Constant "Iron clad" semiconductor cycle , changing "Flowing Water" chip companies
In 2019, the global semiconductor industry experienced the worst year in nearly two decades, with semiconductor revenue declining by 12% to 412 billion US dollars. In 2021, the sales of the global semiconductor industry will reach a record $555.9 billion, with a year-on-year growth of 26.2% and a record high. As we all know, the semiconductor industry has a strong periodicity. After a huge boom, there is a serious depression. In the past 30 years, the market has experienced a downturn every 3-5 years, which lasts about 12-15 months on average. At present, we are entering a special semiconductor cycle triggered by accidental events (epidemics), periodicity and geopolitical effects. When will the current global chip sales cycle end? What changes will the industry face in this half conductor cycle?
The semiconductor industry cannot escape the cycle
Since the 1960s, the semiconductor industry has become the pillar of the global economy. Over the past 40 years, the revenue of the semiconductor industry has undergone several major changes: in 1978, the implementation of the VLSI project led to the development of DRAM in Japan; In 1980, the PC era exploded; The rise of mobile Internet in 2000; Even the current geopolitical factors have led to different periodic changes in the whole semiconductor (as shown in Figure 1).
Figure 1: Cyclical changes in global semiconductor industry revenue (source: Deutsche bank research)
The supply and demand of semiconductors swing back and forth. When the sales volume of semiconductors reaches a huge boom, it ushers in a serious depression. Figure 2 shows the year-on-year changes in the sales volume of semiconductors in the past decade. However, the periodicity of semiconductor prices is unstable, and the decline in prices lags behind the decline in the number of semiconductors (as shown in Figure 3).
Figure 2: Year on year change percentage of semiconductor sales from 2012 to 2022 (source: Forbes)
However, it does not include some unexpected situations, such as the outbreak of the epidemic in 2019 and some well-known reasons. There are abnormal prices, and the sharp rise and fall of chip prices are out of control. So far, the cyclical recession of consumer goods, personal computers and smartphones has been the most obvious, with personal computers and smartphones accounting for almost half of the $600 billion worth of chips sold each year. According to data from Future Horizons, a research company, the cost of memory chips has dropped by two fifths in the past year. Compared with memory chips, the price of logic chips that process data and have a low degree of commercialization has dropped by 3%, and the news of the sharp decline of GPU chips is bubbling.
Figure 3: Percentage change of semiconductor price from 2012 to 2022 (source: Forbes)
Future Horizons predicts that the semiconductor industry is heading for the biggest recession since the Internet foam in 2000, which is also one of the biggest recessions in the history of chip manufacturing. To make matters worse, Malcolm Penn of Future Horizons said that after a 4% growth in 2022, the market will decline by nearly a quarter in 2023, returning to $450 billion.
Semiconductor companies are also subject to the ups and downs of the conventional chip cycle related to the law of supply and demand. In the cyclical process of the entire semiconductor industry, enterprises in the industrial chain will inevitably experience the jungle rule of survival of the fittest. With continuous mergers and acquisitions among enterprises, some companies have withdrawn from the historical stage (the most famous is the bankruptcy of Japanese storage supplier Elpida), and the revenue ranking of semiconductor manufacturers has fluctuated (as shown in the figure below). As the saying goes, "Iron Beating" is the semiconductor cycle, and "Water Running" is the chip company.
IC Insights' ranking of the world's top ten semiconductor suppliers (excluding pure generation factories)
Now, there are about 1000 listed companies in the entire semiconductor industry with a market value of about 500 billion dollars. According to the 30 semiconductor enterprises behind the Philadelphia Semiconductor Index, the major semiconductor manufacturers in the world mainly include Applied Materials, ASML, Brooks Automation, KLA, Lam Research, Tharida, Nvidia, Intel, AMD, Marvell, Texas Instruments, ADI, Broadcom, Skyworks, Qualcomm, Qorvo, Microchip, Micron, Micron, Anson, NXP, Lattice, Silicon Labs, MPS, Power Integration, IPG Photonics Wolfspeed, II-VI, Entergris, TSMC, Amkor. After the semiconductor index soared to a new 20 year high last year, the Philadelphia semiconductor index has fallen sharply this year.
In the current special semiconductor cycle, there are challenges and opportunities. On the one hand, the current situation may increase the speed of enterprise bankruptcy. In the past two years, we have witnessed the bankruptcy of many start-ups and even more than ten years old enterprises, the bankruptcy of Nuolin Technology, the suspension of Qilingxin, and the closure of the production of Darmei. According to the enterprise survey statistics, from January to August this year, there were as many as 3470 entities whose registered names or brands included the word "core", exceeding 3420 in 2021 and 1397 in 2020. The capital intensive semiconductor industry not only makes it difficult for some chip enterprises to survive in the market with fierce competition, lack of financing, unstable orders and difficult business environment, but also makes some newly registered chip enterprises retreat.
