In the second half of 2022, the overly sluggish economic situation has cast a layer of gloom over the development of the global semiconductor industry. Gartner predicts that the rapid deterioration of the global economy and slowing consumer demand will have a negative impact on the semiconductor market in 2023, with global semiconductor revenue estimates revised down from $623 billion to $596 billion in 2023, down 3.6% from this year. IC Insights' latest forecast also points out that after record global semiconductor sales in 2022, semiconductor sales in 2023 are expected to decrease by 5% annually, with pressure from plummeting memory prices and global economic uncertainty next year.

Source: Gartner

To some extent, the world seems to be caught in the chip "anxiety", but compared with the raging European and American regions, Asia's "chip anxiety" seems to be particularly serious.

ICT exports fell for four consecutive months in South Korea

Semiconductors are the lifeblood of South Korea's economy. South Korea's semiconductor industry has entered a phase of rapid development since the 1980s, and with the support of the government and the vigorous development of enterprises, South Korea's semiconductor status has risen all the way to the top of the world, with IC Insights data showing that South Korea ranks second in terms of total global semiconductor market sales in 2021 with 22%.

At the end of October, the Korea National Economist Association listed the top 100 international semiconductor companies in terms of average market value from January to September this year based on Standard & Poor's Capital IQ, and analyzed the relevant business indicators. Samsung Electronics, SK Hynix and SK Square are the only three Korean companies on the list, and Samsung Electronics, which was the top company in 2018, has slipped to No. 3 in the ranking.

Not only Samsung, but the remaining two companies on the list are also falling fast, with SK Hynix falling from 10th to 14th in 2018, and SK Square, which only split from SK Telecom at the end of last year, falling from 80th to 100th in just one year. South Korean semiconductor companies also saw their net sales yield fall from 16.3% in 2018 to 14.4% in 2021.

Of course, in the short term, the most anxious Korean semiconductor when the weakness of the storage market. As we all know, South Korea is a well-deserved storage powerhouse, with a 71.1% DRAM chip market share and a 44.9% NAND chip share, with Samsung and SK Hynix as the two resounding storage head companies. However, in the downward cycle of the semiconductor, storage chips have become a direct "winter" impact of the IC segment. Gartner also predicts that the storage market will decline by 16.2% next year, with DRAM in January-September 2023 and NAND Flash in January-June 2023 falling into oversupply.

The direct impact of the slowdown in the memory chip market is the price decline, and the latest TrendForce research report shows that the current DRAM and NAND flash spot quotes are still maintaining a downward trend. The Korean media believes that the decline in memory chip prices is likely to affect South Korea's overall exports.

In fact, Korea's ICT exports have been falling for four months in a row. Since the second half of this year, Korea's ICT exports have been declining for four consecutive months from July to October (0.7% year-on-year in July; 4.6% year-on-year in August; 2.2% year-on-year in September; and 10.3% year-on-year in October) due to shrinking global consumption, reduced demand for consumer electronics, and declining semiconductor DRAM prices, which is the fourth consecutive month since January 2020. For the first time since the next two years and nine months, Korea's ICT sector exports fell for four consecutive months year-on-year.

In contrast to the declining exports, Korea's ICT imports have been climbing, and even in August, Korea's ICT imports increased by 18.7% year-on-year to $13.52 billion, the highest since ICT import and export statistics began in 1996. As a result, the size of Korea's trade balance surplus in ICT shrank significantly. According to the data, Korea's ICT trade balance surplus reached US$4.11 billion in October, a significant reduction from US$7.94 billion in September, and also a significant reduction from the surplus of US$7.8 billion in the same month last year. For an export-oriented country (Korea's exports will account for 35.6% of GDP in 2021, much higher than other industrial countries), the decline in exports is likely to be a direct hit to GDP growth.

