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The semiconductor investment boom, which has lasted for two years, has become white-hot, with the valuation of the primary market getting more and more crazy, and even "don't come in without money."

This led some investors to threaten that "they will no longer invest in semiconductor projects with a valuation of more than 4 billion yuan" [1], and some people asked, "when will the semiconductor investment boom end?"

Recently, there have been frequent news of "semiconductor avalanche" and "cold winter of semiconductor capital", but there are still many enterprises complaining about a serious lack of core. This leads to the strange appearance of cutting prices and clearing inventory while not finding chips on the other.

Are we at the point of overcapacity? What information is revealed behind this?

Who is cutting prices, who is out of stock in today's semiconductor industry, contradictory and anxious, filled with pessimism.

The contradictory essence of "cutting prices while being out of stock at the same time" is that the market has changed from structural shortage to local and specific shortage. [2]

By summarizing all kinds of products, order cutting basically occurs in the field of consumer electronics, while industry, car regulations, cloud server products and upstream materials show an upward trend.

In the field of consumer electronics, the demand for mobile phones, PC (desktops, notebooks) and televisions was poor, and the relevant manufacturers cut orders, followed by the collapse of consumer-grade chips, consumer panels, drivers IC, PMIC (power management IC), MCU, CIS, SoC and so on continued to reduce order demand and clear inventory [3]. In the end, the semiconductor equipment that affected the transmission to the upstream wafer foundry and further upstream pressed the brake button for capacity expansion, and some wafer foundry even began to cancel production expansion plans [4]. Science and Technology Innovation Board Daily commented that demand in the consumer electronics market is difficult to pick up, and the winter of the supply chain has arrived. [5]

Unlike consumer electronics, car companies are still complaining.

Due to a structural shortage of semiconductor chips, Stellantis suspended operations at its main Melfi plant in southern Italy from June 28 to July 2. Due to the shortage of semiconductors and other reasons, Toyota's production fell by 28% in May. He Xiaopeng asked for chips online on Weibo and said it takes more than 5000 chips to build a smart car. What is really missing is cheap proprietary chips.

Market situation of some ▲ products, tabulation (fruit shell hard science and technology)

The reason why the chip market is polarized is that automotive chips require more stringent parameters than consumer chips and take longer from design to mass production. Take the vehicle specification level MCU (single chip microcomputer) as an example, the chip design process takes as long as 18 to 24 months, followed by 12 to 18 months of vehicle specification level certification system development and 24 to 36 months of vehicle introduction and test verification.

Comparison of ▲ consumption, industrial and automotive chip evaluation indicators, tabulation (fruit shell hard technology)

Judging from the information available, chip and wafer manufacturers are focusing on specific areas.

Where are we in the semiconductor cycle? With the development of semiconductors for more than 50 years, there is an obvious periodicity in history. The main feature of the semiconductor cycle is an average of one cycle every 5 years and a trough every 10 years. In a full cycle, the market will first enter an upward cycle-the outbreak of demand, shortage and price increases, investment and production expansion. But after the gradual release of capacity, the market will enter a recession cycle-shrinking demand, overcapacity and falling prices. [8]

The semiconductor cycle will take into account the five major indicators of semiconductor prosperity-B / B (order / delivery rate), capacity utilization of chip production lines, investment in fixed assets, average sales price and inventory level. [9]

Reviewing the semiconductor history of more than 50 years, the development cycle curve accords with the law of double-wave superposition of inventory cycle and innovation cycle. [10]

Inventory cycle is a part of the development cycle of semiconductor industry. Once there is overcapacity in the IC design industry, enterprises will enter the stage of passive destocking.

Three major cycles of ▲ semiconductor products, tabulation (fruit shell hard technology)

Source: Anue [11]

The innovation cycle refers to several growth cycles generated by emerging markets in history, such as the rise of PC in 1984, the development of Internet infrastructure in 2020, and the dominance of smartphones in 2010. But after the big growth, the market returned to rationality, and terminal demand either fell or slowed the following year. At the same time, there are some rules to follow in the innovation cycle: in previous cycles, storage technology has mainly driven the growth of large plates, and storage products such as DRAM (memory) and Flash (flash memory) are also more prone to excess and falling prices during economic recessions.

