grade nickel, and low-grade nickel with high-grade nickel referring to Ni content ≥ 10%), ranking first in the world. China’s Jinchuan Group ranks second at 17%, followed by Switzerland’s Glencore at 13%, and Brazil’s Vale S.A. at 12%. TrendForce believes, looking at the current conflict between Russia and Ukraine, if Europe and the United States impose sanctions on Russia, a change in the flow of Russian nickel may occur due to the high concentration of production and processing by Norilsk.

TrendForce states, at present, high-nickel-based ternary cathode materials (primarily referring to ternary materials with high nickel content such as NCM622, NCM811, and NCA) rely on the two advantages of higher energy density and less dependence on the precious metal cobalt as a raw material, its market share of ternary cathode materials has increased rapidly, 10% in 2019 to nearly 40% in 2021. The development of high nickel content means that consumption demand for nickel corresponding to each ton of ternary cathode materials has increased. With the acceleration of the penetration rate of new energy vehicles in China, Europe, and the United States, the market demand for lithium power batteries is strong and overall nickel inventories continue to decline. At present, the global refined nickel inventory is only 100,000 tons. In the context of tight supply and increasing demand, inferring from the Chinese market where new energy vehicles accounted for 53% of the global market in 2021, the spot market price of electrolytic nickel in China reaching RMB130,000 to RMB150,000 per ton in 2021, and prices jumping in early 2022 to RMB160,000 to 170,000 per ton, the possibility of continued pricing spikes in the future cannot be ruled out.

Since February 14, UMC subsidiary Hejian Technology (HJTC), had entered phased shutdown and temporary suspension due to the pandemic, according to TrendForce‘s investigation. The plant is an 8-inch fab and its production capacity accounts for approximately 25% of UMC’s total 8-inch capacity and approximately 3% of global 8-inch capacity. Since this incident was not an unforeseen accident, utilization rate during the phased shutdown was maintained at roughly 25~30% and wafers on the production line did not need to be scrapped. The plant has gradually resumed operation today (2/24). Since it takes approximately five to seven days to recalibrate semiconductor equipment, full recovery of overall utilization rate is expected to fall in early March with an estimated wafer input loss of 14~20 days, affecting approximately 4~5% of the company’s 8-inch production capacity this quarter or approximately 0.4~0.5% of global 8-inch production capacity, a manageable situation overall.

UMC HJTC Fab 8N contains 0.5μm~0.11μm node production lines and is a full eight-inch fab. The actual proportion of customer products on the production line at the time of the incident is as follows: HJTC’s largest client Silergy accounted for 40% of the production line for PMICs, with most end applications being consumer and industrial products such as IP cams, air conditioners, and refrigerators. SinoWealth and Novatek each accounted for 13% of the production line with products such as MCUs and large size DDIs. Other PMIC clients include Mediatek and GMT who accounted for approximately 35% of the plant’s production capacity.

Since most customer products allocated to this fab are simultaneously produced at the UMC fab in Taiwan or at other fabs and end-user products including smartphones, TVs, and laptops are all currently in the off-season, restocking momentum is weak. TrendForce believes that although the shutdown was longer than expected, since no wafers were scrapped on the production line and the cycle time of some PMICs is short, wafer input losses have an opportunity to be mitigated through expedited order production and have limited impact on shipments. In terms of revenue, due to the relatively low selling price of 8-inch wafers, the impact of this incident on UMC’s annual revenue performance falls within a 0.3% range.