In addition to the shrinking surplus, the dollar share of trade exporters has also become an object of concern for Korean semiconductors. Statistics show that, compared with the United States, Japan, Singapore, the Chinese market to the South Korean semiconductor industry accounted for a relatively large, from 2015, the Chinese market accounted for basically maintain 40% up and down, the first three quarters of this year, South Korea's total exports to China semiconductor amounted to $ 42.213 billion, accounting for 41% of South Korea's total semiconductor exports in the same period. According to Korean media BusinessKorea report, South Korean market experts said that South Korean semiconductor exports need to reduce the proportion of China, because the current situation is very vulnerable to the impact of China's economic ups and downs.

In order to cope with the turbulent industrial situation, the South Korean government has taken active measures in terms of policy. on July 21, South Korea announced the "semiconductor superpower strategy", which plans to guide companies to complete 340 trillion won investment in the semiconductor industry by 2026; on August 4, the National Power Party submitted a bill to the National Assembly for expanding the tax relief for investment in facilities. On August 4, the National Power Party submitted to the National Assembly a bill to strengthen the competitiveness of the semiconductor industry by expanding the tax exemption for investment in facilities; in September, President Yoon Seok-yeol attended an event of the Special Committee on Semiconductor Industry of the National Power Party and expressed his clear support for accelerating the legislation of the Korean semiconductor industry.

On the corporate side, Samsung and SK Hynix have taken two diametrically opposed measures, one aggressive and one conservative in seeking stability. Samsung firmly said that Samsung Electronics will not be shaken by the state of the industry, will continue to invest, do not consider reducing production, its view that once the market recovers, the lack of investment in the downturn may damage the business. At the same time, it was also recently announced that Samsung Electronics will establish a new global research institute in December under the DS business unit, which is expected to analyze the semiconductor market and other related industries and discover new markets.

SK Hynix, for its part, announced in late October that it would cut capital expenditures by half next year due to a sharp drop in demand for memory chips. In July, SK Hynix also froze an investment plan for a domestic semiconductor plant in South Korea, with the start of construction of a new plant called "M17" scheduled to begin in 2025 in Cheongju City in central Korea postponed indefinitely. The reasons for the postponement include China's epidemic prevention and control; sluggish sales of personal computers and smartphones; rising raw material prices and the appreciation of the U.S. dollar, resulting in higher costs for the introduction of production equipment.

A "revitalized" Japan

In the past 35 years, under the double suppression of Japanese companies' insistence on "IDM" and the U.S. "strangulation" inside and outside, the market share of Japan's semiconductor industry has declined from a peak of 50% in the past to less than 10% in 2020. Although, in recent years, Japan has put on the agenda to revive the semiconductor industry, but in today's environment, the Japanese chip industry is also facing new anxiety.

First, there is the reduction in net profit. Affected by high inflation in the United States, the deterioration of the semiconductor boom and rising prices of raw materials, even the devaluation of the yen has not been able to save the net profit of Japanese companies. Daiwa Securities data show that the yen against the U.S. dollar for each depreciation of 1 yen brought help, has been reduced by half compared to the time in 2009. Although the current exchange rate of the yen against the U.S. dollar has depreciated by more than 20 yen compared with the same period last year, the sensitivity of the exchange rate is declining, affecting the rate of improvement in profitability.

Although there are Japanese companies such as Shin-Etsu Chemical and so on, through the active promotion of price increases, to successfully absorb the increased costs, and thus the success of the case, but these are also rare, most companies are still suffering from the pain of soaring costs. According to the Nihon Keizai Shimbun, listed companies in Japan's manufacturing sector are expected to see a 2% decrease in net income in the second half of 2022 (until March 2023) compared to the same period last year. If the forecast is accurate, it will be the first time since the first half of 2020.