▲ Global Semiconductor sales from 1976 to 2020

So what stage of the semiconductor cycle are we in now? Institutional forecasts vary, but the general direction points to imminent overcapacity.

At a time when chips are the funniest in the world, some analysts worry about overcapacity. In the first half of 2021, the chip delivery cycle was once extended to more than 14 weeks, in order to avoid being tied up by the delivery cycle, downstream manufacturers need to order or even "double order", which lays a hidden danger. On the next order, if the downstream manufacturer's inventory is not cleared, the order quantity will have to be reduced, and thousands of chips will not be sold. [13]

Some organizations say bluntly that chips are about to flood. IDC said that the semiconductor industry will balance in mid-2022, and with the release of larger expansion capacity at the end of 2022, there may be overcapacity in 2023 [14]. Jefferies Group warns that inventory in the chip supply chain continues to grow, but end demand continues to decline, and chips may flood in the second half of 2022 or early 2023. [15]

Some organizations also treat mainstream processes and advanced processes separately more rationally. The advanced process is more complex than the mainstream process, including the ABF substrate with delivery time ranging from 52 to 70 weeks, and the supply of neon gas related to DUV and EUV lithography machines. Gartner predicts that the mainstream process nodes of 90nm~28nm will be fully restored by the end of 2022, but the advanced process nodes below 10nm will not be restored until 2023. [16]

Application and growth of ▲ chip types in different processes, tabulation (fruit shell hard technology)

What is the impact of overcapacity on the semiconductor market? By analyzing the historical data from 1984 to 2017, SemiWiki concluded that it is necessary to be vigilant when the growth of semiconductor capital expenditure exceeds 27%, and there is a risk of market contraction when the growth of semiconductor capital expenditure exceeds 56%.

Semiconducting capital expenditure is likely to reach 24% in 2022, which is close to the warning line. Fortunately, however, storage products that have a big impact on the industry do not dominate spending growth: capital expenditure for storage companies is likely to grow by 7 per cent in 2022, while capital expenditure for non-storage companies is likely to grow by 36 per cent. [17]

▲ Capital Expenditure (Green Line) and Market (Blue Line) Graph, Source: SemiWiki

▲ memory and non-memory semiconductor capital expenditure growth, figure source: SemiWiki

Industry insiders believe that the outside world is suspected of over-interpretation of the existing news, and the market is indeed weakening, but it will not hit rock bottom all of a sudden, just beating uncompetitive competitors back to their original form. [18]

Overcapacity is not the night before, but the semiconductor industry, which was booming a while ago, entered the downward cycle not suddenly, but gradually caused by continuous large-scale production expansion. Now, the industry needs to be on guard against changes in inventory levels. [19]

Looking back over the past two years, semiconductors have attracted the attention of various countries. In order to improve competitiveness, countries introduce high subsidies to attract semiconductor manufacturers to expand their production capacity.

▲ countries increase investment in semiconductors and make tables (fruit shell hard technology)

There has been a lot of wafer expansion in recent years, and even more extra capacity will be released by 2024. According to statistics, between 2020 and 2024, a total of 25 8-inch and 60 12-inch wafer factories have been built and put into wafer manufacturing. at that time, the global 8-inch wafer production capacity will increase by nearly 20% and nearly 50%. [20]

▲ 17 companies around the world 33 new or expansion projects summary, figure source core three boards [21]

Corresponding to production capacity is the continuous growth of inventory levels. According to the Nikkei News, the global semiconductor manufacturing inventory has skyrocketed. Taking 2349 listed manufacturing companies around the world as the target, we learned that the inventory amount reached US $1 trillion at the end of March 2022, an increase of about US $97 billion compared with the end of December 2021. Inventory surplus and increase are the highest in the past 10 years. Electronics surged the most, with an increase of $26.7 billion. [22]

Now, the problem for the industry is that high inventory levels but slow consumption could put manufacturers on the brakes and slow the economy further.

