Chip prices will usher in an inflection point?

In April, the price increase letters of a number of semiconductor manufacturers, including ST, came into effect, and the market price of chips such as MCUs and PMICs was raised again. At the same time, the terminal market such as smart phones has frequently reported the news of cutting orders, and mobile phone SoC chips have also heard of price reductions.

After last year's shortage of supply and price increases, the current chip market has changed the previous "one-sided" situation, some products are still in short supply, and some products have been in high inventory. Does this mean that the inflection point of the chip market price is approaching?

The supply of MCU chips remains tight

A few days ago, ST Issued a price increase letter to distributors, announcing that in the second quarter of this year, the price of all product lines, including MCUs and power management chips, was raised again. As for the reasons for the price increase, ST said that the continued shortage of semiconductor products around the world shows no signs of improving in the short term. While the company has been investing heavily in manufacturing, raw material costs as well as energy and logistics costs have reached an indigestible level.

In fact, ST has already raised a round of chip prices in the fourth quarter of 2021. On an earnings call at the end of January, ST CEO Jean-Marc Chery said that the visibility of ST's current backlog of orders is about 18 months, much higher than the planned 2022 production capacity.

Not only is ST Facing the shortage of MCUs, but the entire MCU and power management chip markets are currently in a tight supply state. Some channel providers described the shortage of MCU chips, saying that at the beginning of this year, they were facing difficulties in purchasing goods, and many small companies could not get the goods at all. According to a report by research firm Yole Developpement, MCU prices are expected to maintain their upward trend in 2022, and product unit prices will remain high or will continue until 2026.

The reason for this situation, Teng Ran, head of the integrated circuit center of CCID Consulting, believes that it is mainly limited by new production capacity. The global MCU market size will be about 20 billion US dollars in 2021, and it is expected that the MCU market size will maintain a growth rate of 10% to 15% in 2022. In the first quarter of this year, the phenomenon of MCU shortages still exists, mainly due to the limited new capacity of overseas large factories, and it takes a long time to expand production. In addition, the supply and demand of power semiconductors, MPUs and other products are tight, and product prices may continue to rise.

Elvis Hsu, general manager of the semiconductor division of CINNO Research, also believes that the continuous shortage of wafer foundry capacity and the transformation of the automotive industry toward electrification and intelligence are the main reasons for the shortage of MCUs. Most MCUs are mass-produced using the 8-inch wafer maturity process. At present, the 8-inch wafer foundry capacity has hardly increased. Although the world's major wafer foundries continue to expand new production capacity, most of them focus on processes below 90 nanometers, and mainly target product lines such as advanced MPUs and GPUs, which limits the future capacity increase of MCUs.

Demand for mobile phone SoC chips has declined

Unlike MCUs, which are still in short supply, consumer chips such as mobile phone SoCs are beginning to face the challenge of order cuts. Previously, the industry had the news that Apple had cut orders for three major product lines such as iPhone 13, iPhone SE 3, and AirPods, of which AirPods' annual order volume would be reduced by 10 million groups. Recently, there have been reports of major domestic Android mobile phone brands cutting orders of about 170 million units. Wang Zhehong, an analyst at Market Research Institute Counterpoint, pointed out that the current inventory level of the overall smartphone market is unreasonable and will eventually be corrected. Counterpoint has cut the growth rate of the smartphone market this year to about 5%.

The cooling of the terminal market will naturally affect the upstream chip market, and recently there is news that MediaTek and Qualcomm may reduce their quotations by 5% to 10% in the second quarter. According to CINNO Research data, in February, China's smartphone SoC market sales fell after a double increase in January, month-on-month and year-on-year, and the overall market terminal sales fell by about 24% month-on-month and about 20.5% year-on-year. In this regard, Elvis Hsu said that the mobile phone market due to the lack of killer applications of 5G smart phones, can not stimulate consumers' desire to change the machine, coupled with its price has not reached the "sweet point", so that the terminal demand has weakened significantly. It is expected that in the foreseeable future, 5G SoC chips will have to compromise on price in the face of increasing inventory levels to drive market demand.

