The U.S. Department of Commerce announced new semiconductor restrictions on October 7 in the United States. In addition to existing restrictions on the logic IC sector, this new update extends to the memory category. In addition to Chinese-funded enterprises, the extent of these restrictions stipulates foreign-owned production centers located in China will also need to apply for approval on a case-by-case basis in order to continue to obtain manufacturing-related equipment. The US ban has far-reaching effects and may extend to the global chip industry.

U.S. ban hobbles China’s semiconductor industry, affecting foundry and memory industries

The U.S. Department of Commerce announced a series of chip export control measures on the 7th, which mainly restrict China’s ability to obtain advanced computing chips, develop supercomputers, and manufacture advanced semiconductors.

However, relevant restrictions also prohibit third-country companies such as TSMC from using US-made equipment to service Chinese customers without U.S. approval in some cases. According to TrendForce, a market research agency, the ban will expand the scope of these restrictions. In the future, it will target American companies, including CPUs, GPUs, and AI accelerators, used in HPC fields such as datacenters, AI, and supercomputers. All of these items will require review before export to China. In addition, foundries may no longer be able to manufacture any of the above-mentioned HPC-related chips for any Chinese IC design house.

TrendForce believes, regardless of whether the client is a Chinese or American IC design house, most HPC-related chips are currently manufactured by TSMC with mainstream processes at the 7nm, 5nm, or certain 12nm nodes. In the future, whether the situation is American factories no longer being able to export to the Chinese market or Chinese factories being unable to initiate projects and mass produce wafer starts, it will all have a negative impact on the future purchase order status of TSMC’s 7nm and 5nm processes.

In terms of memory, according to the new specifications announced by the U.S. Department of Commerce, the DRAM portion of sanctions will be limited to the 18nm process (inclusive) and equipment must be reviewed by the Department before import. This move will greatly restrict or delay the sustainable development of China’s DRAM sector and China’s memory manufacturers will be the first to bear the brunt of these sanctions.

TrendForce indicates that CXMT possesses the largest memory market share for a Chinese company in the domestic Chinese market. Since 2Q22, the company has been committed to moving from the 19nm process into the 17nm process. Although the purchase of machinery to fulfill future needs had been accelerated before the ban, volume is still insufficient. CXMT continues to build new plants, including Phase 2 in Hefei and SMBC (SMIC Jingcheng), which is in discussion with SMIC. All of these projects will face difficulties in obtaining equipment in the future.

The C2 plant of SK hynix’s DRAM production center in Wuxi is also affected by the restriction order. The factory accounts for approximately 13% of the world’s total DRAM production capacity and its process has evolved to 1Ynm and more advanced nodes.

In terms of NAND Flash, TrendForce indicates that the import of NAND production equipment into China will be further restricted in the future, especially for equipment used in the manufacture of product of 128 layers and above (inclusive), requiring prior approval before import. It is estimated that this ban will significantly impact the long-term plans of China’s YMTC to upgrade its factory campuses, restrict YMTC from further expanding its customer base as the ban may will greatly limit non-Chinese customers’ adoption and consideration of YMTC products, and impact Samsung’s Xi’an plant and Solidigm’s process migration plan in Dalian.

U.S. temporarily exempts several suppliers as ban disrupts supply chains

In order to mitigate excessive impact of the U.S. imposed China chip ban on the semiconductor industry, the U.S. recently exempted several semiconductor companies (including in the United States, Taiwan, and South Korea) from certain restrictions.

According to Wall Street Jounal, Intel, SK Hynix, and Samsung have all received one-year exemptions. SK Hynix also issued a statement stating that the company has completed negotiations with the U.S. Department of Commerce and has obtained approval to provide equipment and items required for the development and production of DRAM semiconductors in Chinese manufacturing plants without additional licensing requirements. The authorization period is one year.

