- Chinese mainland is expected to add 25 new 12-inch fabs to production in the next five years, covering logic wafer foundry lines, DRAM lines, MEMS lines, etc
- The emergence of more and more large-scale fabs is causing anxiety in the industry and regulatory units, and new wafer production lines and expansion of old factories will face stricter supervision
- In the next five years Chinese mainland fabs will not have significant overcapacity, and in order to cope with the needs of various emerging applications and the opportunities brought by domestic substitution, Chinese mainland need to firmly implement the expansion plan
In the past 5 years, China's semiconductor industry has ushered in an unprecedented period of rapid development, with domestic chips gradually on the main stage, thousands of chip companies bloom everywhere, domestic chip production capacity demand expanded rapidly, even if the local fab capacity is fully loaded all year round, continue to expand production, there is also a huge capacity gap.
The capacity gap is not only in the Chinese mainland, the sudden outbreak of the new crown epidemic not only has an impact on the global semiconductor industry chain, but also stimulated the development of the "home economy", bringing huge emerging demand, making "lack of core" a global problem.
As we all know, asset-heavy fabs, its investment and production there is a "lag", if it is in the semiconductor industry's original cyclicality to find the law, forward-looking chip manufacturers may be able to use the "advance amount" to capture the opportunities of the boom period, such as South Korea's Samsung Electronics, which has long insisted on counter-cyclical investment.
However, the sudden outbreak of the new crown epidemic and the domestic replacement boom brought by the geopolitical factors of China and the United States to the Chinese mainland are uncertain factors outside the cyclicality of the semiconductor industry, and the gap between supply and demand caused by the Chinese mainland cannot be predicted in advance. In other words, there is inevitable lag in the expansion of China's chipmakers, so in the next few years, Chinese mainland will enter a faster capacity expansion phase.
The factory was built in 10 years
According to JW Insights, a total of 23 12-inch fabs in Chinese mainland are in production, with a total monthly production capacity of about 1.042 million pieces, compared with the total planned monthly production capacity of 1.565 million pieces, the capacity loading rate of these fabs has reached only 66.58%, and there is still a large room for expansion.
Of the 23 fabs, 15 have been operational in the last five years (2017-2021), including four foreign fabs. Obviously, Chinese mainland has actively promoted fab construction in the past 5 years, trying to cover the future incremental market, but it is far from enough.
JW Insights expects to add 25 new 12-inch fabs Chinese mainland the next five years (2022-2026), with a total planned monthly capacity of more than 1.6 million fabs. By the end of 2026, the total monthly production capacity of Chinese mainland 12-inch fabs will exceed 2.763 million units, an increase of 165.1% compared with today.
In the next five years, the largest number of 12-inch fabs will be put into operation in 2022, and six will be successfully put into production by the end of the year. However, two of the six fabs are in Shanghai, and one of them will be delayed until the following year due to the COVID-19 epidemic in Shanghai.
Chinese mainland need to firmly expand production
Starting in the fourth quarter of 2021, some 12-inch factories around the world began to loosen capacity, and the industry began to worry that the expansion of global fabs in the next few years would lead to overcapacity. With the sharp decline in shipments of major mobile phone manufacturers in the first quarter of this year, this concern began to appear on a larger scale.
JW Insights believes that the expansion of fabs Chinese mainland in the next five years will not cause overcapacity. On the contrary, if production cannot be firmly expanded, capacity problems will continue to delay the iteration of chip products and limit the development of the entire continental industrial chain.
In the short term, the decline in mobile phone sales in the first quarter of this year is obviously not a reversal of the cold prospects of the upstream fab business. First of all, although mobile phones are the main driving force for the development of the semiconductor industry in the past decade or so, they are not the only driving force, and the demand for chips brought about by the stimulation of the home economy and the electronics and intelligence of automobiles is showing a rapid upward trend. As far as the mobile phone itself is concerned, new features such as 5G, folding screen, and multi-camera make the number of chips used on a single mobile phone much larger than in the past, so the decline in mobile phone sales does not directly reflect the change in chip market demand.
Second, the outbreak of the epidemic in Shanghai and surrounding areas in April led to the suspension of some fabs and packaging and testing plants, which may make the original loose production capacity tighten again in the second half of this year.
In the long run, JW Insights believes that more and more chip design companies will form capacity binding with fabs. At the same time, in the next five years, there will be a wave of mergers and acquisitions in the field of IC design, and the strong Hengqiang will further promote the formation of a long contract between large-scale chip design companies and fabs. Under the guarantee of the long contract, it is easier for the fab to allocate capacity and avoid the occurrence of low crop rate.
In addition, in order to avoid duplicate construction and waste of resources, the relevant regulatory units in the mainland have implemented stricter regulatory policies and required chip manufacturers to fully prove that the future production capacity is paid for by the market before building the factory.
With the blessing of a variety of factors, if Chinese mainland follow the existing 12-inch factory construction plan, it is difficult to lead to overcapacity in the future.
(Proofreading/Nagging)