Smartphones have long been seen as a bellwether for the consumer electronics market. The cooling of mobile phone SoCs is bound to affect the market situation of other consumer chips. From the perspective of market performance, after entering 2022, the price of NVIDIA GeForce RTX 30 series and AMD Radeon RX 6000 series graphics cards has declined significantly. As the mining tide fades, the demand for GPUs is returning to normal. GPU prices are expected to fall back after a period of skyrocketing. It is reported that due to the reduction of production costs, NVIDIA's supply price will be reduced by 8% to 12%.

Memory prices have fluctuated

In the second quarter, the memory market was mixed. Jibang Consulting report shows that due to the slightly high inventory of both buyers and sellers, coupled with the demand side such as desktops, laptops, smart phones and other factors affected by global inflation, consumers weakened the purchase force, and only the server side is currently the main source of power to support memory demand, and the overall demand is sluggish. In this case, it is expected that the DRAM market will be oversupplied in the second quarter, and the average trading price of DRAM will fall, falling within 5%.

The market situation of NAND flash memory is relatively good, and it is expected that there will be a 5% to 10% rise possibility. However, the reason for the rise is not the demand of terminals. In fact, buyers' stock orders in the second quarter were relatively conservative, and the main reason for the price increase was the raw material pollution incident that broke out in February between Armor and Western Digital. The impact of this event led to a decline in the supply of NAND flash memory.

Elvis Hsu analysis believes that from the fourth quarter of last year to the first quarter of this year, some consumer terminal markets such as personal computers, smartphones, etc. have experienced an increase in inventory, which has led to divergences in the market supply and demand and price of chips for different applications. Jibang Consulting analyst Zeng Guanwei also said that the inventory of various IC design companies is currently high, although the overall chip supply and demand is still a seller's market.

From the perspective of different segments, in the server SSD market, OEMs adopt a conservative attitude towards orders in the second quarter, and the stocking strategy is conservative, and may continue to affect orders in the second half of the year, which in turn will lead to a downward adjustment of the annual shipment target. In the enterprise SSD market, the purchase of servers and data centers is still increasing. Demand for consumer products such as TVs, PCs and tablets continued to be weak. The demand for U disks, flash memory cards and other products is still sluggish.

The inflection point of chip prices is approaching?

Judging from the above different market conditions, after the shortage of supply and price increases last year, the current chip market has changed the previous "one-sided" situation, and some products are still in short supply, while other products have appeared in high inventory. Does this mean that the inflection point of the market is approaching?

Teng Ran believes that at least for now, the demand in the chip market has diverged. In 2021, the growth rate of the global chip market reached a record 26.2%, and the strong demand for chips superimposed on the rising price factors doubled the revenue and profits of major chip suppliers. In 2022, the chip market demand will diverge.

Zeng Guanwei said that overall, some materials for consumer electronics chips do have high inventory pressure, small-scale IC designers have begun to seek more sales routes, and even a small number of models with higher inventory are bargaining in a way that reduces prices or reduces additional costs. However, the demand for servers, vehicles, and industrial chips is still healthy, such as MCUs and power management ICs, and the price is still stable, and the price of out-of-stock models continues to rise.

So, how will the chip market trend develop in the future? Teng Ran believes that the structural differentiation of supply and demand in the chip market will further appear, and the change in demand growth of consumer electronic products represented by mobile phones will lead to changes in the downstream chip supply structure, and chip prices may be impacted. The supply and demand relationship in the field of automotive chips is still tight, but with the gradual recovery of the global automotive chip supply chain, it will fall back compared with last year's soaring prices.

Elvis Hsu stressed that the end consumer market has always been the main driving force of the upstream industry chain, such as the automotive market due to the terminal new energy vehicles and the global zero carbon emission trend to bring new demand for automotive chips. The growth of 5G penetration has driven the simultaneous improvement of communication chips and devices in technology and supply. In the past two years, the low inventory level of the semiconductor market and the rapid development of the home economy have created an unprecedented demand for upstream chips. Today, the market demand has parted ways, in addition to the automobile and some HPC, AIoT chips still maintain the momentum of growth, the rest of the consumer market supply and demand has undergone qualitative changes, the future is bound to bring huge pressure on the upstream supply chain price.

The structural changes in chip demand have further tested the strategic positioning of chip design, manufacturing, packaging and testing, the speed of technological innovation, the quality and integrity of product platforms, and the viscosity of customers. In the future, if small and medium-sized enterprises only do alternative products, but do not start innovative research and development, and can not pass on the cost of OEM price increases, they will face operational pressure.