Weekly News | Supply chain trends in Semiconductor industry #134

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Weekly News | Supply chain trends in Semiconductor industry #134

泓明链动产业

2024-09-02

134th of weekly news

Supply chain trends in large Semiconductor industry

Market Trend（August 27）

SK hynix and Samsung: sales in China surged sharply

In H1 this year, Samsung Electronics and SK hynix saw a doubled sales increase this year compared to the same period last year, which reversed the three-year decline of their sales caused by the tension between China and the USA and the downturn in the semiconductor industry. This increase was mainly attributed to China's stocked memory semiconductors for developing AI before the sanctions possibly imposed by the USA and the recovery of domestic demand for smart phones. According to TrendForce, concerns about further export restrictions are driving the purchase of overseas chips, especially those used for AI. TrendForce analyst Tom Hsu pointed out that the event in Q2 played a "very important role in promoting DRAM sales of South Korean suppliers".

Samsung's revenue in China in H1 year reached 32.3tn won, nearly doubled its revenue of 17.8tn won in the same period last year. Although this figure includes the sales amount of smart phones and home appliances, more than 90% of Samsung's revenue in China came from semiconductors. The share of Chinese market in Samsung's total sales surged from 21.7% to 30.8%.

According to the report of SK hynix, its sales in China grew sharply, up to 8.6tn won, nearly doubled its revenue of 3.8tn won in the same period last year. The driving force for the sales increase came from the strong demand of China’s smartphone manufacturers for low-power memory semiconductors and the rising prices of DRAM and NAND memory.

Comments:

China is stocking up key AI memory chips of Samsung and SK Hynix, including HBM for fear that the USA will impose more sanctions on the export of advanced semiconductors. As for the surge in sales, people guess that Washington may further restrict China from acquiring advanced chips and technologies from the USA and its allies. However, industry insiders said that the HBMs currently shipped to China are the older generation products such as HBM2E, and their quantity is limited.

Looking ahead, it is expected that the sales of Samsung and SK hynix in China will continue to grow in H2 this year. The USA has not imposed significant restrictions on the export of memory semiconductors to China, so the two companies can operate their production facilities in China without interference. However, report shows that these companies store outdated semiconductor devices in their warehouses instead of selling them to Chinese companies, possibly to avoid potential restrictions of the USA.

Market Trend（August 27）

Japan's chip equipment sales record a new high

According to the data released by SEAJ on August 27th, the sales of semiconductor manufacturing equipment in Japan continued to soar, up about 20% YoY in July, achieving double-digit growth for four consecutive months, and the sales from January to July record a new high.

Such rising trend is in line with the observations of Japanese chip equipment giants Tokyo Electron Limited (TEL) and Semiconductor Equipment and Materials International (SEMI). TEL announced in its financial report on August 8th that due to its high investment in AI servers, the global market size of Wafer Factory Equipment (WFE) will increase from the previous estimate of about US$100bn (up 5% YoY) to more than US$100bn in 2024. According to the forecast report released by SEMI on July 10th, the global sales of chip equipment are expected to increase by 3.4% YoY to US$109bn in 2024, exceeding the record of US$107.4bn set in 2022.

Under the background that the USA imposed export sanctions on advanced semiconductor equipment and technology, China's demand for Japanese semiconductor equipment grew rapidly. Since Q3 2023, Japan’s export to China has remained above 50% of its total exports for three consecutive quarters. In Q1 2024, Japanese exports of semiconductor equipment, spare parts and flat panel display devices to China reached 521.2bn yen (about US$3.32bn), up 82% YoY, the highest level since 2007.

Comments:

Japan’s semiconductor equipment takes an important position in the world, and many well-known companies such as Tokyo Electronics, Advantest, Hitachi High-Technologies, Nikon and Disco Corporation. With the emerging of AI wave, the industry believes that the sales of Japan’s semiconductor equipment will keep rising. SEAJ predicts that the sales amount of Japan’s semiconductor equipment is expected to exceed 4tn yen for the first time in 2024, with an annual growth rate of 15%, and it is expected to exceed 5tn yen by 2026.