But on the other hand, the cyclical downturn is also the best time for enterprises to gain long-term market share growth, or a group of enterprises will take advantage of the momentum. In the new situation of the structural imbalance between supply and demand of semiconductors, it is particularly important for the old semiconductor enterprises to cross the cycle and for the emerging start-ups to find a place to make a difference. Therefore, as in the past semiconductor cycle, innovative R&D and new IC design enterprises always accelerate in the downturn.
To resist cycle, companies in the chip industry chain "survive"
After experiencing a strong growth in the first half of 2022, the global semiconductor sales slowed down in recent months, and the global chip industry experienced a downturn. In the third quarter, most of the semiconductor manufacturers' revenue performance was lower than expected, which is also making every enterprise and every terminal market face the situation of correction. At present, many semiconductor manufacturers around the world have begun to cut down their capital expenditure this year and next. At present, the revised manufacturers include TSMC, Intel, SK Hynix, Micron, Liandian, Lijiadian, World Advanced, South Asia Branch, Riyueguang, Wanghong, Licheng, etc. The semiconductor enterprise prophet with a factory in "Chunjiang Plumbing" said that cutting capital expenditure by chip enterprises is a necessary measure to restore the balance between supply and demand.
Storage manufacturers such as SK Hynix, Micron, and Armour have cut down capital expenditure or production. For example, SK Hynix announced that its capital expenditure will be cut by half in 2023; Micron said it would cut its capital expenditure by 30% next year. However, Samsung has no intention of following up. Experts speculate that Samsung may even increase its NAND Flash output and win through price war.
TSMC, a professional wafer foundry, lowered its capital expenditure to about $36 billion in 2022 twice a day, a decrease of at least $4 billion. TSMC's supply chain revealed that TSMC's orders weakened from the end of the third quarter, and continued to decline in the fourth quarter and the first quarter of next year. The world advanced wafer foundry has also recently lowered its capital expenditure to 21 billion yuan this year, about 10% lower than the originally planned 23 billion yuan. Even next year, it will slow down the capacity expansion of the fifth wafer foundry.
Although the semiconductor industry always has periodic fluctuations, generally speaking, analog chips are relatively bearable. Texas Instruments, Anson Mae, etc. are still the most resistant stocks in the semi index. Unlike its peers, TI has no plans to reduce capital expenditure or slow down the construction of new factories. When the industry goes down, enterprises need to pay more attention to R&D investment in order to ensure future development. Texas Instruments' anti cycle approach will also make it more difficult for other analog chip manufacturers to catch up with its development pace.
The revision of wafer foundries and IDM manufacturers' expansion is a heavy blow to semiconductor equipment suppliers and material manufacturers. Therefore, all types of enterprises in the semiconductor industry chain cannot be isolated in the semiconductor cycle.
Chip design enterprises are also facing the huge impact brought by the cycle. The weakness of the consumer market has also brought challenges to a large number of chip suppliers that rely on consumer electronic chips. Chip manufacturers' response is to bet on new markets. For example, Qualcomm, which is killing the world with its mobile phone processors, is moving into the automotive industry. AMD, Intel and Invista are competing for cloud computing data centers with strong demand. Intel is also dabbling in the OEM business, hoping to get a piece of the OEM market. Most domestic analog chip enterprises are also striving to apply to high-end markets such as industry and automobile. The author mentioned this in the article "Domestic analog chips, heading for deep-water areas".
As mentioned above, the semiconductor cycle will be conducive to the development of new technologies. The decline in capacity utilization of the wafer factory has also given some new chip manufacturers the opportunity to develop, such as some optical chips, third-generation semiconductors, and so on. According to Chen Shunping, the general manager of Wenmao's general management service office, the decline in the utilization rate of the wafer factory has given many microwave communication or optical communication chip customers excellent opportunities for development. They all have more active R&D activities, and new customers have opened new cooperation with the wafer factory in order to enter new markets or new applications in the coming years.
Write at the end
The classic cycle in any cyclical industry is basically driven by changes in end-user demand. The industry speculates that the current cycle may be very long. However, every major downturn in the semiconductor industry ends with the arrival of new technologies. With the emergence of more and more new terminal markets, such as automobiles, industrial automation, 5G infrastructure, artificial intelligence and cloud computing, they need more chips than consumer electronic products, and their demand and supply are more diversified. IC insights data shows that the semiconductor content in electronic systems will reach 33.2% in 2021, a record high. In the future, semiconductor will be a more stable business as well as a stable growth business. It will be a bright future if it goes through the cycle.