Semiconductor localization is advancing towards 5.0

Recently, in predicting the top ten trends in 2023, Chen Hang, an analyst at Zhejiang Science and Technology, said that domestic semiconductors are about to advance 5.0 and establish a Chinese semiconductor ecosystem. By sorting out the development context of domestic substitution in the domestic semiconductor industry, it can be divided into five stages, and localization will be promoted from 4.0 to 5.0 in 2023.

Localization 1.0 (chip design)

In 2019, it will mainly focus on information and innovation software (operating system) and chip design (digital chips, analog chips). In May 2019, the supply of upstream chips for Huawei terminals was restricted in order to jam the downstream finished products of chips, directly stimulating the inclined procurement of domestic analog chips, domestic RF chips, domestic memory chips, and domestic CMOS chips, which is the first step.

The Huawei incident has accelerated the reshaping of the domestic chain, and almost all technology leaders, and even some overseas leaders, are also accelerating the introduction of domestic chain companies. Shengbang Co., Ltd., Zhuosheng Micro, Unigroup Guowei (Unigroup Tongchuang), Huiding Technology and other companies have grown rapidly.

According to Wind data, in 2019, China's semiconductor imports accounted for 65% of global semiconductor sales, huge domestic market domestic demand, terminal manufacturer capabilities, Moore's Law slowdown to promote domestic companies into benign and rapid development, with the superposition of science and technology dividends, market share entry, compared with overseas giants $50 billion, hundreds of billions of dollars market value, Chinese companies in the market depth of a number of hundreds of billions of companies is a high probability event.

Localization 2.0 (wafer manufacturing)

In 2020, the wafer foundry and surrounding industry chains will be mainly SMIC, packaging and testing chains, and equipment chains.

In September 2020, the upstream foundry chain designed by HiSilicon was restricted in order to jam the chip midstream foundry. Since global fabs rely heavily on U.S. semiconductor equipment (PVD, etch, etc.), HiSilicon can only move to the spare tire foundry chain, which directly drives the accelerated development of domestic fabs and packaging and testing plants such as SMIC.

In 2020, SMIC's sales grew by 25%, and Chinese mainland foundries accounted for 7.6% of the global pure-play foundry market share. In 2021, SMIC's sales grew by 39%, while the overall foundry market grew by 26%.

The packaging and testing performance is good, and the packaging and testing capacity is in short supply. Tongfu Microelectric's refinancing plan was implemented in November 2020. The company actually raised 3.272 billion yuan for integrated circuit packaging and testing projects such as the second phase of integrated circuit packaging and testing, the construction of intelligent packaging and testing centers for automotive products, and high-performance central processing units.

Several major packaging and testing factories also said that due to the continuous growth of market demand, the company's orders are full and production capacity is in short supply. In response to investors' questions on the interactive platform, Changjian Technology said that the company has sufficient orders, full capacity utilization, and production and operation remain normal. According to the data of the "China Semiconductor Packaging and Testing Industry Survey Report (2020 Edition)" released by the Packaging Branch of the China Semiconductor Industry Association, the proportion of domestic packaging and testing enterprises in the advanced packaging product market such as BGA, CSP, WLP/WLCSP, FCBGA/FCCSP, BUMP, MCM, FO, SiP and 2.5D/3D accounts for about 35% of total sales in 2020.

Localization 3.0 (Equipment and Materials)

In 2021, the semiconductor equipment and material chain upstream of the fab will be the mainstay, such as the front-end core equipment and the yellow light area chip material.

In December 2020, SMIC entered the entity list, which restricted the upstream semiconductor supply chain of chips, which essentially stuck chip upstream equipment. To achieve supply chain security, it is necessary to achieve a gradual breakthrough in semiconductor equipment and semiconductor materials, and since DUVs are not subject to the jurisdiction of the United States, the key at this stage is to replace American technologies such as etching.

In 2021, the total sales of major domestic semiconductor equipment manufacturers will be about 24 billion yuan, a year-on-year increase of 56%, and the net profit growth rate of North Huachuang, AMEC, Shengmei Shanghai, Huafon Measurement and Control, Changchuan Technology, and Xinyuan Micro is significantly higher than the revenue growth rate. NAURA, AMEC, Shengmei Shanghai, etc. have further increased their volume on the basis of the original mature equipment, Kasteon, a subsidiary of Wanye Enterprise, achieved a breakthrough in ion implanter 0-1, and a variety of gluing and developing equipment of Xinyuan Micro are progressing smoothly on the client.

Domestic semiconductor equipment manufacturers are in a period of rapid development, and the high technical barriers of semiconductor equipment require manufacturers to continue to invest a lot of money in research and development. For example, NAURA invested 2.89 billion yuan in R&D in 2021, far ahead in China. The R&D investment of Tuojing Technology accounts for 38%, the R&D investment of NAURA accounts for 30%, and the R&D investment of AMEC and Changchuan Technology accounts for 23%, all of which are in the stage of high-intensity R&D investment.

Localization 4.0 (equipment parts, EDA/IP, material upstream)

In 2022, it will focus on components and EDA, and enter the deep water area of the domestic chain, the lowest substitution.

In August 2022, the United States issued the Chip Act, blocking the development of domestic advanced processes. If you want to achieve industrial autonomy and control, you must enter the deep water area of the domestic chain and achieve all-round coverage from root technology to leaf technology. Therefore, the underlying semiconductor equipment gradually achieves a 1-10 increase, chip materials gradually achieve a breakthrough of 0-1, EDA/IP lands in the capital market, becoming a new category, and the bottom equipment components will also usher in historic development.

In 2022 Chinese mainland EDA track continued to break out, and BGI Jiutian and Guangliwei were listed on the Shenzhen Growth Enterprise Market within a week; At the same time, 24 companies completed 28 financings in 2022, with a financing amount of more than 2 billion yuan.

Localization 5.0 (China Semiconductor Ecosystem)

After 2023, the main replacement goals will be to establish strong supply and demand links in all links of the industrial chain and open up the internal cycle.

The mainland semiconductor industry is complete but not strong, and there are Chinese enterprises in almost every link of the semiconductor industry chain, but the overall position is backward. Due to the lack of in-depth connections between Chinese enterprises upstream and downstream of the industrial chain, the progress of individual enterprises is easily affected by US sanctions. Therefore, cultivating a good industrial ecology, realizing fully independent manufacturing, opening up the internal cycle, relying on domestic market advantages, and realizing the continuous upgrading of the semiconductor industry chain will become an important goal of localization 5.0 in the domestic semiconductor industry.