In addition, Nikkei Asia News also quoted sources as saying that TSMC has also received a one-year exemption to continue ordering U.S. chip manufacturing equipment to expand its Chinese plant. According to people familiar with the matter, the U.S. government has assured TSMC that the equipment will be shipped to its Nanjing fab, which means the company’s China’s development plan remains unchanged and is progressing smoothly.

（Image credit: iStock）

The U.S. Department of Commerce announced new semiconductor restrictions on October 7 in the United States. In addition to existing restrictions on the logic IC sector, this new update extends to the memory category. In addition to Chinese-funded enterprises, the extent of these restrictions stipulate foreign-owned production centers located in China will also need to apply for approval on a case-by-case basis in order to continue to obtain manufacturing-related equipment. In addition, the new restrictions increase the difficulty for China to obtain any chips that may be used for military purposes through imports.

According to TrendForce research, the scope of this update is primarily limited to 16nm, 14nm, or more advanced proceses for logic ICs (such as FinFET or GAAFET), 18nm or more advanced processes for DRAM, and 128-layer or higher products for NAND Flash chips.

Analysis of impact on foundry industry

In terms of foundry equipment supply, after SMIC was included on the Entity List in 2020, according to TrendForce investigations, the US Department of Commerce targeted US equipment manufacturers who wished to export equipment used for processes below 16nm (inclusive) to Chinese fabs not included on the Entity List including HuaHong Group, etc., and even foreign-owned production centers located in China, instituting a review before export can be implemented. Therefore, most Chinese fabs are currently focusing their production expansions on processes 28nm and above. As for non-Chinese wafer foundries, only TSMC Nanjing is focused on 28nm expansion and has no plan for advanced processes.

TrendForce indicates, although Chinese fabs are actively partnering with domestic Chinese, European, and Japanese equipment manufacturers in an attempt to develop non-US centric production lines and have turned to the development of 28nm and above processes, the ban is completely stifling the possibility for China to develop and expand advanced processes 16nm and below and the expansion of processes 28nm and above is also subject to a protracted review process.

In addition, the US ban will expand the scope of its restrictions following the inclusion of high-end GPUs such as NVIDIA’s A100/H100 and AMD’s MI250 in the HPC sector into the range of sanctions at the end of August. In the future, it will target US manufacturers, including HPC sector CPUs, GPUs, and AI accelerators used in datacenter, AI, and supercomputer applications, requiring review before such items can be exported to China. In addition, foundries may no longer be able to manufacture any of the above-mentioned HPC-related chips for any Chinese IC design houses. TrendForce believes, regardless of whether the client is a Chinese or American IC design house, most HPC-related chips are currently manufactured by TSMC with mainstream processes at the 7nm, 5nm, or certain 12nm nodes. In the future, whether the situation is American factories no longer being able to export to the Chinese market or Chinese factories being unable to initiate projects and mass produce wafer starts, it will all have a negative impact on the future purchase order status of TSMC’s 7nm and 5nm processes.

Analysis of impact on memory industry

TrendForce indicates, according to the new specifications announced by the U.S. Department of Commerce, the DRAM portion of sanctions will be limited to the 18nm process (inclusive) and equipment must be reviewed by the Department before import. This move will greatly restrict or delay the sustainable development of China’s DRAM sector. CXMT possesses the largest memory market share for a Chinese company in the domestic Chinese market. Since 2Q22, the company has been committed to moving from the 19nm process into the 17nm process. Although the purchase of machinery to fulfill future needs had been accelerated before the ban, volume is still insufficient. CXMT continues to build new plants, including Phase 2 in Hefei and SMBC (SMIC Jingcheng), which is in discussion with SMIC. All of these projects will face difficulties in obtaining equipment in the future.

In addition to CXMT, the C2 plant of SK hynix’s DRAM production center in Wuxi is also affected by the restriction order. The factory accounts for approximately 13% of the world’s total DRAM production capacity and its process has evolved to 1Ynm and more advanced nodes, which means that subsequent continuous addition of equipment required for production requires approval on a case-by-case basis.