China fears that Japan or Europe may continue to impose more export restrictions on semiconductor equipment, so it purchases more mature process equipment available, resulting in the fact that the equipment purchased exceeded the actual demand. In addition, China is concentrating semiconductor equipment procurement resources on semiconductor equipment of mature processes that are not subject to export control, so it can invest more money in equipment out of export control. The data of ISIA also show that China has a huge demand for semiconductor equipment.

Company Trend（August 29）

Meta abandoned to develop custom chips

Meta once made an ambitious attempt to develop its own custom chips for its series of ever-expanding wearable consumer devices, but its effort was ultimately frustrated by the company's continuous cost control.

Last year, when Meta was still in the “year of efficiency” as the CEO and co-founder called, its in-house development of chips which are crucial to the wearable AR glasses production line for many years actually ended. Two people familiar with Meta and these changes told Fortune that under the background of the company's massive layoffs and cost reduction, the development of custom chips is considered to be too expensive, and the demand for chips is far from its current business focus.

An insider said that Meta did not design chips for smart glasses by itself, but changed its direction and chose to rely on third-party chipmakers such as Qualcomm to provide chips for its upcoming prototype device and potential future versions of AR glasses. Although Meta is still designing other types of chips, such as dedicated processors for operating AI workloads in its data center, the company's abandonment of custom chips for wearable devices marks the end of its ambitious project that began in 2019.

Comments:

Although Meta gave up its self-developed AR chip, it did not completely withdraw from the field of chip R&D. Meta continued to design other types of chips and launched a custom chip series MTIA designed for AI training and reasoning. In April, 2024, Meta released the latest version of MTIA, of which the performance improved significantly, aiming at reducing the dependence on chipmakers such as Nvidia.

MTIA chip is an important part of Meta's long-term plan, and Meta hopes to realize its ambition of custom chips by investing in computing chips, memory bandwidth, network and capacity and other next-generation hardware systems. The new version MTIA chip, made on TSMC's 5nm process node, features more processing cores and larger on-chip memory, and its performance is three folds that of its previous generation. Generally, although Meta suffered setbacks in its AR chip project, it made progress in the field of AI chips, and enhanced its AI infrastructure capabilities by launching new MTIA chips to reduce its dependence on external suppliers.

Policy Trend（August 30）

US pressures Netherlands to force ASML to stop servicing China-owned mask aligners!

According to report by Bloomberg, the Netherlands plans to impose a new ban on China to stop semiconductor equipment manufacturer ASML from maintaining chipmaking equipment in China and providing related spare parts. The report quoted insiders familiar with the matter and pointed out that the government led by the Netherlands Prime Minister probably won't renew ASML's licenses for some repairs and spare parts in China after their expiry at the end of 2024. These licenses of maintenance and provision of spare parts also cover DUV mask aligners sold by ASML.

At present, ASML's semiconductor mask aligner is one of the most advanced semiconductor manufacturing equipment used in the industry. The maintenance agreement attached to the equipment sold by ASML is crucial to the subsequent normal operation of such equipment. Therefore, if ASML cancels the licenses of maintenance and spare parts for the equipment in China, some equipment may not work normally in 2025. However, both ASML and the Ministry of Foreign Affairs of the Netherlands declined to comment on this news.

The report said that the government of Netherlands made this decision after receiving pressure from the USA. According to a senior official of Biden's administration, if the allies of the USA do not agree with Washington on the control of semiconductor making equipment in China, the US government will consider implementing some unilateral measures against the allies, including adopting the Foreign Direct Product Rule (FDPR). This rule allows the USA to control further trade of foreign products made with American technology.

Comments:

ASML’s American peers like Applied Materials also face similar measures to those prohibiting ASML from repairing China-owned semiconductor making equipment and stopping the supply of spare parts. Previously, ASML decided not to export the most advanced EUV mask aligner to China’s semiconductor makers, so China could only rely on ASML's DUV to promote the development of its semiconductor manufacturing technology.

To maintain equipment is indispensable in the daily operation of semiconductor equipment plant. In this case, ASML, Applied Materials and other equipment suppliers usually send their own engineers to stay in the wafer fabs run by big customers for a long time to quickly solve the problems of the production line. At present, half of ASML's sales amount comes from China. If ASML cannot provide maintaining service and spare parts, it is expected that its related revenue will be reduced and its sales performance will be further impacted.