From a rational point of view, according to the current rate of production expansion, orders and inventory, overcapacity may not be the future tense, but the progressive tense. What inspiration can we get from it? The fruit shell hard technology team believes that:

In recent years, major events occur frequently, which aggravate the fluctuation of semiconductor cycle. One is the rise of domestic substitution before 2018, the second is the online public tide caused by the epidemic in 2020, and the third is the popularity of self-driving.

The global economy is slipping into a "super recession cycle" [23]. The semiconductor industry is a part of the global economy and inevitably follows the changes in the global economy.

The cycle variation of semiconductors may be related to excess performance. Now the performance of the whole machine is enough to support lower-level applications, and the demand for users to buy the whole machine is low, which will also affect other components, such as panels, panel management IC, power management IC, etc., which can also explain why consumer chips ushered in the single-cutting trend first. Although the chips in industrial and automotive scenarios have more and more functions to deal with, there are signs of excess chip performance.

The semiconductor supply chain is very fragile, and any change will affect the semiconductor cycle. Whenever semiconductors usher in a downward price decline cycle, there will always be earthquakes, fires, power outages, lightning strikes, material pollution and so on to help supply hit the brakes and stabilize prices [24]. There has also been a lot of news recently.

Can the chip investment on this node bet on the rising cycle of semiconductors? Usually, the front-end and back-end design of a high-end chip takes 1-3 years, and it takes 3-6 months after the design is completed, during which there is a risk of failure and starting all over again. Even if the film is successful, it will take 3 to 12 months of product testing and tuning before mass production can be started. At that time, it will be a new cycle.

Entering a recession cycle is not a bad thing. Looking back over the past few months, semiconductor investment has seen rising valuations in the primary market on the one hand and frequent breakdowns in the secondary market on the other, and some companies may be overvalued. The declining demand for semiconductors, the market returning to rationality and the more reasonable valuation have promoted the healthy development of the industry.

The downward cycle is an opportunity for semiconductor investment. In the semiconductor industry, there is a reverse investment strategy. For example, Samsung Semiconductor has made reverse investment three times in the face of the weakening global semiconductor market, expanded its production capacity, beat players in the United States, Japan and Europe, and won more than 40% of the DRAM chip market.

The cooling of semiconductor capital may trigger a wave of mergers and acquisitions of semiconductor companies two years later, and companies with operational difficulties can achieve greater development after mergers and acquisitions. Throughout the history of semiconductors, big fish eat small fish and achieve each other. Giants such as Intel, Nvidia, Qualcomm, MediaTek and other giants have all acquired and grown in decades. The domestic semiconductor industry will also follow this model of development. [25]

Referenc

[1] hit the net: VC difficult to cast chip: enterprises valued at more than 4 billion will not do it again. 2022.6.9. Https://mp.weixin.qq.com/ s / OfJxeh_rAyrNHjwMO1JQFg

[2] Electronic Engineering World: will chips still be out of stock in 2022? Lack and not lack. 2022.5.17. Https://mp.weixin.qq.com/ s / x3bcN39Kd_tB8hhdDv3GIA

[3] TrendForce countries: research reported that the single-cut trend hit, and the capacity utilization of eight-inch wafer factories declined significantly in the second half of the year. 2022.7.7. Https://mp.weixin.qq.com/ s/0bYrJW6IH4BD6cyaSCiU8w

[4] Digitimes: wafer foundry expansion begins to slow down, chain effect impacts semiconductor equipment. 2022.7.4. Https://www.digitimes.com.tw/ tech / dt / n / shwnws.asp?cnlid=1&id=0000638972_TSK840ZU8XSC4H1HJVHZU

[5] Science and Technology Innovation Board Daily: semiconductor local single-cut tide or it is difficult to avoid the consumer electronics industry chain becoming a storm eye. 2022.5.23. Https://mp.weixin.qq.com/ s/6ZuH3_stW4HgJ6Owy7gJNA

[6] Automotive News Europe:Stellantis to halt Melfi plant again due to chip shortage.2022.6.24. https://europe.autonews.com/automakers/stellantis-halt-melfi-plant-again-due-chip-shortage

[7] Kyodo News Agency: Toyota's domestic production fell 28% in May. 2022.6.29 https://china.kyodonews.net/ news / 2022/06/05f2cfeef601-528.html

[8] see wisdom research Pro: Samsung suspends new purchases, indicating that the storage surplus crisis is approaching .2022.6.16. Https://mp.weixin.qq.com/ s / d6LSSP0qlQWmPaanyxNydw

[9] Mo Dakang. Semiconductor cycle and Moore's Law [J]. World of Electronic products, 2004 (17): 26-29032.