TrendForce has also observed, considering geopolitics, although current market demand is sluggish and supply and demand are seriously imbalanced, the three major manufacturers in the DRAM market still plan to increase production capacity in their home countries in the next 10 years and continue to reduce the proportion of production in China.

In terms of NAND Flash, TrendForce indicates that the import of NAND production equipment into China will be further restricted in the future, especially for equipment used in the manufacture of product of 128 layers and above (inclusive), requiring prior approval before import. It is estimated that this ban will significantly impact the long-term plans of China’s YMTC to upgrade its factory campuses as well as Samsung’s Xi’an plant and Solidigm’s process migration plan in Dalian.

TrendForce indicates that this ban will restrict YMTC from further expanding its customer base. At this stage, YMTC has been aggressively sending SSD products out for verification, hoping to successfully infiltrate the supply chain of non-Chinese customers in 2023. In the future, as the impact of the ban materializes, the US government will impose stricter restrictions on the development of China’s memory industry which will greatly limit non-Chinese customers’ adoption and consideration of YMTC.

（Image credit: iStock）

According to TrendForce, as the United States continues to expand the content of various lists, successively pass anti-China bills, and explicitly prohibit the export of certain products to China, the two countries have gradually drifted apart and this antagonistic relationship will continue if no drastic changes occur between the two parties in the next 6-8 years.

In the face of U.S. encroachment, all sectors in China must continue to look for escape routes if the country wishes to tear down the many walls built by the U.S. and move towards industrial autonomy. China’s top priority is to make breakthroughs in the semiconductor field. As far as current development is concerned, there are still many companies in China’s domestic IC design industry moving towards advanced manufacturing processes even after leading manufacturers such as Huawei, Changsha Jingjia Microelectronics, and Goke Microelectronics were placed on the entity list. At the same time, semiconductor manufacturers such as SMIC, CXMT, and Yangtze Memory Technologies have repeatedly developed advanced process technologies while Hua Hong Group has gradually expanded in the field of mature processes. If this trend continues, it will not be difficult for China to realize semiconductor autonomy in processes above 10nm.

If U.S. effectively enforces EDA ban and does not expand controls, impact on China will emerge in 2025

The U.S. Department of Commerce’s export restrictions on Chinese manufacturers are escalating but the autonomy of China’s domestic semiconductor industry is also gradually increasing. As the confrontation between the United States and China intensifies, the United States has launched a new wave of export control measures. On August 12, 2022, the U.S. Department of Commerce announced that it will restrict the export to China of EDA software required to design integrated circuits with GAAFET structure. Since GAAFET is a structure that is used in processes below 3nm, this move is equivalent to setting an advanced threshold for China’s semiconductor development.

Domestic Chinese IC designers who are committed to the development of SoCs, cloud computing chips, and GPUs are destined to move to more advanced manufacturing processes in order to meet the iterative needs of product upgrades and are expected to move toward the 4nm manufacturing process in the next 2 to 4 years. If the U.S. effectively implements the EDA software ban and does not expand the scope of EDA software restrictions, the impact of the ban on China’s semiconductor industry is expected to gradually emerge in 2025, not only delaying the development schedule of some domestic Chinese IC designers but even causing developmental stagnation.

（Image credit: Pixabay）

The emergence of the COVID-19 pandemic led to severe delays in manufacturing and logistics. In particular, governments worldwide began implementing border restrictions in 2Q20 to combat the ongoing health crisis, leading to a sudden decline in order volumes for channel-market SSDs, according to TrendForce’s latest investigations. Annual shipment of SSDs to the channel (retail) market reached 111.5 million units in 2020, a 15% YoY decrease. In terms of market share by shipment, Kingston, ADATA, and Kimtigo once again occupied the top three spots, respectively.

