Each of the chip industry crisis pro-lifers must deeply understand: "supply chain security is sometimes more important than product development."

Semiconductor supply and demand contradictions "slowing down"

At present, after nearly 2 years of shortage of core and capacity expansion, the chip industry shortage tide seems to begin to appear signs of relief. Especially since the second half of the year, the consumer electronics market demand has been significantly reduced, the phenomenon of cutting production of consumer chips.

Previously, MediaTek has cut orders for 5G chips by 30%-35% for the fourth quarter; Qualcomm also cut production of high-end Snapdragon 8 series by 10%-15%. Tianfeng Securities analyst Ming-Chi Kuo said that the terminal market demand is sluggish, I'm afraid that the situation will be difficult to improve in the first quarter of next year.

The hidden worries of the cold consumer electronics market have surfaced as early as the beginning of this year. Inflation, Russia-Ukraine war, supply chain disruptions and other multiple factors together, PC, cell phones and other consumer electronics shipments fell significantly. Under this trend, international manufacturers have sounded the downside alarm, including Intel, Nvidia, Micron and other giants, including chip companies have said that the previous two consecutive years of surge in demand for various product lines, but the next few months will be more bumpy, the consumer environment turned cold.

TrendForce pointed out that the current situation of foundry customers cutting orders is continuing to expand, including power management chips, image sensors and some MCUs have been cutting orders, 8-inch foundry capacity utilization decline is the most significant situation.

Therefore, resulting in the foundry had to "grab customers" by reducing prices. According to the Economic Daily News, the foundry has recently cut prices by more than 10%. In order to prevent the loss of orders, some foundries to customers agreed to open a "preferential price" in some specific processes, a discount of about single-digit percentage, equivalent to a disguised price reduction.

TSMC said, for the weak demand for consumer electronics products, semiconductor supply chain inventory is too high phenomenon, is expected to take a few quarters to rebalance to a healthier level; SMIC also encountered consumer electronics customers cut orders, some process nodes loose down, is looking for new customers to fill the position.

Some industry insiders reveal that previously it was customers sent to the door, but now it needs to go out and find customers. Although foundries are reluctant to admit publicly, but this information has been cross-validated by multiple parties, and the feedback from chip design companies dealing with foundries is also the same.

In this regard, the China Center for International Economic Exchanges, the U.S. and Europe Research Department, deputy director of the researcher Zhang Xiaonan: the past two years, the chip makers crazy expansion, but now the global economic slowdown, demand weakened, so there is a structural oversupply phenomenon.

Nomura Securities, following a conservative view of global chip shipment growth rate in late August this year and next two years, in early September and revised downward the growth rate of these two years, the global chip shipment growth rate this year from the original estimate of 9.9% to 5.7%, 2023 from a recession of 0.5% to a recession of 6%.

Lack of core tide, capacity is the top priority

Review of the past two years of the semiconductor market, since 2020, the lack of core tide spread globally, the original domestic and foreign chip delivery period lengthened, the market price also appeared to skyrocket. Resulting in many fabs, packaging and testing plants production rhythm was disrupted, some chip design companies supply can not be guaranteed, downstream manufacturers everywhere to find goods, large-scale stocking, panic orders throughout the industry chain, resulting in the industry's real demand into a mystery, the shortage of goods is also becoming more and more serious.

The top priority of the entire chip industry at that time was to find capacity.

"In the context of the time, a company's comprehensive ability is all reflected in the 'how much goods can be grabbed' indicator." In the case of tight supply chain capacity, the fight for capacity became a mandatory course for all semiconductor companies.

Especially for a large number of small and medium-sized chip design startups, capacity began to become a matter of life and death, no capacity means a halt, has been flowing chips can not be verified in production, which will seriously affect the subsequent financing, the CEO led the team to run the country to find capacity is not a new thing.

In the typical cyclical chip industry, each crisis means that the pattern of rotation. Take the capacity of the manufacturers will become winners, while the competition losers, it is likely to have stood on the edge of danger.

Under the crisis of everyone, supply chain security has become the focus of industry attention.

This round of unprecedented lack of core crisis, the essential reason or the contradiction between supply and demand.

