Recently, the seven major foundries —TSMC, GlobalFoundries, UMC, SMIC, Hua Hong Semiconductor, VIS, and PSMC—have successively released their third-quarter financial reports and held performance briefings to explain the semiconductor industry’s business climate and the outlook for the next stage.

Overall, in the third quarter, both the revenue and net profit of the seven foundries showed a YoY decline compared to the same period last year. From the perspective of capacity utilization and foundry pricing, except for TSMC benefiting from advanced processes, seeing a rebound in capacity utilization and stable pricing, the other six all experienced declines in both data.

Recent news on foundry pricing and capacity utilization has been continuous. This article will take a closer look at the data of the above seven major foundries and the latest market dynamics to glimpse into the fourth quarter of this year and the trends in foundry services next year.

How did the seven foundries perform in Q3, and what about their capacity utilization?

TSMC

In the third quarter, TSMC’s consolidated revenue was TWD 546.73 billion, approximately USD 1.731 billion, a YoY decrease of 10.8% but a QoQ increase of 13.7%. The net profit for the third quarter was TWD 211 billion, approximately  USD 6.677 billion, a YoY decrease of 25.0%, but a QoQ increase of 16.0%. TSMC expects fourth-quarter sales to be USD 18.8~19.6 billion, with a gross profit margin of 51.5% to 53.5%.

In the first and second quarters of this year, it was said that TSMC’s 7nm capacity utilization rate had dropped to below 50%. However, in the second half of the year, benefiting from Apple expanding its new product lineup and companies like Nvidia and Qualcomm entering the 3nm era in the second half of 2024, the industry estimates that TSMC’s 7/6nm capacity utilization will hold at around 70% by the end of this year, and 5/4nm will be close to 80%, with a monthly production capacity of about 60,000~70,000 wafers by the end of this year.

GlobalFoundries

GlobalFoundries’ Q3 revenue decreased by 11% to $1.85 billion, and the net profit was USD 249 million, lower than the USD 337 million in the same period last year. GlobalFoundries CEO Thomas Caulfield stated in the financial report, “although the global economic and geopolitical landscape remains uncertain, we are collaborating closely with our customers to support their efforts to reduce inventory levels.”

UMC

UMC’s consolidated revenue for Q3 was USD 1.77 billion, a 1.37% increase compared to the second quarter but a 24.3% decrease compared to the third quarter of 2022. The gross profit margin for the third quarter was 35.9%, and the net profit was USD 495 million.

UMC’s utilization showed a significant decline during the second and third quarters, with its capacity utilization dropping from 71% in the second quarter to 67% in the third quarter, according to the company.

Looking ahead, UMC Chairman Jason Wang stated that short-term demand in the computer and communication sectors is gradually picking up in the fourth quarter, and the automotive market remains challenging. Customers continue to manage inventory levels cautiously, and the expected utilization in the fourth quarter is about 61% to 63%, with a QoQ decrease of about 5%, average selling prices remaining stable, and a gross profit margin of about 31% to 33%.

SMIC

SMIC’s Q3 revenue was USD 1.62 billion, a YoY decrease of 15.0% but a QoQ increase of 3.9%. Net profit attributable to shareholders of the parent company was CNY 678 million (approximately USD 95 million), a YoY decrease of 78.41% and a QoQ decrease of 51.81%.

In terms of production capacity, SMIC’s Q3 capacity was approximately 795,750 8-inch equivalent wafers (an increase of 41,500 8-inch equivalent wafers compared to the second quarter’s 754,250 wafers), with a capacity utilization rate of 77.1%.

Looking to the fourth quarter, SMIC expects sales revenue to increase by 1% to 3% QoQ, and the gross profit margin will continue to bear the pressure from new capacity depreciation, expected to be between 16% and 18%.

Hua Hong Semiconductor

Hua Hong’s Q3 revenue was s USD 568.5 million, a YoY decrease of 5.13% and a QoQ decrease of 8.08%. Net profit attributable to parent company was USD 95.83 million, a YoY decrease of 86.36% and a QoQ decrease of 82.40%.

