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）

As the global economy enters the post-pandemic era, technologies including 5G, WiFi6/6E, and HPC (high-performance computing) have been advancing rapidly, in turn bringing about a fundamental, structural change in the semiconductor industry as well, according to TrendForce’s latest investigations. While the demand for certain devices such as notebook computers and TVs underwent a sharp uptick due to the onset of the stay-at-home economy, this demand will return to pre-pandemic levels once the pandemic has been brought under control as a result of the global vaccination drive.

Nevertheless, the worldwide shift to next-gen telecommunication standards has brought about a replacement demand for telecom and networking devices, and this demand will continue to propel the semiconductor industry, resulting in high capacity utilization rates across the major foundries. As certain foundries continue to expand their production capacities this year, TrendForce expects total foundry revenue to reach a historical high of US$94.6 billion this year, an 11% growth YoY.

TrendForce’s latest analysis also finds that shipments and production volumes of end products will continue to grow in the post-pandemic period. Regarding host computers, the total (or global) shipments of servers and workstations are forecasted to undergo a yearly growth mainly driven by applications that are enabled by 5G and HPC. As for various types of client (or end-user) devices, the annual total production volume of 5G smartphones, in particular, is forecasted to increase by around 113% YoY. The penetration rate of 5G models in the smartphone market is also forecasted to rise to 37% in the same year. Turning to notebook (or laptop) computers, their total shipments in 2021 will register a YoY growth rate of about 15% thanks to the proliferation of the stay-at-home economy.

Finally, the governments of many countries introduced consumption subsidies during the pandemic so as to stimulate the domestic economy. Video streaming services have also grown dramatically with respect to content and demand because of the pandemic. As a result, the TV market is seeing a wave of replacement demand as consumers want to purchase the latest models that offer higher resolutions (e.g., 4K and 8K) and network connectivity (i.e., smart TVs). The total shipments of digital TVs in 2021 are forecasted to undergo a YoY growth rate of around 3%.

The high demand for the aforementioned end devices has therefore resulted in a corresponding surging demand for various ICs used in these devices, including CIS, DDI, and PMICs. In addition, the increasing adoption of cloud services, including IaaS, PaaS, and SaaS, has also generated a massive demand for various high-end CPUs and memory products used in the HPC platforms that power said cloud services.

On the whole, TrendForce believes that, with demand maintaining a healthy growth momentum for many kinds of end products, semiconductor components that are manufactured with the same foundry nodes will be competing for production capacity. Some categories of ICs will therefore experience a more severe capacity crunch due to the product mix strategies of respective foundries. In the short term, no effective resolution is expected for the undersupply situation in the foundry market.

Certain foundries will continue to expand their production capacities in 2021 as the semiconductor industry undergoes a structural change

With regards to the expansion plans of various foundries this year, tier-one and tier-two foundries will prioritize the development of different process nodes. More specifically, tier-one foundries, including TSMC and Samsung, will focus on the R&D, fab build-out, and capacity expansion for the 5nm and below nodes in response to the growing chip demand for HPC-related applications. On the other hand, tier-two foundries, including SMIC, UMC, and GlobalFoundries will primarily focus on expanding their production capacities of the 14nm to 40nm mature process nodes in order to meet the massive demand for next-gen telecom technologies (such as 5G and WiFi6/6E) and other diverse applications (such as OLED DDI and CIS/ISP).

Incidentally, it should be pointed out that SMIC’s capacity expansion plans have been constrained after the US Department of Commerce added SMIC to the Entity List, which prohibited the company from procuring US semiconductor equipment. However, SMIC still possesses enough funds for procuring non-US equipment and building new fabs, as the company is not only actively expanding its existing 8-inch and 12-inch wafer capacities, but also proceeding with the construction of its new fab in Beijing.

Apart from the aforementioned companies, other foundries, including PSMC, Tower Semiconductor, Vanguard, and HHGrace, will prioritize the capacity expansion of their 8-inch wafers (which are used for the 55nm and above nodes) to meet the demand for large-sized DDI, TDDI, and PMICs. These foundries, in contrast with their larger competitors, are primarily focusing on 8-inch capacity expansion due to the relatively high cost of DUV immersion systems used for the 40/45nm and below processes. For these companies, it is much more economically feasible to instead undertake capacity expansions for the 55/65nm and above nodes.