Semiconductor industry in the past two years, the supply exceeds demand, so many chip manufacturers have begun to vigorously expand production capacity. TSMC, Samsung, UMC, Intel, Ge-core, SMIC and other foundry giants have all announced their expansion plans one after another.

SEMI data show that from 2021-2023 Fab investment reached a record high, only in 2022 a year of investment grew by 14% to nearly $ 26 billion, 28 new volume fabs will begin construction in 2022, including 23 12-inch fabs and five 8-inch fabs. Globalization layout is accelerating, and most of the capacity will be online in 2023-2024.

So far, the market demand is weak, but the capacity is greatly expanded, the mismatch between supply and demand goes back to the trend forecast mentioned above - "the semiconductor market is about to enter the downward cycle.

Observe the current state of the industry, the chip market has been a comprehensive shortage from the early to the structural imbalance divergence, consumer electronics market demand decline, but the high-end applications represented by automotive and industrial control market demand is still relatively strong, especially the surge in sales of new energy vehicles, further driving the market demand for high-end automotive-grade chips.

Consumer market cut single resulting in capacity loosening at the same time, the major chip makers will shift capacity to the more popular automotive chips, TSMC, Infineon, Intel, Ge-core and other manufacturers have announced their respective plans to expand production or to the deployment of automotive chip capacity. The industry expects that the car chip capacity construction, to production, on board cycle is very long, and now the expansion of production capacity can only be released after 2023.

This chip shortage, which lasted nearly two years, and the subsequent repeated fluctuations in the market, is quietly reshaping the industrial landscape from the supply chain, technology, industrial planning and other aspects.

How do chip design companies respond to market fluctuations?

From the lack of core "tide" to "ebb", and then to "cut single tide" from the face of industrial fluctuations, the supply chain companies involved in how to protect themselves? What measures have been taken to cope with the chip shortage?

• Scale advantage

In the shortage of core period of the battle for production capacity, with a certain scale of large companies have more advantages.

As we all know, "protect the big customers" is the common strategy of the industry in the period of capacity shortage, whether it is the foundry, packaging and testing plants or chip design vendors will take the lead in ensuring the supply of orders from large customers.

Therefore, the industry's large companies face higher supplier discourse, generally through cooperation with foundries, packaging and testing plants to build dedicated lines, the development of long-term capacity planning to ensure their own interests, in a period of capacity shortage is also more secure.

• Price increase

On the other hand, in the case of chip manufacturing prices in general, see some chip makers began not to speak of "Wu Tak", in the case of many customers can not coordinate the capacity of several customers to engage in bidding, the $ 600-800 per piece of 8-inch wafers, speculation to $ 1600-1800, meaning that the chip cost Also to double the cost of the chip, but also exacerbated the already tight supply pressure.

In fact, the price increase to obtain capacity is not uncommon, as early as the second half of 2020, many small and medium-sized semiconductor manufacturers in the supplier's orders and capacity is not guaranteed. In the cooperation of the wafer fab scheduling has been far away, the new supplier import is not a quick fix, the entire industry simply no capacity vacancies, if you can use the price increase for capacity for the company is actually not a bad thing.

A confidant revealed that in October last year, when the price hike fermented the most, a design company sat on such a card table. At that time, more than a dozen design companies at home and abroad to participate in the bidding, they finally grabbed a few thousand wafers of capacity at three times the price. "The reality is that at the time, if they could not grab the capacity, the company might have starved to death."

It is understood that such a ticket is not just anyone can get, in order to participate in the auction, at least 50% higher than the original capital must first come up with, and the money is not necessarily able to buy capacity, but also to have long-term cooperation with the foundry, and cast a large enough amount of customers to be eligible to bid.

• Industry chain relations & resources

In addition, many manufacturers are mentioned that in the whole industry wafer capacity are relatively tight, with a number of wafer and packaging factory to form a solid, benign cooperation mechanism, through the development of long-term capacity planning and other ways to ensure that wafer capacity, is also an important factor.

As for the problem of supply chain capacity shortage, in recent years, domestic and foreign enterprises have announced the construction of wafer fabs and packaging production lines, and the company will also cooperate with current suppliers for capacity expansion verification and introduce new suppliers to make the supply chain system more robust, so as to avoid the emergence of related capacity risks.