[10] with the non-net: the consumer IC has been leveled, can the car regulation semiconductor go up against the cycle? .2022.7.5. Https://mp.weixin.qq.com/ s / Ka5Hpundlw0DdEAk7Mnf_A

[11] Anue: understanding the semiconductor inventory cycle, 2020.12.15. Https://news.cnyes.com/ news / id / 4442865

[12] Guohai Securities: semiconductor 2022 Strategy-Intelligent applications are in the same wind, autonomous and controllable sometimes. 2021.12.18. Https://pdf.dfcfw.com/ pdf / H3_AP202112211535820346_1.pdf?1640079694000.pdf

[13] Bloomberg:Chip Shortage Fears Are Reaching New Heights, But Some Foresee a Glut.2021.3.3. https://www.bloomberg.com/news/newsletters/2021-03-03/chip-shortage-2021-it-s-time-to-start-worrying-about-a-glut

[14] IDC:Semiconductor Market to Grow By 17.3% in 2021 and Reach Potential Overcapacity by 2023, IDC Reports.2021.9.19. https://www.idc.com/getdoc.jsp?containerId=prAP48247621

[15] The Register:'Sharp' chip inventory correction looms on horizon, warns investment banker.2022.5.26. https://www.theregister.com/2022/05/26/sharp_chip_inventory_correction_looms/

[16] Gartner:What's Ahead for Semiconductor Shortages.2022.3.11. https://www.gartner.com/en/articles/what-s-ahead-for-semiconductor-shortages

[17] SemiWiki:Semiconductor CapEx Warning.2022.4.27. Https://semiwiki.com/semiconductor-services/312167-semiconductor-capex-warning/

[18] Digitimes: wafer foundry and IC design are clearly strong and weak, and who is the first to take the lead in the fading of order spillover effect? .2022.6.27. Https://www.digitimes.com.tw/ tech / dt / n / shwnws.asp?cnlid=1&id=0000638426_FIU31XAU39XEAP5GND7YF

[19] "first Finance": the truth behind the frequent occurrence of "wolf" in the chip industry "analog chip price"blood collapse". 2022.6.10. Https://www.yicai.com/ news / 101440261.html

[20] Digital era: after 85 new fabs, the real "chip shortage" .2021.12.29. Https://www.bnext.com.tw/ article / 66904 / chip-shortages

[21] Core third board: 17 companies 33 expansion projects, wafer foundry new capacity inventory. 2022.1.30. Https://mp.weixin.qq.com/ s / XC8GmW2CWqIrhXThCvxG0w

[22] NikkeiAsia:Manufacturing inventory hits record $1.8tn worldwide.2022.6.28. https://asia.nikkei.com/Spotlight/Supply-Chain/Manufacturing-inventory-hits-record-1.8tn-worldwide

[23] Economic Observer: raising interest rates, superimposed contraction Table Volcker 2.0 moment? "Super Recession cycle" shakes the world. 2022.6.18. Https://mp.weixin.qq.com/ s / UCeW1YLsrSf1Fi_Ep7sU-A

[24] Xin Zhixun: is the price going up again? Two flash memory factories shut down due to contaminated materials. 2022.2.10. Https://mp.weixin.qq.com/ s / s0jusgxsAebU3TtCDnF3pw

[25] Core Infrastructure: guard against the cold winter of domestic semiconductor capital. 2022.6.28. Https://mp.weixin.qq.com/ s / Oc801lXvFFdZDP0nprphlw

This article comes from the official account of Wechat: fruit Shell hard Technology (ID:guokr233), author: Fu Bin, Editor: Li Tuo

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