Looking ahead to the fourth quarter of 2023, Hua Hong expects sales revenue to be between USD 450~500 million, with a gross profit margin of about 2% to 5%.

In terms of production capacity, as of the end of the third quarter, Hua Hong Semiconductor’s equivalent 8-inch wafer monthly production capacity increased to 358,000 wafers, with an overall capacity utilization rate of 86.8%.

VIS (Vanguard International Semiconductor)

In the third quarter, VIS’s consolidated revenue was TWD 10.557 billion, approximately USD 334 million, an increase of 7.1% QoQ.

VIS’s outlook is relatively conservative. The company expects the semiconductor supply chain to cautiously control inventory in the fourth quarter. Although the adjustment of consumer electronics inventory is nearing completion, adjustments in the automotive and industrial sectors are later. The company expects a significant adjustment in the fourth quarter, with an estimated QoQ decrease of 8% to 10% in wafer shipments, a QoQ decrease in capacity utilization in the mid-single digits, between 55% and 60%. The average selling price (ASP) of products is estimated to decrease by 2% or less per quarter, and the gross profit margin will continue to decline to between 22% and 24%.

In recent information revealed by the supply chain regarding foundry pricing, VIS might experience a pricing decline of up to 5% in the second half of the year. Big clients may even have the opportunity to negotiate a discount of up to 10%. This trend is expected to continue into the first quarter of next year, with a further reduction, possibly moving from single-digit to double-digit percentages.

PSMC

Q3 financial reports from PSMC show that, impacted by the decline in both capacity utilization and selling prices, the third-quarter main business recorded an expanded loss of TWD 1.408 billion (approximately USD 44.59 million)) and the after-tax net profit turned into a net loss of TWD 334 million(approximately USD 10 million).

PSMC General Manager Brian Shieh revealed that the market conditions in the third quarter still faced headwinds. To maintain competitiveness, PSMC has reduced prices to customers by about 4% to 5%.

It is reported that PSMC’s third-quarter capacity utilization is around 60%, and the gross profit margin is also impacted by idle capacity losses, dropping to 9.2%.

Regarding future demand, Shieh stated that the supply chain has now descended to a reasonable level, with market demand appearing in areas such as mobile driver ICs and surveillance camera CIS components. Visibility is expected to extend to around one quarter, so he is optimistic that PSMC’s fourth-quarter operations will grow by around mid-single digits.

The overall market sentiment is gradually clearing in anticipation of inventory corrections.

In general, as the fourth quarter is coming to an end, most companies still hold conservative views. In the consumer electronics field, such as PCs and smartphones, inventory adjustments have gradually reached the end, and some have already enjoyed the benefits of an upturn. However, inventory adjustments for automotive electronics and industrial applications are expected to lag, and this downturn is expected to be extended.

Among them, the views of TSMC and SMIC are worth noting. TSMC stated that customer inventory digestion will continue into the fourth quarter. Regarding the automotive and industrial platforms and AI businesses that TSMC has recently actively sought to expand, TSMC President C.C. Wei warned that the demand for AI is “not enough to offset” the weakening demand for chips in consumer electronic products on its earnings call in October.

Haijun Zhao, co-CEO of SMIC, stated that in the fields of smartphone and industrial control, Chinese customers have basically reached a balanced inventory level. However, European and American customers are still at historically high levels. Secondly, the relevant inventory of automotive products has begun to be on the high side, causing customers to be alert to market corrections, and orders are quickly tightening. Additionally, there are signs of a recovery in the third quarter in the smartphone terminal market, and the industry. As a whole, he believes that there will be a rebound in overall consumer electronics next year.