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 major suppliers of WFE (wafer fab equipment) in the US are progressing smoothly in the application for license from the US government for the exportation of equipment systems, equipment parts, and customer services for 14nm and above processes to Chinese foundry SMIC. The US-based equipment suppliers that are applying for the license include Applied Materials, Lam Research, KLA-Tencor, and Axcelis. TrendForce believes that as some support from US-based equipment suppliers is forthcoming, SMIC should be able to continue its efforts in the optimization of the mature process modules and overcoming production bottlenecks to avoid a scission in raw materials and spare parts, and predicts the company to sit at a global market share of 4.2% in 2021. Keeping SMIC in operation will provide a bit of relief to the capacity crunch in the global foundry market, however, the tightening of the available production capacity will remain a challenge that is difficult to resolve for the foundry industry as a whole. Also, the US government continues to prohibit SMIC from obtaining the equipment of the advanced nodes that are 10nm and below, and the particular restriction poses a potential risk for the long-term development of the Chinese foundry.

SMIC Continues to Expand Domestic Demand and Localization under China’s Explicit Direction in Long-Term Development of Semiconductor

As the fifth largest IC foundry in the world, SMIC obtains over 70% of revenue from China and Asia-Pacific. In terms of process node perspectives, 0.18um, 55nm, and 40nm contribute to the majority of revenue that totaled to over 80% from being applied on service platforms such as logic, BCD, eFlash, sensor, RF, and HV, and the coordination with the IC projects listed in the 13th and 14th Five-Year Plan of China will continue to enhance on the assimilation of localized WFE (wafer fab equipment) and raw materials.

The sanctions imposed by the US Department of Commerce that have affected the long-term planning in production capacity and development strategies of SMIC are expected to result in a YoY declination of 25% in the capital expenditure of 2021 for the Chinese foundry. SMIC intends to allocate the majority of its capital expenditure to capacity expansion for the mature nodes and the construction of a new joint-venture fab in Beijing, and is conservative towards investing in advanced process technology such as FinFET. TrendForce believes that geopolitical factors and uncertainties in the WFE section of the supply chain have compelled SMIC to scale back its capital expenditure and shift its development focus to the 55/40nm and 0.18um nodes.

A breakdown of SMIC’s revenue by region shows that more than 50% comes from China, though whether major global clients are willing to continue placing their orders with SMIC under the consideration of foundry selection and long-term cooperation amidst the unabated status in the semiconductor competition between China and the US will be a focus of observation going forward. Pertaining to the return on investment for technology scaling and mature node, the development planning in advanced processes for SMIC no longer succumb to immediacy in demand under restricted client conditions and constraints from subcontractors. On the other hand, the resources for chiplet and specialty IC that exert better functions for the operation of the company are focused on the existing 14nm and above matured processes to enhance on PDK (process design kits) for clients that may create a business model with prolonged profitability, as well as preserve R&D staffs and future growth dynamics.

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

Demand in the global foundry market remains strong in 1Q21, according to TrendForce’s latest investigations. As various end-products continue to generate high demand for chips, clients of foundries in turn stepped up their procurement activities, which subsequently led to a persistent shortage of production capacities across the foundry industry.

TrendForce therefore expects foundries to continue posting strong financial performances in 1Q21, with a 20% YoY growth in the combined revenues of the top 10 foundries, while TSMC, Samsung, and UMC rank as the top three in terms of market share. However, the future reallocation of foundry capacities still remains to be seen, since the industry-wide effort to accelerate the production of automotive chips may indirectly impair the production and lead times of chips for consumer electronics and industrial applications.

TSMC has been maintaining a steady volume of wafer inputs at its 5nm node, and these wafer inputs are projected to account for 20% of the company’s revenue. On the other hand, owing to chip orders from AMD, Nvidia, Qualcomm, and MediaTek, demand for TSMC’s 7nm node is likewise strong and likely to account for 30% of TSMC’s revenue, a slight increase from the previous quarter. On the whole, TSMC’s revenue is expected to undergo a 25% increase YoY in 1Q21 and set a new high on the back of surging demand for 5G, HPC, and automotive applications.

In response to increased client demand for 5G chips, CIS, driver ICs, and HPC chips, Samsung will continue to raise its semiconductor CAPEX this year, which is divided between its memory and foundry businesses and represents Samsung’s desire to catch up to TSMC. With regards to process technologies, the Korean company’s capacity utilization rates for the 5nm and 7nm nodes have been relatively high in 1Q21, during which Samsung is expected to increase its revenue by 11% YoY.

In addition to chip demand from the automotive sector, UMC has been keeping up with manufacturing driver ICs, PMICs, RF front-end, and IoT products. The company’s capacity thus remains fully loaded in 1Q21, and UMC is expected to undergo a 14% YoY increase in revenue. GlobalFoundries is similarly experiencing high capacity utilization rates due to the increase in automotive chip demand, as well as the military chips that it has been manufacturing for the U.S. Department of Defense. GlobalFoundries’ revenue is expected to increase by 8% YoY in 1Q21.