Second, the semiconductor industry "cold wind" is eventually blowing to upstream manufacturers such as equipment/materials as fabs postpone/reduce capital expenditures. Although the Japanese semiconductor industry is now far less brilliant than in the past, but the two major areas of materials and equipment still "pulse" of the global semiconductor industry. For example, in the field of photoresist, Japan in the world's top 5 leading photoresist companies occupy four seats, accounting for about 70% of the photoresist market share; and in the field of coating and development equipment, Japan TEL is a dominant player.

SEMI predicts that investment in pre-process equipment used in the formation of semiconductor circuits will turn negative by 2023 after four years. TEL also said recently that semiconductor manufacturers have been delaying their investment plans in production equipment, so its full-year net income forecast was revised downward to 400 billion yen, the first downward revision in nearly four years.

Although the demand for semiconductor equipment/materials is currently stagnant, Japanese manufacturers are still actively expanding production. In the field of semiconductor equipment, Japan's V-Technology for the first time to establish the company's own production base; Japan's KOKUSAI ELECTRIC will invest 24 billion yen in Toyama Prefecture Tonami City to build a new factory; Canon to expand production of photolithography, will build a new factory in Tochigi Prefecture Utsunomiya City, and strive to put into operation in the spring of 2025, doubling production capacity ...

In the field of semiconductor materials, Toppan Printing expects to invest approximately 20 billion yen through its subsidiary "Toppan Photomask" by fiscal 2023 to expand the mask production capacity of factories in Japan and Taiwan, China; DNP will invest nearly 10 billion yen in production plants in Japan, China and Taiwan by fiscal 2023 to increase production lines. DNP will invest nearly 10 billion yen to increase production lines in Japan, China and Taiwan by FY2023; Shin-Etsu Polymer, a subsidiary of Shin-Etsu Chemical, will invest about 10.5 billion yen to expand production of shipping containers for 12-inch wafers...

In addition to equipment and materials manufacturers, Japan's 8 giants also joined forces to build cores, advanced processes, trying to revive the flag. 11 November, Japan's Ministry of Economy, Trade and Industry announced that Sony, SoftBank, Toyota Motor and NTT and other eight large Japanese companies to form a new company Rapidus, to mass production of the world has not yet actually used the 2nm advanced semiconductor as the goal, research and development and production of advanced Semiconductor, five years after the production. It is reported that each of the companies involved in the joint venture will invest about 1 billion yen, Mitsubishi UFJ Bank invested 300 million yen, the Japanese government injected about 70 billion yen, from the amount of investment can be seen, the Japanese government in the semiconductor field to restore the past glory of the determination of the great.

Another way to China

As for mainland China, in the increasingly severe geopolitical, depressed market environment, as well as the impact of a variety of factors such as masks, the development of mainland China's chip industry is also extraordinarily difficult, but we still opened up a way forward in development, that is, the mature process. Although far from the advanced process to catch the eye, but the mature process is currently the vast majority of global demand, the manufacturing industry is most in need of power semiconductors, sensors and control motor simulation components, the process demand for chips are only about 28, 40 and 65nm. And we are familiar with the car chip, the most shortage of mature chips, the cost per piece of only $ 0.40 MOSFET chip, but will affect the production of tens of thousands of vehicles.

Taking the mainland foundry leader SMIC as an example, it recently said in the investor interactive platform that there are construction projects for a total of about 340,000 new 12-inch production lines in SMIC Shenzhen, SMIC Beijing, SMIC East and SMIC Xiqing in the next five to seven years, and the company will promote the development of diversified platforms, production capacity combination and expansion according to the needs of customers. Starting from 2020, SMIC has embarked on an expansion path. With SMIC Capital in 2020, SMIC Shenzhen and SMIC East in 2021, and SMIC West Green in 2022, the above fabs are focused on 28nm and above process manufacturing.