Looking at the channel market for SSDs as a whole, NAND Flash suppliers (among which Samsung possessed the largest market share) accounted for around 35% of the total shipments in 2020, while SSD module makers accounted for the other 65%. The top 10 module makers accounted for 71% of channel-market SSD shipments from all SSD module makers. Taken together, these figures show that the market remained relatively oligopolistic in 2020. However, it should be noted that TrendForce’s ranking of SSD module makers for 2020 takes account of only products bound for the channel market and under brands owned by the module makers themselves; NAND Flash suppliers were therefore excluded from the top 10 ranking.

As the pandemic eliminated tier-2 and tier-3 suppliers at an increasingly rapid pace, the collective market share of the top 10 module makers continued to rise

Kingston demonstrated the competitive advantage that it derived from having a global strategy while the pandemic took place. The company saw its market share increase by 1% against market headwinds in 2020 and comfortably took the number one spot among the top 10 SSD module makers. At the same time, Kingston sourced its SSD controller ICs from a diverse group of suppliers in order to avoid potential issues with SSD production due to insufficient foundry capacities. By ensuring a stable supply of controller ICs, Kingston will likely raise its market share even further going forward. On the other hand, ADATA had previously shifted the focus of its R&D and manufacturing operations to SSD products. Not only did ADATA release high-end products ahead of most of its competitors, but it also raised its markets share thanks to the increased demand for its gaming products during the pandemic. ADATA took the second spot on the top 10 list.

Kimtigo, ranked third on the list, shifted its focus to mid-range and high-end products due to their relatively high profitability. Furthermore, Kimtigo successfully expanded its market share both overseas and online, in turn taking the number one position in China. In light of China’s policies prioritizing domestic semiconductor production as well as Kimtigo’s ongoing efforts to cultivate a presence in tier-3 and tier-4 cities in China, the company will likely continue to increase its market share going forward. Netac similarly possessed comprehensive sales networks in China and the overseas markets, in addition to having committed to long-term developments in online sales channels. As the pandemic drove up online sales last year, Netac was able to leapfrog to fourth place in the rankings. Likewise, Lexar saw a slight growth in its market share last year due to not only the comprehensive global sales network it had previously developed, but also its gradually maturing manufacturing operations and aftersales customer services.

The COVID-19 pandemic drove up orders for Teclast’s self-branded notebook computers and displays. As a result, Teclast’s shipment of SSDs last year underwent an increase that in turn led to a corresponding increase in its market share. As for Colorful and Galaxy, the two companies primarily focused on the gaming market. Hence, the increase in demand for gaming consoles and high-end notebooks allowed Colorful and Galaxy to enjoy increased visibility in the SSD market. Lenovo’s shipments fell slightly in 2020 because the other competing brands increased their efforts in developing the overseas markets. As a result, its place in the ranking also dropped from 2019. As the ranking indicates, the competition among brands in the Chinese market remained very intense. There is the possibility that the brands’ positions in the ranking will undergo more reshuffling for 2021.

It should be pointed out that TrendForce has noted the participation of additional brands in the SSD module market in recent years. One such brand is Gigabyte, which has registered remarkable performances. Gigabyte grew its shipment of SSD products by more than 30% YoY in 2020 through leveraging its preexisting reputation in the motherboard and graphics card markets. Although Gigabyte has yet to enter the top 10 list at the moment, it will likely do so within the coming years thanks to its comprehensive global sales network and the growing visibility of its SSD products.

Rise of YMTC strengthens China’s domestic NAND Flash production, and Chinese SSD manufacturers are gradually gaining a brand advantage

As the trend of the localization of semiconductor manufacturing comes to the forefront of the Chinese memory market, YMTC is carrying out a massive capacity expansion plan. In terms of layer technology, YMTC is steadily advancing to 128L and catching up to the major NAND Flash suppliers. Among Chinese SSD brands, Biwin secured financial support from the China IC Industry Investment Fund (the Big Fund) this September; it is now expanding the production capacity of its plant in Huizhou. Besides this, Biwin has also acquired sufficient product development capability to meet clients’ demand for customized products and services. The company is therefore expected to experience a wave of growth in the future.