Regarding whether the global semiconductor foundry industry is slowly recovering from a downturn, TrendForce pointed out that in 2023, terminal demand is gradually recovering, and AI and automotive demand are maintaining growth momentum. AI servers are expected to grow by more than 37% in the next three years, and electric vehicles with the support of autonomous driving will have a compound annual growth rate of 30% to 40% in the next three years. Smartphones are expected to end their downward trend in 2024, with a growth rate of 2.9%, and servers will have a growth rate of 2.3%, overall leading to an increase in demand for foundry.

On the other hand, 8-inch wafer capacity utilization rate of foundries will gradually rise in 2024. The 8-inch production line produces products such as MOSFET, IGBT, and PMIC will still focus on 12-inch wafers capacity expansion in the next few years. In addition to adopting solutions from existing chip suppliers, the trend of customized chips has also emerged, and high-speed computing applications have become the biggest driving force for advanced processes. TrendForce predicts that the global foundry industry will experience a slight increase in 2024, reaching a growth rate of 6.4%.

Against the backdrop of geopolitical influences, the concentration of advanced semiconductor manufacturing processes in Taiwan has raised concerns among international companies. According to TrendForce data, as of the end of 2024, over 70% of global advanced process manufacturing capacity is still located in Taiwan.

Governments worldwide have responded by offering generous subsidy policies to attract semiconductor foundries to establish plants locally. The dynamics of Taiwan’s semiconductor fabs in the global setting and changes in the global production landscape have become a focal point of industry attention.

Per TrendForce’s data, when considering the equivalent 12-inch wafer production capacity, in 2023, Taiwan held a global share of approximately 47%, followed by China at 26%, South Korea at 12%, the United States at 6%, Singapore at 4%, Japan at 2%, Germany at 1%, and others at 2%. By 2027, the distribution is expected to shift, with Taiwan’s share decreasing to 42%, China increasing to 28%, South Korea at 10%, the United States at 7%, Singapore at 6%, Japan at 3%, Germany at 2%, and others at 1%.

Examining recent developments in the overseas expansion of Taiwan’s semiconductor foundries, Powerchip Semiconductor Manufacturing Corporation (PSMC) has officially announced the establishment of its first 12-inch fab, JSMC, in Sendai, Miyagi Prefecture, Japan. According to TrendForce’s research, the plant is planned to have a total capacity of around 40Kwspm, starting with a 40nm node and gradually transitioning to 28nm, primarily serving domestic clients in Japan while seeking subsidies and tax incentives for semiconductor.

JSMC’s construction is scheduled to commence in 2024, with full-scale production expected by 2027. With the establishment of PSMC’s overseas fab, TrendForce estimates that PSMC’s overseas production capacity will grow from 0% in 2023 to 9% in 2027.

The progress of TSMC’s second fab in Kumamoto, Japan, has garnered significant industry attention recently. On another note, The German cartel office has approved Bosch, NXP, and Infineon’s investment in TSMC’s German fab, ESMC. Each company will acquire a 10% stake, while TSMC will retain substantial control with over 50% ownership.

According to TrendForce’s research, ESMC’s total planned capacity is around 40Kwspm, focusing on 28/22nm and 16/12nm processes, with construction expected to start in the second half of 2024 and mass production in 2027. TrendForce predicts that TSMC’s overseas production capacity will increase from 9% in 2023 to 15% in 2027.

As for UMC, TrendForce’s research indicates that the overseas production capacity is projected to increase from 42% in 2023 to approximately 47% by 2027. Additionally, UMC’s Fab12i in Singapore has a production capacity of approximately 60Kwspm, with plans for manufacturing processes ranging from 55/40nm to 28/22nm. Moreover, UMC’s Fab12M in Japan is expanding its capacity by around 10Kwspm in collaboration with Denso.

Regarding Vanguard International Semiconductor (VIS), it was previously reported by Nikkei that VIS plans to construct its first 12-inch wafer fab in Singapore, primarily focusing on the demand for automotive chips. However, VIS has not yet officially announced any related developments. According to TrendForce’s research, if VIS does not have new plans for investment in a 12-inch fab, its estimated spending required for the operation of various fabs in 2024 is approximately $94 million, representing a nearly 70% decrease compared to previous years.

