Chip foundry hits a ten-year high, and downstream customers are still waiting for rice

The fourth and first quarters are traditionally off-seasons for the semiconductor industry, but in the past 2020 and the just-opened 2021, there were exceptions. In TSMC’s fourth-quarter financial report released last week, operating income increased by 14% year-on-year, net profit increased by 23% year-on-year, and made an optimistic forecast for revenue in the first quarter of 2021.

Interestingly, the year-on-year increase in TSMC’s net profit in this fiscal quarter is similar to the annual growth rate of the global foundry output value in 2020. The Semiconductor Research Division of TrendForce estimates that the global foundry output value in 2020 will reach US$84.6 billion, an annual increase of 23.7%, breaking a new high in the past decade. In 2021, the output value of wafer foundry will reach a new high, with an annual growth rate of nearly 6%.

At the moment when there are shortages everywhere, there is still a high growth expectation for the foundry, which is not only a benefit for the foundry industry, but also a rigid demand for downstream customers who are “waiting for rice to cook”. In the booming foundry market, which processes are the most promising? Can Chinese mainland foundries find new machines?

Advanced process below 10nm: from 4.4% to 29.9%?

In the financial report released on January 14, TSMC’s single-quarter revenue reached 12.67 billion US dollars, a record high quarterly revenue. Looking forward to the first month of 2021, not only the off-season is not short, but also the new high.

The reporter compared TSMC’s annual reports for the past three years and found that (as of the deadline, the 2020 annual report has not been released on the official website, but the annual revenue data of each process node has been released in the fourth quarter quarterly report), the advanced process below 16nm, especially the process below 7nm has been Become the main engine of driving revenue. From 2018 to 2020, the revenue share of 16nm and below processes increased from 41% to 58%. Among them, 7nm revenue contribution increased from 8.9% in 2018 to 26.6% in 2019, and accounted for 35% in the fourth quarter of 2019, becoming the single-node process with the largest contribution. “Rising star” 5nm also achieved 8% of revenue in 2020, and the fourth quarter revenue accounted for as high as 20%, becoming another popular node after 7nm.

“Before, the main driving force for semiconductor development was mobile phones, but now it has become decentralized. Although mobile phone processors are still the main engine, the companies involved mainly include Apple, Qualcomm, Huawei, MediaTek, etc. But at the same time, AMD, NVIDIA’s GPU , and the large HPC orders that Broadcom has built for Tesla have also become the main driving force for the growth of advanced manufacturing processes.” Mo Dakang, an expert in the semiconductor industry, told the “China Electronics News” reporter, “These manufacturers not only have a rigid demand for advanced manufacturing processes, but also can digest them. The price growth brought about by the drop of the process node.”

As Mo Dakang said, mobile phone APs and HPC will become the propellers of advanced manufacturing processes in the next few years. According to the data of market research institutions such as Trendforce, Counterpoint, IC Insights, etc., the reporter learned that benefiting from the investment in smartphones and high-performance computing by manufacturers such as Apple, Samsung, MediaTek, AMD, and Nvidia, processes below 10nm will be used in 2021-2024. Year-on-year growth has been high.

In the short term, the near-full capacity of the 7nm and 5nm processes will continue until the second quarter of 2021. 5nm shipments will increase significantly and are expected to account for 5% of total global 12-inch chip shipments in 2021. It is expected that by 2024, the monthly installed capacity of products with processes below 10nm will reach 29.9%, compared with only 4.4% in 2019.

The entry of advanced manufacturing into the fast lane is inseparable from the maturity of demand, technology and model. Mo Dakang told reporters that although Moore’s Law is approaching its limit, thanks to the continuous improvement of EUV equipment and supporting technologies, more advanced manufacturing processes will be gradually realized.

“The progress of the process is not only the reduction of the size, but also the improvement of the required design, equipment, materials, etc., such as the improvement of the flatness of the silicon wafer, the reduction of the defect density and the improvement of the inspection tool technology. It can be seen that this is a system. The result is a unique result.” Mo Dakang said, “The foundry model is also an important factor in the development of advanced manufacturing processes. If we only rely on IDM, there may not be such a variety of foundry solutions.”

For the next node of 5nm, 3nm, both TSMC and Samsung have encountered bottlenecks in the development process. TSMC said in its earnings report that capital expenditures in 2021 will increase to $25 billion to $28 billion, far exceeding the $17.2 billion in 2020. 80% of the capital will be used for research and development of advanced processes, including 3nm, 5nm and 7nm.

Mature processes above 40nm are still in short supply

In this “rising tide” of wafer foundry, in addition to the strong growth of advanced processes, mature processes are also in short supply.

The reporter checked the financial reports of UMC and SMIC and found that UMC’s capacity utilization rate in the second and third quarters of 2020 has increased to more than 97%, which is almost fully loaded. SMIC also pointed out in the 2020 mid-year report that the demand for mature process platforms is strong, and the capacity utilization rate is close to full capacity.