Public data shows that in 2021, SMIC's wafer manufacturing capacity will be approximately 6.75 million pieces/year for 8-inch, while the above four fabs will add a total of 340,000 pieces/month of 12-inch capacity, which is approximately 9.18 million pieces/year for 8-inch capacity, which shows the strength of SMIC's expansion in the mature process area. SMIC points out that at least 1/3 of the future capacity of the new fab is shared to meet the dynamic needs of customers; 2/3 is for specific market segments and technology iterations. More importantly, at a time when many foundry majors such as TSMC and LMC are cutting back on capital, SMIC is still bucking the trend. At the third quarter earnings presentation, SMIC said that in order to boost its 12-inch production line, its annual capital expenditure plan was revised upward from $5 billion to $6.6 billion.

Another foundry giant, Huahong Semiconductor, which is sprinting for the science and technology version, also revealed news of a huge investment in production expansion in its recent prospectus. The prospectus shows that Hua Hong Semiconductor intends to raise 18 billion yuan to invest in the Hua Hong Manufacturing (Wuxi) project, the 8-inch plant optimization and upgrading project, the special process technology innovation research and development project and additional working capital projects. Among them, Hua Hong manufacturing (Wuxi) project plans to invest $6.7 billion, the construction of a production capacity of 83,000 wafers per month after the production of 12-inch specialty process production line, is expected to start construction in early 2023, in the fourth quarter of 2024 to basically complete plant construction and start installation of equipment, 2025 to start production.

Hua Hong Semiconductor said that as the capacity of the Hua Hong Wuxi project continues to climb, further capital investment in the future will significantly increase the capacity of the 12-inch production line and the richness of the product portfolio based on the foundry of various process platforms in the 90-55nm node, continuing to consolidate its position as the world's leading semiconductor specialty process foundry industry.

In addition, Yuexin Semiconductor also recently announced the completion of several hundred million RMB in Series B strategic financing, the second external financing for production expansion during the year. In July this year, Yuexin Semiconductor announced the completion of a 4.5 billion RMB financing round, which was mainly used for the Phase III project. It is reported that Yuexin Semiconductor's Phase III project has been officially launched on August 18, and is expected to add 40,000 wafers/month after the project reaches production, but the positioning of the production line process has been changed from "55-40nm, 22nm process" to "180-90nm process". .

Then look at China Taiwan, China Taiwan as the world's semiconductor heavy, the strength is very strong, but even so, also facing a certain amount of chip anxiety, from the latest news, the brain drain has become a new focus of attention. Previous media reports said TSMC in early November for the first time chartered a plane to send nearly 300 employees to the United States, is expected to initially every two weeks a class, continue to send more than 1,000 TSMC employees and their families to the United States. The news has caused a warning from senior media personality Chen Fengxin, who said that Taiwan's talent is being hollowed out, and with TSMC's first batch of talent going to the United States, a chronic blood loss will be formed in the future.

Chen Fengxin stressed that Taiwan does not have a large market, no production of any resources, the only advantage is the manpower and talent, Taiwan's early is the use of hard-working manpower, there are many processing export areas, when the processing export areas to help Taiwan's economic growth is very large; and then to the 1980s, early from the top universities to study in the United States of this group of people, set off a wave back to Taiwan, these talents gathered a new industrial model These talents gathered a new industrial model, the "technology-intensive" thing in Taiwan to take root. But now the situation is flipped, Chen Fengxin pointed out that TSMC to the United States to invest in the talent dilemma, so it can only move talent from Taiwan, with a batch of talent to the United States, will form a chronic blood loss situation.

Although TSMC said that each new factory inside and outside of China Taiwan have short-term expatriate engineers, and the number of employees compared to the number of very limited, no talent is "empty" of doubt, but in the long run, China Taiwan will not really be a rapid loss of talent, which still needs to put a "question mark ".

In addition, in the face of today's semiconductor industry oversupply and supply chain dislocation concerns, China Taiwan's annual output value of the chip estimates have also been adjusted downward. China Taiwan Industrial Technology Research Institute (IEK) said at the end of November, the annual output value of the IC industry this year from the original estimate of 4.98 trillion yuan, down to 4.72 trillion yuan; next year, the IC industry output value from the original estimate of 5.4 trillion yuan, down to 5 trillion yuan.

