The inclusion of certain Chinese semiconductor companies on the US Commerce Department’s Entity List in the past few years has created repercussions throughout industries and markets, with the semiconductor industry coming under heavy scrutiny by both China and the US. After SMIC was hit with a string of sanctions last year, including the EAR and the NS-CCMC List, recent rumors of further US actions on China are now once again making the rounds on social media platforms.

In particular, there have been rumors saying that the US has prohibited TSMC and UMC from importing 28nm process technology equipment into China for their fabs there. Conversely, some industry insiders from China point out that, although the US did not impose such prohibition, the export approval process for the aforementioned equipment has been conspicuously lengthy.

In reality, the Department of Commerce has levied procurement restrictions on SMIC specifically, while foundries unspecified on the Entity List have not been explicitly barred from importing semiconductor equipment for use in their China-based fabs. Although some are noting that the approval processes for semiconductor equipment exported to fabs located in China have been unusually lengthy recently, these processes are not specifically aimed at equipment for the 28nm process technology.

Instead, they apply to all semiconductor equipment exported from the US to China. It should also be noted that the approval processes for some exported equipment are currently progressing well, and foundries have already taken the extended lead times into account, according to TrendForce’s latest investigations. Hence, the lengthy approval processes have not been observed to have any negative impact on the semiconductor industry at the moment.

（Cover image source: ASML）

As UMC and GlobalFoundries successively end their respective developments of advanced processes, the advanced process market has now become an oligopoly, with TSMC and Samsung as the only remaining suppliers （excluding SMIC, which is currently affected by geopolitical tensions between China and the US）. According to TrendForce’s latest investigations, TSMC holds a 70% market share in advanced processes below – and including – the 1Xnm node, while Samsung’s market share is about 30%.

As electronic products demand faster data transmission speeds and better performance in response to IoT and 5G applications, the chips contained in these products also need to shrink in size and consume less power. Hence, process technologies need to evolve in order to enable the production of increasingly advanced chips. In this light, suppliers of such chips as smartphone AP, CPU, and GPU primarily rely on Taiwan for its semiconductor industry’s advanced process technologies.

Why is Taiwan able to hold key manufacturing competencies, market shares, and unsurpassed technologies in the global foundry industry?

After TSMC pioneered its pure-play foundry services more than 30 years ago, UMC also subsequently transitioned to a foundry business model. However, the build-out and maintenance of wafer fabs require enormous human resources, capital expenditures, and environmental support, all of which have been skyrocketing since the industry progressed below the 40nm node into the EUV era. Factors including governmental support, human resource development, utility services, and long-term amortization and depreciation are all indispensable for foundries to keep up their fab operations. TrendForce’s findings indicate that Taiwan possesses about 50% of the global foundry capacity, and this figure will likely continue growing due to the persistent demand for advanced processes.

Taiwanese foundries led by TSMC and UMC operate based on a pure-play foundry model, which means they do not compete with their clients outside of foundry operations. Foundries are able to maximize the profitability of the semiconductor ecosystem in Taiwan thanks to Taiwan’s comprehensive PC, ICT, and consumer electronics industries.

In addition, not only are they able to deliver PPA（performance, power, and area） advantages to their clients through technology scaling and node shrinking, they are also unsurpassed in their comprehensive silicon IP cores and longstanding product development services. Other competing foundries are unlikely to make breakthroughs in these fields and catch up to Taiwanese foundries in the short run.

On the whole, the Taiwanese foundry industry is able to maintain its leadership thanks to competencies in human capital, client strategies, process technologies, capital intensify, economies of scale, and superior production capacities.

Furthermore, not only do advancements in semiconductor fabrication technology require developmental efforts from foundries, but they also need support throughout the entire supply chain, including upstream wafer suppliers and downstream client feedbacks, both of which can serve to eliminate yield detractors and raise yield rates. Therefore, the Taiwanese semiconductor industry derives its advantage from foundries（TSMC, UMC, PSMC, and VIS）, as well as from the cross-industrial support across silicon wafer suppliers（SAS and GlobalWafers）, fabless IC design clients, and packaging and testing operators（ASE, etc.）

（Cover image source: TSMC）

Some of the advantages of third-generation semiconductors SiC and GaN include their ability to operate under high voltages, high temperatures （for SiC）, and high frequencies（for GaN）. Not only do these advantages allow manufacturers to significantly reduce the physical sizes of chips, but peripheral circuit designs can also be simplified as a result, thereby further reducing the sizes of modules, peripheral components, and cooling systems. That is why SiC and GaN have become important strategic focuses of the global semiconductor industry.

As part of its ongoing goal of semiconductor independence, China has been accelerating the development of third-generation semiconductors in recent years

From the perspective of substrate development, countries find it difficult to procure SiC substrates due to the lack of production capacities worldwide. Hence, the ability to control the supply of SiC substrates equals having more influence in the semiconductor industry. The current ranking of geographical regions that control the supply of SiC substrates is, in order, the US （Cree and II-VI）, Japan （Rohm）, and Europe （STM）.

It should be pointed out that China’s overall standing in the third-generation semiconductor industry is hindered by its insufficient supply of substrates. Hence, Chinese companies are slightly lagging behind other global companies in this industry. At the moment, both TankeBlue and Shanxi Shuoke have successfully developed 8-inch SiC wafers, though their scale of mass production is yet to catch up to global leader Cree.