Domestic News（August 27）

TechanaLye tore down Huawei Pura 70: Kirin's strength further improved

On August 27th, according to foreign media reports, TechanaLye, a Japanese semiconductor research company tore down Pura 70 Pro and found that the area of its Kirin processor is 118.4 sq millimeters while that of TSMC’s 5nm chip is 107.8 sq millimeters, and there is little difference between the two chips and they have basically similar processing performance. Although there is a gap in the yield of the two chips, they have similar performance. That is to say, the line width of the processor is 7nm, but it has the same performance as TSMC's 5nm chip. As a result, the design ability of Hisilicon has been further improved (of course, the foundry also has its ability improved a lot).

Previously, the disassembly of this company also showed that apart from memory chips and sensors, Pura 70 Pro was also equipped with 37 semiconductors supporting the functions of camera, power supply and display screen. Among them, Hisilicon developed 14 semiconductors, and other Chinese enterprises developed 18. Beyond chips made in China, there are only five semiconductors from foreign companies such as the DRAM of SK hynix and the motion sensors of Bosch. In fact, 86% of semiconductors are produced in China.

Domestic News（August 27）

Xiaomi to launch self-developed chip next year

Rumor says that Xiaomi, a smartphone manufacturer, will launch its self-developed chip next year and that the chip will adopt TSMC’s 2nd generation 4nm process node.

According to the reports of online media "Mydrivers.com" and "ITHome", the chip developed by Xuanjie, an IC design company under Xiaomi, is estimated to be mass-produced in H1 next year. It is expected that this chip will adopt TSMC’s N4P process node (second generation 4nm process). According to reports, the performance data of this chip are similar to those of Snapdragon 8 Gen1 of Qualcomm and it uses UNISOC’s 5G modem. According to the report of Economic Daily News of Taiwan, although Washington block Chinese mainland companies such as Huawei from entrusting TSMC to manufacture chips, Xiaomi is not on the restricted list, but it still cannot adopt TSMC's most advanced manufacturing process.

TSMC has planned to mass-produce its most advanced 2nm process in H2 next year, when N4P process node lags behind for three generations. According to the report, from perspective of market positioning, if Xiaomi's self-developed processor adopts N4P and its performance reaches the level of Qualcomm’s Snapdragon 8, this chip may be used in the mid and high-end models of Xiaomi/Redmi mobile phones.

Domestic News（August 29）

Sanan Optoelectronics and STMicroelectronics Project with total investment about RMB30bn enters final stage

According to the report of Chongqing News, the Sanan Optoelectronics and STMicroelectronics Project has entered the final stage, and the substrate fab is expected to start production this month, two months ahead of schedule.

It is reported that the project, with a total investment of about RMB30bn will include an advanced 8-inch SiC substrate and wafer fab, which integrates R&D and manufacturing of substrates, epitaxy and chips of automotive 8-inch SiC and a material supplier of SiC substrates. After being completed, the project will build domestic first 8-inch SiC substrate and wafer production lines, with an annual capacity of 480,000 units of 8-inch SiC substrates and automotive-grade MOSFET power chips, and the estimated revenue of the project will reach RMB17bn.

According to previous reports, the project includes an automotive-grade power chip manufacturing company and a material supplier to provide SiC substrate materials. The automotive-grade power chip manufacturing company was jointly established by Sanan Optoelectronics, a leading compound semiconductor company in China, and STMicroelectronics, the world's leading semiconductor company. The project, with a total investment of US$3.2bn, can produce 480,000 units of 8-inch automotive-grade SiC MOSFET power chips per year after reaching its production capacity. These chips will be mainly used for main drive inverter, charging piles and vehicle-mounted charger of new energy vehicles.

编辑 | 泓明数字营销部

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泓明链动产业泓明供应链集团于1995年创始于中国（上海）自由贸易试验区，深耕中国集成电路产业供应链20年，是中国数智化产业供应链服务引领者。集团总部位于张江科学城，在全国17个城市建立了31个产业供应链物流中心。

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