SMIC’s revenue for the 14nm and below nodes is expected to decline in 1Q21 as the company was added to the Entity List by the U.S. and subsequently faced constraints in the development of advanced processes. However, with the persistent demand in the foundry market for mature processes above (including) the 40nm node, SMIC’s revenue is projected to stay on a positive trajectory and reach a 17% YoY increase in 1Q21. TowerJazz will spend about US$150 million on a small-scale capacity expansion, but equipment move-in and calibrations will not be finalized until approximately 2H21, after which the expanded capacity will start measurably contributing to the company’s revenue. In 1Q21, TowerJazz’s revenue is expected to be on par with the previous quarter while reaching a 15% increase YoY.

PSMC is primarily focused on manufacturing memory products, DDICs, CIS, and PMICs. At the moment, high demand for 8-inch and 12-inch wafer capacities and for automotive chips has resulted in fully loaded capacity for PSMC. The company’s revenue is expected to increase by 20% YoY in 1Q21. Likewise, VIS’ capacity is fully loaded across all of its process technologies. Driven by increased spec requirements for PMICs and small-sized DDICs, VIS’ revenue is expected to increase by 26% YoY in 1Q21. Finally, Hua Hong is currently placing considerable emphasis on expanding the 12-inch capacity of HH Fab7 in Wuxi. Process technologies for 12-inch production lines, including NOR, BCD, Super Junction, and IGBT, have all passed qualifications, thereby injecting fresh momentum into Hua Hong’s development. Furthermore, given Hua Hong’s fully loaded 8-inch capacities and the fact that its performance in 1Q20 represents a relatively low base period for YoY comparison, Hua Hong’s revenue may likely reach a 42% YoY increase in 1Q21.

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

Not only did automotive market take a downward turn starting in 2018, but the severe impact of the COVID-19 pandemic in 2020 also led to noticeably insufficient procurement activities from major automotive module suppliers, according to TrendForce’s latest investigations. However, as the automotive market is currently set to make a recovery, TrendForce expects yearly vehicle sales to increase from 77 million units in 2020 to 84 million units in 2021.

At the same time, the rising popularity of autonomous, connected, and electric vehicles is likely to lead to a massive consumption of various semiconductor components. Even so, since most manufacturers in the automotive supply chain currently possess a relatively low inventory, due to their sluggish procurement activities last year in light of weak demand, the discrepancies in the inventory levels of various automotive components, along with the resultant manufacturing bottleneck, have substantially impaired automakers’ capacity utilization rates and, subsequently, vehicle shipments.

The recent shortage situation in the IC supply chain has gradually extended from consumer electronics and ICT products to the industrial and automotive markets. In the past, manufacturers in the automotive semiconductor industry were primarily based on IDM or fab-lite business models, such as NXP, Infineon, STMicroelectronics, Renesas, ON Semiconductor, Broadcom, TI, etc. As automotive ICs generally operate in wide temperature and high voltage circumstances, have relatively long product lifecycle, and place a heavy demand on reliability as well as longevity support, it is more difficult for the industry to alternatively transition its production lines and supply chains elsewhere.

Automotive semiconductor remains in shortage as production capacities remain fully loaded across the global foundry industry

Nevertheless, given the current shortage of production capacities across the foundry industry, wafer capacities allocated to automotive semiconductor components have been noticeably crowded out by other products. Some of these examples include automotive MCU and CIS manufactured in 12-inch fabs, as well as MEMS, Discrete, PMIC, and DDI products manufactured in 8-inch fabs. TrendForce indicates that automotive semiconductor products manufactured at the 28nm, 45nm, and 65nm nodes in 12-inch fabs are suffering the most severe shortage at the moment, while production capacities at 0.18µm and above nodes in 8-inch fabs have also been in long queue by other products.

As in-house IDM fabrications have relatively high CAPEX, R&D expense, and operating overhead, automotive IC vendors have in recent years outsourced some of their products to TSMC, GlobalFoundries, UMC, Samsung, VIS, Win Semiconductor and so on. In particular, TSMC specifically indicated during its 4Q20 earnings conference that wafer starts for automotive semiconductors reached rock bottom in 3Q20, while additional orders began arriving in 4Q20. As such, the company is currently considering allocating some of its production capacities from logic ICs to specialty foundry, in order to meet sudden demand from its long-term customer relationship.

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