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Mature process foundries are locked in a battle to uphold a 60% capacity utilization rate. Reports indicate that major players, including UMC, Vanguard International Semiconductor (VIS), and PSMC, are slashing prices significantly for the first quarter of the coming year to salvage their capacity utilization rates. This reduction, reaching double-digit percentages and up to 15% to 20% for project customers, stands out as the most extensive post-pandemic price cut, according to UDN News.

Post-Pandemic Price Challenges in Mature Process Foundries    

This pricing adjustment is pushing the prices of mature process foundries to a new low post-pandemic, affecting the profit margins and profitability trends of related companies. Industry sources disclose that only TSMC’s prices remain robust, with almost no exception for other foundries.

To rescue capacity utilization rates, companies are aggressively tweaking their quotes. A source from an IC design company privately reveals that foundries have notified them of slow-moving business in mature processes, resulting in a direct drop in capacity utilization rates. To ensure capacity utilization rates and market share, maintaining a certain level of production scale becomes imperative, prompting a substantial reduction in quotes.

Industry sources emphasize that despite recent indications of recovery in the PC and smartphone markets, clients remain cautious due to external factors such as inflation, especially given almost a year of inventory clearance. Companies, still on edge, fear slipping back into the challenges of inventory clearance and thus maintain a conservative approach to order placement.

Currently, the recovery in order placement strength is only about 30% to 40% of pre-pandemic levels, compelling wafer foundries to intensify their price cuts to prevent orders from being lost to competitors willing to lower prices, resulting in even lower capacity utilization.

It is evident that consumer IC demand for foundry services is low, and whom focusing on 8-inch mature process are the most affected. It is mainly due to excessive duplicate orders from integrated device manufacturers (IDMs) and IC design companies in the past, leading to inventory clearance for chips such as power management ICs, driver ICs, and microcontrollers (MCUs). Some products have even shifted to 12-inch wafers, keeping the capacity utilization rates of 8-inch foundries at a low level.

Navigate Semiconductor Shifts in TSMC, UMC, VIS, and PSMC

Industry sources note that TSMC is bolstered by advanced processes, enabling them to bundle them with mature processes for sale. Moreover, TSMC’s pricing strategy for mature processes has not surged as dramatically as that of other related companies, making it more acceptable to customers.

As for UMC, the company anticipates a drop in capacity utilization rates from 67% in the last quarter to 60% to 63% in this quarter, reaching a single-season low in recent years. Due to the continuous adjustment of capacity utilization rates, the gross profit margin will drop from 35.9% last quarter to 31% to 33%, reverting to levels seen at the beginning of the pandemic in 2021.

In response to pricing issues, UMC stated that, as mentioned in a recent earnings call, there will indeed be a significant decrease in the 8-inch, but there will be no adjustments for the 12-inch. Supply chain sources reveal that UMC has reportedly offered a 5% concession, aiming to consolidate order momentum with major clients this quarter. Considering the anticipated weak demand in the first quarter of next year and to attract more order placements, UMC plans to expand the price reduction to double-digit percentages.

According to the supply chain, VIS is expected to see a price reduction of up to 5% in the second half of the year. Large-volume clients may even secure a 10% discount, with a further decrease expected in the first quarter of next year, ranging from single to double-digit percentages. The company’s management previously mentioned at a conference call that, in response to intense price competition, short-term flexible adjustments are anticipated.

Similarly impacted by conservative customer order placements, PSMC reported losses in the third quarter, with capacity utilization rates hovering around 60%. It is reported that PSMC is also gearing up to implement price reduction measures to enhance capacity utilization rates.

(Image: VIS)

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The semiconductor foundry, United Microelectronics Corporation (UMC), held an online briefing on October 25th to unveil its 3Q 2023 operational report. UMC achieved consolidated revenue of NT$57.07 billion, marking a 1.4% growth compared to the previous quarter’s NT$56.3 billion in 3Q23. However, it’s essential to note that this quarter’s revenue decreased by 24.3% in comparison to 3Q 2022.