Turning to Taiwan-based SSD brands, Liteon’s shipments of branded SSDs have slowed down significantly after the company was fully incorporated into Kioxia in July 2020. Due to certain considerations pertaining to the allocation of internal resources, Kioxia will assign the Liteon SSD team to support the development of SSDs for PC OEMs. In the future, Kioxia’s focus will not be on brand development. As for other Taiwan-based SSD brands, they will unlikely return to the top 10 ranking because they have not been able to catch up to the brands based in Mainland China with respect to the economies of scale. TrendForce believes that Taiwan-based brands will continue to be on the decline.

PCIe G4 SSDs become new main offerings, and module makers have adopted QLC solutions

The effects of the COVID-19 pandemic have contributed to a significant increase in the average memory density of SSDs this year. With 512GB becoming the mainstream capacity size, the cost advantage of QLC will become increasingly recognizable. Hence, module makers will be introducing QLC products into their SSD offerings. In the aspect of interface technologies, the proportion of SATA in the retail SSD market has been declining over the years, and module makers are switching to PCIe for their new products. TrendForce’s research finds that PCIe products accounted for almost 30% of retail SSDs shipped in 2020. With shipments of PCIe G4 SSDs expected to grow rapidly in the future, module makers will assign PCIe as the mainstream interface for new products.

Also, an increasing number of Chinese IC design houses are now involved in the development of SSD controller ICs. This, in turn, has led to more PCIe G4 SSD controllers entering mass production. As China pursues the localization of semiconductor manufacturing, module makers will be tested to develop suitable solutions that can maintain growth in the Chinese market.

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

With Samsung, YMTC, SK Hynix, and Intel leading the charge, NAND Flash suppliers will maintain an aggressive effort to expand their production capacities throughout 2Q21, during which NAND Flash bit output will likely increase by nearly 10% QoQ, according to TrendForce’s latest investigations. On the other hand, orders from PC OEMs and Chinese smartphone brands since 1Q21, as well as recovering procurement activities from clients in the data center segment during 2Q21, will generate upward momentum propelling NAND Flash bit demand. Furthermore, buyers are actively stocking up on finished products, such as SSDs and eMMC, due to persistently limited NAND Flash controller supply. TrendForce therefore expects NAND Flash contract prices to increase by an average of 3-8% QoQ in 2Q21 after experiencing a 5-10% decline QoQ in 1Q21. In particular, as Samsung’s Line S2 fab in Austin has yet to resume full operation after the Texas winter storm, the supply of NAND Flash controllers going forward may be at risk, and Samsung’s ability to manufacture client SSDs will be further constrained as a result. In light of these factors, TrendForce is not ruling out the possibility that NAND Flash contract prices may increase by even more than current forecasts.

Contract prices of both client SSDs and enterprise SSDs are projected to rise due to delayed resumption at Samsung’s Line S2 fab

With regards to client SSDs, the persistent stay-at-home economy generated by the COVID-19 pandemic will likely result in strong demand for notebook computers in 2H21, while PC OEMs have raised their client SSD inventories as they manufacture more notebooks to meet demand. Given the high volumes of client SSD orders from PC OEMs, inventory level of NAND Flash suppliers is therefore likely to remain healthy. However, the shortage of NAND Flash controllers has yet to be resolved. Suspended operations at the Line S2 fab disrupted Samsung’s production of NAND Flash controllers, meaning some client SSD orders will not be fulfilled in 2Q21. Hence, the tight supply of finished products (i.e., client SSDs) will be further exacerbated. As such, client SSD contract prices are projected to increase by 3-8% in 2Q21.

