The long delivery time of the equipment has led to the slow expansion of 28nm production, and UMC is optimistic about the shortage for another two years

Global semiconductor factories seem to be crazy to hunt around to expand factories, mastering this wave of 5G, high-performance computing HPC, automotive electronics, and the rise of the Internet of Things, but the ideal is very full, the reality is very bone. The common "ideal" of semiconductor factories is to hope that if the factory is built today, energy production will be produced tomorrow; But the "reality" is that the finished factory is only a shell, because there is no way to buy equipment. Therefore, the serious overcapacity brought about by the expansion is only an "illusion" for the time being.

This wave of semiconductor super cycles not only led to a serious chip shortage in the world, but also caused production bottlenecks in the production of chips and equipment due to lack of cores and components, which is a very rare situation. The average delivery time of semiconductor equipment in 2020 is about 6 months, and in 2021 it has been extended to 12 months, and even the delivery time of some devices takes 18 to 24 months, setting a record for the longest delivery time in the history of semiconductor equipment.

In 2021, wafer foundries collectively announced the expansion of 28nm, and all walks of life are worried about whether 28nm production capacity will quickly shift from short supply to oversupply? Don't be afraid, because the equipment is not so easy to buy, not if you want to buy it.

UMC said at a recent investor meeting that even if there is an oversupply in the 28nm market, it will be after 2023.

UMC and TSMC agree that the 28nm process is the sweet spot for many terminal application chips, and the demand will be very smooth in recent years.

Another observation trend is that although wafer foundries have been expanding in recent years, they will sign long-term supply contracts (LTA) as an umbrella for new production capacity, or large customers such as TSMC's 28nm 12-inch factory in Japan has SONY to expand production together.

UMC pointed out that the long-term contract binding rate of 28nm process capacity is as high as 80%, and even if the 28nm market turns into oversupply, the company will be limited.

Another wafer foundry, Lijidian, also pointed out that about 70 to 80% of the foundry capacity is also tied up by long-term customers, of which logic chip customers sign a 3-year long contract, while memory chip customers sign a two-year long contract.

While the wafer foundry signs a long-term contract with downstream IC design customers to "bind orders", in order to avoid the shortage of upstream materials, the foundry also signs a long contract with silicon wafer and other material suppliers. If the equipment factory does not sign a long contract, otherwise the foundry also wants to sign a long contract with the equipment factory.

UMC's original capital expenditure for 2021 was $2.3 billion, of which $500 million was deferred to 2022 and $3 billion in 2022.

UMC expects a 6% increase in capacity in 2022 and continues to pursue multi-party expansion plans, with 90% of the US$3 billion capital expenditure expected to go to 12-inch capacity and 10% to 8-inch capacity.

UCI's multi-party expansion includes the following points:

Fab 12A P5 plant: 10,000 units expected to expand production, mass production will begin in the second quarter of 2022;

Fab 12A P6 Plant: Signed a long-term reciprocal agreement with a number of IC design customers to expand production capacity of 28nm, including MediaTek, Samsung, Lianyong, Realtek, Qunlian and so on. However, due to the delay in the arrival of machine equipment, the expansion progress of P6 has also been delayed, and it is currently expected to be put into production in the second quarter of 2023, and the company said that it will shorten the installation time as much as possible to avoid delaying the expansion process;

Xiamen Lianxin 12-inch factory: will increase the production capacity of 10,000 pieces.

In terms of terminal demand, there is currently a lot of noise from all parties. Even if the leading manufacturer TSMC proposes strong demand for HPC, automotive and other markets in the future, the market still has many doubts, especially the weakness of mobile phones, consumer electronics, PCs and other applications.

U-Power pointed out that under the epidemic for two years, the demand for long-distance work WFH has gradually decreased, and the demand for mobile phones is also at the bottom, but the penetration rate of 5G mobile phones is still growing, coupled with the rise of automotive electronics applications, coupled with the Internet of Things, etc., the overall demand is still very strong, if there is any risk in the semiconductor market in 2022, it will not be on the demand side.

Lijidian believes that TSMC dares to expand the production capacity of high-end processes so actively, and the number of mature process chips that need to be matched around the CPU/GPU/AP main chip is 10 times, and there is really no need to worry about oversupply this year.

Lijidian stressed that the demand for power management chips is still the strongest, and the demand for other niche memory chips such as consumer electronics is also good.

UMC's 28nm revenue in 2021 grew by 75% compared to 2020. Wafer shipments in the fourth quarter of 2021 were 2.55 million units (approximately 8 inches).

UCI currently has a capacity utilization rate of 100%, and looking ahead to the first quarter of 2022, UMC believes that wafer shipments are flat and ASP can continue to increase by 5%.

The capacity utilization rate of Force Accumulator in logic and memory chip foundry is also maintained at 100% full load. The company expects price increases in the first quarter of 2022, with logic processes rising by 5 to 10 percent.

Lijidian's new Tongluo plant will begin to move into the machine equipment this year, and the production capacity will be opened in the third quarter of 2023, and it is estimated that about 10,000 to 20,000 pieces will be installed in the early stage, and the target will reach 30,000 to 35,000 pieces by the end of the year.