• Service supplier "matchmaking"

Although there are various initiatives, but for design companies, the chip may not be able to "grab", sitting "waiting" for the chip capacity is not the way to improve. Therefore, industry players in the fight for capacity and some "workarounds.

For example, through service providers in the middle of the "matchmaking" is not a bad way.

Especially for small and medium-sized chip design enterprises, in the industry manufacturers are showing their skills to compete for production capacity in the background, almost all the fabs, packaging plants capacity are full, large customers can only do "lock capacity", and in order to protect the supply of important customers, the share of capacity of other customers is inevitably squeezed.

Compared to the industry, small and medium-sized chip design companies do not have the corresponding financial and technical strength, often due to less shipments or limited ability to pay, in the industry chain voice is weak, unable to obtain capacity, to directly build production lines is obviously unrealistic.

In this case, a large number of chip design companies can not get capacity, many small companies are always in the queue for orders. These small and medium-sized design houses that can not get capacity and do not see the future may face the dilemma of being shuffled out, and can only find ways to ensure survival.

For companies at an earlier stage, companies whose products have been flowing cannot get the capacity for mass production, and their products cannot be brought to market for verification; companies whose products have not been flowing may not even be able to do so. Product progress stalled for a year for a startup is tantamount to a disaster.

In-depth industry understanding can be found, in fact, regardless of capacity status, in the current supply chain structure, small and medium-sized chip design companies and foundries there are many problems to be improved, such as.

1. Small and medium-sized design companies do not understand the Foundry system, lack of experience in process selection, unfamiliarity with the process, delivery changes and capacity fluctuations have greatly increased the cost of communication between startups and foundries.

2. Lack of systematic supply chain management capability, especially in the ramp up stage, over-optimistic about capacity, delivery and quality, which affects TTM.

3. Lack of stocking mechanism, panic order or order after order resulting in capacity not keeping up with market demand.

In this regard, the head of Moore Elite's ramp up business said that for these start-up chip design companies, which are short of capital and manpower, the only way to get the next round of capital is to make products with limited time and money, so that they will not disappear in the flood of time. In this process, choosing a reliable and suitable service provider becomes a top priority.

Taking Moore Elite's flow business as an example, it can connect dozens of mainstream Foundries around the world through one-stop service, with processes covering 8nm-350nm. In the stage of tight fab capacity, the platform's technology and industrial resources are used to help small and medium-sized design companies fight for capacity and choose the right process platform.

In addition to helping small and medium-sized chip design companies fight for capacity, in the current situation where chip shortage is slowing down, or even capacity is loosening and upstream manufacturers are cutting orders, supply chain service providers can also help foundries integrate the order demands of a large number of small and medium-sized customers, provide efficient support management of long-tail customers for partner Foundries, improve line utilization, and further understand the evolving and changing customer and market needs.

Collectively, service providers similar to Moore Elite Flow Services can help customers and foundries solve current supply chain challenges by integrating and leveraging their own technology and resources, providing optimal solutions in terms of technology, business, and capacity, significantly reducing customer costs and development risks, and shortening customer chip development cycles. At the same time, it can also help fabs make full use of their capacity and understand the needs of long-tail customers and the market.

To summarize, we help chip design companies find capacity when capacity is tight, and help foundries find customers when capacity is loose, helping upstream and downstream companies to better cope with capacity fluctuation cycles.

Conclusion

Industry reshuffle has always been cruel.

When capacity is tight, companies with capacity can raise prices while expanding market share, while companies without capacity may soon encounter cash flow problems, followed by customer loss, and finally go out of business or be acquired, resulting in the industry entering a situation where the strongest are always strong.

In this case, small and medium-sized design companies are best to consider flexible product design, or through linkage with downstream customers and other ways to fight for capacity, waiting for the gradual recovery of upstream capacity.

It is not an exaggeration to say that this round of lack of core crisis for the whole industry to sound the alarm. Even now the chip industry has survived the most difficult period, but those who experienced it will remember a lesson, supply chain security is sometimes more important than product development.