Despite the vast majority of GaN substrate suppliers being Japanese and European companies, Chinese companies have been making an aggressive push to enter this market. Regarding substrates, Nanowin, Sino Nitride, and Eta Research are all currently investing in R&D and mass production, though their current focuses are limited to 2-inch and 4-inch wafers. Regarding epitaxy, Enkris, GLC, and Genettice have been similarly making progress on R&D and mass production.

Furthermore, Chinese companies are farther ahead in the development and manufacturing strategies for GaN substrates compared to SiC substrates. For the GaN RF segment, Chinese companies span the entire supply chain, including IDM（CETC, Aofengyuan, Chengchang, Dynax, Innoscience, Bofang Jiaxin）, foundries（HiWafer and San’an）, and fabless IC design companies（GaXtrem）.

（Cover image source: TSMC）

While foundry capacities remained tight, prompting IC design companies to compete over limited foundry capacities in order to fulfill rising demand for various end devices, the top 10 IC designe (fabless) companies posted remarkable revenues in 1Q21, according to TrendForce’s latest investigations. In particular, thanks to the global mining craze brought about by the cryptocurrency market, Nvidia was able to surpass Broadcom in revenue and take the second spot among the top 10. On the other hand, fifth-ranked AMD scored a staggering YoY growth of 92.9%, which is the highest % increase on the top 10 list.

Market leader Qualcomm saw growths in its smartphone, RF front end, IoT, and automotive departments in 1Q21, during which it posted a revenue of US$6.28 billion, a 53.2% increase YoY, placing Qualcomm firmly in the number one spot. Coming in second place is Nvidia, which overtook Broadcom with $5.17 billion in revenue. Nvidia’s revenue performance can primarily be attributed to massive gaming graphics card demand generated by the cryptocurrency market and the stay-at-home economy. In addition, Nvidia’s Cloud & Data Center business also saw positive growths in 1Q21, thereby contributing to its revenue for the quarter as well.

Broadcom, ranked third on the top 10 list, posted a $4.49 billion revenue in 1Q21. Broadcom’s performance took place on the back of the bullish broadband telecom market, with growths in passive fiber optics and wired networking for data transmission. AMD, on the other hand, continued to benefit from the stay-at-home economy and other such market demands, in addition to its growing foothold in the server market. The company experienced increasing market shares and led its competitors with an impressive 92.9% YoY increase in revenue, the highest on the top 10 list. It should be pointed out that the extreme volatility of the cryptocurrency market, as well as the strict surveillance policies imposed on cryptocurrency trading by several countries, may introduce uncertainties in the future of gaming graphics card revenue for both Nvidia and AMD.

Regarding the performance of Taiwanese IC design companies, MediaTek’s smartphone business unit registered a remarkable 149% YoY growth in revenue mainly on account of high demand from Chinese smartphone brands, which were particularly aggressive in seizing Huawei’s former market share. Furthermore, as Qualcomm’s recent performance in the entry-level and mid-range smartphone markets remained relatively lackluster, MediaTek therefore aimed to fulfill demand from its smartphone clients as its chief goal on a macro level. As a result, MediaTek’s revenue for 1Q21 reached about $3.81 billion, an 88.4% YoY increase, placing the company in the fourth spot.

Novatek derived its performance from high component demand from manufacturers of IT products, TVs, and smartphones. In view of the current shortage of foundry capacity and rising prices of foundry services, Novatek has been able to maintain a stable supply of components via increased prices due to its longstanding, stable, and flexible strategic relationships with Taiwanese foundries (UMC, VIS, and TSMC), China-based Nexchip, and Korea-based Samsung LSI. Hence, Novatek leapfrogged both Marvell and Xilinx for the sixth place while increasing its revenue for 1Q21 by 59.4% YoY.

On the whole, the second wave of the COVID-19 pandemic in India, which has resulted in decreased production targets for Chinese smartphone brands, is not expected to drastically affect IC design companies’ component demand in 3Q21 because of the following factors: First, price hikes of foundry services have already been reflected in chip prices; secondly, market demand for devices remains high; and finally, Chinese smartphone brands still need to maintain a safe level component inventory, as they have yet to resolve the discrepancies among their various materials’ sufficiency levels.

Incidentally, although some expect that the recent spread of COVID-19 among KYEC employees may impact the procurement activities of IC designers that are part of KYEC’s clientele, TrendForce’s investigations of financial reports from various companies in April and May indicate that infections in KYEC facilities will unlikely result in major impacts on the revenues of IC designers in 2Q21.

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 an uncontrolled spread of the COVID-19 pandemic, Taiwan has instituted Level 3 restrictions throughout the island. With employees from several tech companies testing positive for the virus, major foundries, including TSMC and VIS, are successively finding positive cases among their midst as well. Worries have therefore cropped up in the global semiconductor supply chain over whether the supply of chip can remain unaffected despite the infections in Taiwan.

Taking into account Taiwan’s share of foundry capacity within the global total, the aforementioned supply chain’s worries are not without merit. According to TrendForce’s investigations, Taiwanese foundries, including TSMC, UMC, VIS, and PSMC, collectively account for about 50% of the global foundry capacity, meaning about 50% of the global supply of chips is contingent on Taiwan.

However, TrendForce also finds that, despite the domestic spread of the pandemic, which forced various companies to institute WFH policies for their employees, most semiconductor fabs are operating without interruptions at the moment, indicating that the COVID-19 pandemic has yet to impact the production and supply of chips.

As well, both TSMC and VIS have immediately made public announcements stating that their operations remain unaffected by the positive cases. However, whether the pandemic can be sufficiently managed and whether it will hinder the supply of semiconductors going forward remains to be seen.

（Cover image source: Pixabay）