IEK pointed out that the overall semiconductor inventory adjustment in the second half of this year is quite obvious, causing including IC design, manufacturing, packaging and testing revenue growth in the 3rd quarter convergence, the 4th quarter is estimated to show a quarterly decline of 13.3%, an annual decline of 2.3%, the 4th quarter only IC manufacturing and packaging to maintain quarterly growth, IC design industry will show a quarterly decline of 16%, dragging down the overall IC output value performance.

For the leading TSMC, Gokul Hariharan, head of Taiwan research department of JP Morgan Securities, pointed out that because Qualcomm, Nvidia, AMD and other major customers for the 5nm process cut orders, 7nm process situation is also not very good, so the first quarter and second quarter of next year TSMC revenue in dollar terms will be reduced by 9% and 12%, also means that its operating conditions in the first half of next year will enter the bottom of the period Of course, we can't be sure that TSMC's revenue will drop by 9% and 12% in dollar terms in the first and second quarters of next year.

Of course, we should not underestimate Taiwan's chip strength because of the short-term downward revision of the chip industry and its operating conditions. Even with the downward revision in output value, China Taiwan's annual growth in output value this year and next year is still higher than the average level of the global semiconductor industry. And J.P. Morgan Securities also stressed that, as the 3nm process began to release, coupled with the inventory correction came to an end, TSMC revenue performance will recover steadily in the second half of the year, overall, next year's revenue in U.S. dollars may decline by 4%, but 2024 revenue will rebound quickly, annual growth rate of 21%.

From the recent news, the global manufacturers are actively increasing the size of Taiwan. According to Taiwan media reports in November, ASML will launch the largest investment in Taiwan in its history. Chinese Taiwan's New Taipei Mayor Hou Youyi confirmed in the evening of November 16 that ASML will invest NT$30 billion in the first phase of the Lin Kou Gong Yi Industrial Zone, with about 2,000 employees moving in. Korean media pointed out that ASML in China Taiwan investment is five times more than South Korea. In addition to ASML, the U.S. Light will increase its investment in Taiwan in the coming year to 80 billion NTD (including procurement), will import the most advanced 1γ technology, will be in mass production in 2024. In addition, there is TSMC 1nm wafer fab is expected to land in Longtan Park, will invest trillion NTD; Qualcomm has also expanded its foundry orders in Taiwan. According to the Industrial and Commercial Times, the semiconductor and related equipment and materials vendors to invest 3.8 trillion dollars in Taiwan from 2020 to 2025.

Meanwhile, Taiwan, China is also specifying the Taiwan version of the chip bill, which is expected to be introduced on New Year's Day 2023, and companies such as TSMC, MediaTek, United Wing, UMC, Sun & Moon, Macronix and Nanya Tech are expected to enter the list of tax breaks. In addition to Taiwanese companies, such as ASML is also expected to benefit from this, as a way to promote the layout of foreign investors to Taiwan. However, while the bill has attracted attention, it has also brought a lot of controversy. The chairman of TSMC, Huang Chongren, publicly expressed the good intention of taking care of China's semiconductor industry in Taiwan through equipment investment credits, and he was positive and optimistic, but the hard title of "forward-looking research and development" and "advanced process equipment" seems to provide only TSMC or a few equipment The company's main goal is to provide subsidies to TSMC or a few equipment manufacturers. "What is the advanced process, forward-looking research and development, the government must say clearly," said Huang Chongren, "If it is targeted, such a bill amendment is too unfair and unreasonable."

Written at the end

For people, proper anxiety is the driving force to move forward, and for the chip industry, it is the same. What's scary is not the anxiety, but the stagnation after falling into anxiety, as long as the feet on the ground to walk the road, the action into the "earth", there will always be a day to set aside the gloom.

After all, the slowest pace is not step by step, but wandering.