From the point of view of process nodes, processes above 40nm are still just needed. In the financial report from the first quarter to the third quarter of 2020, 28nm to 40nm is the single node that contributes the most to UMC’s revenue, followed by 40nm to 65nm. In SMIC, the revenue contribution of 150nm-180nm exceeds 30%, followed by 55nm-65nm.

Although the market share of advanced processes is steadily increasing, mature processes, especially those above 40nm, will still account for one-third of the market share in the next five years. IC Insights “2020-2024 Global Wafer Capacity” shows that in the next few years, the proportion of mature processes above 40nm will be the most stable, especially the change range of 40nm ~ 180nm in the forecast period is only 0.2%. 180nm and above) accounted for 37.1%.

“The driving force for the development of mature processes lies in market demand. From the perspective of products, products such as image sensors, Bluetooth, WiFi, etc. are not blindly pursuing advanced processes, and they still occupy a large market in terms of mature processes. From the perspective of cost, the cost of tape-out of advanced processes High, and not all products are applicable, and most mature process production lines have completed equipment depreciation, and the cost advantage is obvious.” Shi Qiang, director of the IC Manufacturing Research Office of CCID, told China Electronics News.

Specifically, in order to ensure a balance between supply and demand, manufacturing companies will dynamically allocate the production capacity of each process node according to market demand in different periods to avoid vacant production lines and ensure that mature processes above 40nm always have production capacity. At the same time, with the evolution of product technology, new demands such as Bluetooth headsets and the Internet of Things are continuously added, and the production capacity of mature processes is always filled.

As Moore’s Law approaches the physical limit, the cost-effectiveness of mature processes will be further highlighted, and there is still room for growth.

“Moore’s Law is slowing down due to factors such as cost and technology. Driven by marketization, mature processes, as well as the development of advanced packaging, third-generation semiconductors and even chiplet and other ‘post-Moore’ technologies will be promoted.” Mo Dakang told reporters pointed out.

Where is the focus of competition?

“The company’s inability to realize mass production of more advanced nodes according to market demand in the field of advanced processes, or to develop corresponding characteristic process platforms in accordance with market demand in the field of mature processes, may cause the company to miss the corresponding market space, and then to the company. In the IPO prospectus, SMIC explained the competitive focus of advanced and mature processes as above.

Although the advanced process is the darling of the market and mobile phone, PC and other manufacturers close to the consumer market, it has always attracted much attention. However, the occupation and competition of mature processes cannot be ignored. On the one hand, manufacturers such as TSMC and Samsung that master the most advanced processes also have layouts in mature process platforms. 10% of TSMC’s R&D investment in 2021 will fall on characteristic processes. On the other hand, with the exponential increase in the R&D cost of advanced processes, large foundries such as GlobalFoundries have chosen not to follow up, but instead invested in mature processes. The competition for mature processes has become increasingly fierce.

“The competitive focus of mature processes is to have richer process platforms such as high voltage, low power consumption, and radio frequency, so as to support the development of more products, as well as better production management and technical support.” Shi Qiang said, “First, China Mainland manufacturers need to strengthen their own strength and deepen their technological platform and technical level. Second, they should seize market opportunities to bind customers to form long-term cooperative relationships. In addition, they must strengthen their own management level and ensure the stability of supply chain and inventory in order to seize the maturity of the market. Process market opportunities.”

Mo Dakang pointed out that if mainland Chinese manufacturers want to seize the opportunity of the growth of the foundry market, they need to improve their profitability and market competitiveness. He said that the foundry industry in mainland China still has gaps in technology, patents and talents. In addition, foundries such as TSMC have “pre-conceived” to take the lead in the market, and they are still increasing investment in research and development, so they have stably occupied the high-end market. It has a certain advantage in profit acquisition.

“Before this, the global foundry industry was busy conquering advanced manufacturing processes, but now the pattern has been set, and only 2 to 3 companies are still in progress. At present, there are more and more manufacturers competing in mature manufacturing processes and characteristic processes, and competition is also increasing. It will become more and more ‘ruthless’.” Mo Dakang pointed out.

At present, the semiconductor sector is active in the capital market. Mo Dakang pointed out that funds are necessary for industrial development, but it is necessary to avoid too much “hot money”, which leads to insufficient concentration of enterprises in research and development and process failure.

“The foundation of the industry lies in the enterprise, and the progress of the enterprise depends on strengthening R&D investment, attracting outstanding talents and a good market-oriented industrial environment. Only when the enterprise becomes stronger and bigger, the profitability is improved and the market share is increased, is the real hope of industrial development. Mo Dakang said, “Opportunities and challenges are always presented in pairs. We cannot lose confidence or sit back and relax. The key is that enterprises can turn all unfavorable factors into motivation to move forward, so as to be fully prepared.” Mo Dakang said.

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