With regards to enterprise SSDs, demand is expected to rebound from rock bottom in 2Q21, primarily because clients in the data center segment will ramp up their procurement activities after undergoing a period of inventory adjustment. In addition, demand for IT equipment from the governmental, healthcare, and financial services sectors will also gradually emerge. Other factors contributing to enterprise SSD demand include bids from Chinese telecom operators and increased IT equipment purchases from small and medium businesses globally. On the other hand, NAND Flash suppliers are no longer under pressure to destock via low prices, since their inventory levels have improved thanks to high demand from notebook manufacturers and smartphone brands. As the overall demand for NAND Flash rises, enterprise SSD contract prices are in turn expected to stabilize and experience a 0-5% growth QoQ in 2Q21.

High demand for Chromebooks will provide upward momentum for eMMC quotes, while contract prices of UFS are projected to undergo the lowest growths among NAND Flash products

eMMC contract prices will likely remain, for the most part, higher than expected despite the cyclical downturn in 1H21. In particular, strong demand from Chromebook manufacturers will provide upward momentum for eMMC quotes. Likewise, under the influence of NAND Flash controller shortage, eMMC buyers such as consumer electronics manufacturers will expand their procurement activities in order to build up their inventories. As a result, the overall eMMC demand will gradually ramp up in 2Q21. Conversely, the supply of eMMC controllers is still in shortage due to the fully loaded capacities across the foundry industry. Also, eMMC products under 32GB exclusively feature 2D NAND or 64L 3D NAND. Because production capacities allocated for these types of NAND Flash memories have been either reassigned to other 3D NAND products or scaled down, the oversupply of eMMC has been alleviated, and the long-term price drop of eMMC has subsequently come to a halt. In the short term, the shortage of controller ICs will result in a shortage of finished eMMC products. eMMC contract prices are therefore projected to increase by 3-8% QoQ in 2Q21.

Demand for UFS, which is primarily used for smartphones, is expected to remain high through 2Q21 because OPPO, Vivo, and Xiaomi have been aggressively procuring UFS since 4Q20, and Huawei spun off its Honor smartphone business unit. Buyers have also been anticipating an upcoming shortage of controller ICs and NAND Flash memory, leading them to build up their UFS inventories and therefore further driving up the overall UFS demand. On the supply side, inventory levels of suppliers have dropped significantly due to smartphone brands’ large-scale procurement activities previously. Although Chinese smartphone brands have yet to ramp up their bit demand, their existing level of demand still remains strong. Furthermore, clients from the data center segment are expected to increase their SSD procurement in 2Q21, and suppliers will maintain an aggressive approach regarding quotes in response. Even so, because smartphones account for the highest bit consumption share among all NAND Flash applications, NAND Flash suppliers are unlikely to significantly adjust their UFS quotes. As such, UFS contract prices are expected to increase by 0-5% QoQ in 2Q21, which is relatively lower compared to other NAND Flash products.

NAND Flash wafer contract prices are projected to increase by 5-10% QoQ as NAND Flash suppliers lower their bit shipment to the wafer market due to its lower profit margins

With regards to the NAND Flash wafer market, TrendForce has yet to observe an obvious improvement in the retail sales of end products such as SSDs, memory cards, and USB flash drives. However, as NAND Flash suppliers have been unable to make their scheduled delivery dates to OEMs due to an insufficient supply of controller ICs, module makers may stand to benefit from this and obtain more orders from OEMs, subsequently driving up the demand for NAND Flash wafers within the next one to two quarters, but the actual procurement of NAND Flash wafers will depend on whether the tight supply situation of controller ICs can be alleviated. On the other hand, inventories of NAND Flash suppliers have now fallen to mostly healthy levels thanks to procurement activities from smartphone brands since 4Q20. Suppliers have accordingly lowered their bit shipments to the NAND Flash wafer market (which yields a relatively lower profit margin compared to other product categories), due to the rising demand from notebook manufacturers and the expected recovery of the data center segment in 2Q21. On the whole, given the bullish market of mainstream products, such as smartphones and notebooks, TrendForce expects NAND Flash wafer contract prices to once again increase by 5-10% QoQ 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