In 3Q, a 35.9% gross margin yielded a net profit of NT$15.97 billion and an EPS of NT$1.29. The first three quarters of 2023 saw revenue at NT$167.575 billion, marking a 20.5% decline from 2022. The gross margin for this period remained at 35.8%, resulting in a net profit of NT$47.795 billion and an EPS of NT$3.87.

UMC’s Co-president, Jason Wang, highlighted that the company’s performance in the 3Q was boosted by the growing demand in the computer and communication sectors. This was further enhanced by ongoing improvements in product offerings and favorable exchange rates. Notably, despite a 2.3% decrease in overall wafer shipments, the revenue and gross margin remained robust compared to the previous quarter.

Delving into the terminal product market, products like LCD controllers, Wi-Fi, encoders and decoders, and touch IC controllers stimulated demand in the computer application sector. Additionally, the demand for RF front-end ICs and network chips contributed to the shipment volume in the communication sector.

Looking ahead to the 4Q, Wang said that the computer and communication sectors are gradually recovering in terms of short-term demand. In contrast, the automotive market remains challenging, and customers are adopting a cautious approach in managing inventory levels.

UMC foresees that the expansion of capacity at Fab 12A P6 in Nanjing in 2024 will provide significant support, further boosting revenue contributions for 22/28-nanometer technologies.

UMC’s estimate for the 4Q indicates that wafer shipments are projected to decline by 5%, with the average selling price remaining stable. Capacity utilization is expected to decrease from 67% in the previous quarter to a range of 61-63%, which will consequently impact the gross margin. It is estimated to decrease from 35.9% in the 3Q to a range of 31-33%.

Regarding capital expenditure, Q3 saw approximately $570 million spent, a 30.49% decrease from the previous quarter and a 25.39% decrease from 3Q 2022. Cumulative capital expenditure for the first three quarters reached around $2.4 billion, showing a 52.69% increase compared to 2022. The total 2023 capital expenditure remains at $3 billion, with 90% allocated to 12-inch capacity and 10% to 8-inch capacity.

(Image: UMC)

Vanguard International Semiconductor (VIS) has unveiled plans to establish a state-of-the-art 12-inch semiconductor plant in Singapore, reigniting discussions about expanding to Singapore within the semiconductor industry. As per Economic Daily News, while Taiwan and South Korea continue to lead in semiconductor manufacturing in Asia, an increasing number of semiconductor companies have strategically chosen Singapore as their Southeast Asian hub in recent years.

This strategic positioning enables them to reach markets in Vietnam, Thailand, India, and beyond, which is particularly valuable in the context of heightened geopolitical tensions. Singapore’s strategic geographical advantage highlights its remarkable flexibility as a stronghold, uniquely positioned to adapt to meet various demands.

Nonetheless, Singapore grapples with certain challenges, including higher production costs and an aging workforce. Statistics reveal that semiconductors contributed approximately 7% to Singapore’s domestic gross production last year. S&P Global Analytics also notes that the contribution of Singapore’s semiconductor industry to the Asian region is relatively modest. Moreover, the nation faces a significant long-term challenge, one that many economies share: an aging population. Singapore ranks among the fastest-aging populations worldwide.

Turning the attention to key players in Singapore’s semiconductor landscape, companies like TSMC, UMC, ASE, and Micron have established a strong presence. Notably, TSMC collaborated with NXP (formerly Philips Semiconductor) and the Singapore Economic Development Board Investment Corporation (EDBI) back in 2000 to establish SSMC, an 8-inch fab located in the Wafer Fab Park in Singapore.

In a parallel endeavor, UMC invested in Singapore in 2003 and is currently in the midst of an ambitious expansion, including their Fab12i P3 fab, situated in the Pasir Ris Wafer Fab Park in Singapore. The physical infrastructure is expected to be completed by mid-2024, with mass production of 22nm and 28nm chips set to commence in early 2025.

(Image: Wafer Fab Parks)