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China's "chip gold rush" is now showing signs of "ebb and flow".
On February 16, exclusive data obtained by Titanium Media App from enterprise investigation showed that in 2022, 5,746 chip-related companies in China were revoked or cancelled, far more than in previous years, and an increase of 68% over 3,420 in 2021. At present, there are more than 170,000 chip-related enterprises in China (Note: only the names of enterprises, famous brand names, and related enterprises whose business scope includes chips are counted).
This statistic is surprising. According to the exclusive disclosure of Titanium Media App, in the first 8 months of last year, 3,470 chip-related companies were revoked or cancelled in China. Now, in the four months from September to December, more than 2,300 hanging/canceling chip companies have been added in China. This means that on average, more than 15 chip companies cancel business information every day. (For details, see the previous article of Titanium Media App: "Semiconductor investment slows down, more than 3,400 chip companies disappeared this year|Silicon-based world")
Collation of the number of domestic revocation and cancellation of chip-related enterprises (source: titanium media App, enterprise investigation data)
With the US dollar interest rate hike inflation, decoupling and the global semiconductor industry entering a downward cycle, under the unprecedented changes in a century, it is difficult for the domestic chip industry to "stand alone" and is at a critical moment of "internal and external troubles".
Not only China, but the global chip industry is in a recession cycle
One of the important reasons for the sharp decline in the number of domestic chip companies last year was the decline of the global chip industry and the transformation of the industrial chain.
Entering 2023, various chip semiconductor companies have announced their last year's financial reports.
In foreign countries, from the perspective of industry prosperity, the performance of the two IDM (vertically integrated manufacturing model) giants of Intel and Samsung is poor.
On January 26, Intel (Intel, NASDAQ: INTC) released its fiscal fourth quarter and 2022 full-year earnings, which can be called "disaster-level". The financial report shows that the fourth quarter revenue fell 32% year-on-year, the lowest quarterly revenue since 2016, and the net profit turned from profit to loss, with a loss of $700 million, down 114% year-on-year, while for the whole year of 2022, Intel's revenue fell by $10 billion, and the profit fell by 60% from the previous year.
Intel CEO Henry Kissinger said that market demand has deteriorated more than expected, and revenue is expected to be $10.5 billion to $11.5 billion in the first quarter of 2023, with the lowest revenue floor since 2010 and gross margin falling to 39%, the worst decline since 1992. Wall Street analysts said the guidance was Intel's "historic collapse" that would trigger a sell-off in chip stocks, which in turn would put Intel's stock at risk of crashing.
As an industry-leading chip company, Intel is weathering the storm with pay cuts. Kissinger has announced a 25% pay cut, and the entire Intel executive pay has been cut by more than 15%. It can be seen that Intel is facing a lot of pressure on performance.
Subsequently, on January 31, Samsung Electronics (KRX: 005930) announced its fourth quarter and 2022 full-year financial results, with fourth-quarter revenue falling 8% year-on-year, and operating profit (profit) falling 69% year-on-year, hitting a record low. For the whole year of 2022, Samsung Electronics' revenue increased by only 8%, and operating profit decreased by 16% from the previous year. Samsung Electronics said that market confidence deteriorated in the fourth quarter, and memory chip prices fell further. Affected by the ongoing macroeconomic conditions, Samsung Electronics expects the smartphone market demand to shrink in 2023.
From a domestic point of view, since December 2022, domestic semiconductor listed companies have successively released last year's performance forecasts. Searching by the scope of "semiconductor products and semiconductor equipment" classified by Wind, 104 of the 159 listed semiconductor companies disclosed their 2022 performance forecasts.
The performance report shows that 49 chip listed companies are expected to have a year-on-year decline in net profit, resulting in a double-kill situation of performance and stock prices. Among them, the world's tenth largest chip design manufacturer and domestic image sensor leader Weier Co., Ltd. (603501. SH) said on January 13 that in 2022, the company's net profit is expected to fall by up to 82% year-on-year, and net profit after deduction will fall by about 97% year-on-year, mainly due to a variety of global macroeconomic factors, resulting in weakening demand in the consumer electronics market; Fingerprint recognition chip leader Huiding Technology expects a loss in the company's net profit attributable to the parent in 2022; Jingfeng Mingyuan said that the net profit attributable to the parent in 2022 fell by 125.1% to 131% year-on-year.
At the same time, asset impairment and continuous investment in R&D expenses are also one of the main reasons for the pre-loss of semiconductor listed companies in 2022. A recent research report released by Huaxin Securities pointed out that the downturn in 2022 will bring great pressure to the semiconductor industry, and the weakening of demand and high inventory will lead to oversupply. Looking ahead to 2023, supply-side upstream capital expenditure is expected to weaken significantly, and inventories will gradually decline.
Not only that, the United States' continuous export restrictions on semiconductors to China have also greatly affected the performance of chip companies and industry confidence.
Tim Archer, CEO of semiconductor equipment giant Lam Research, earlier predicted that the overall market for chip devices would fall to about $75 billion in 2023, about $20 billion less than last year, including $2 billion to $2.5 billion in export restrictions to China. At the same time, Lam announced global layoffs of about 7 percent, to nearly 1,300 people.
The tide has receded, and the chip industry urgently needs "domestic and international dual circulation"
On February 15, in response to the restrictions imposed by the United States, Japan and the Netherlands on the export of related chip manufacturing equipment to China, the statement issued by the China Semiconductor Industry Association mentioned that looking back on the development of the global semiconductor industry for more than 60 years, the reason why the industry has shown today's prosperity is precisely relying on the global market and global cooperation and innovation, which is also the core driving force for the development of the semiconductor industry.
In fact, despite the industry challenges brought about by decoupling, as domestic chip leading companies enter a bottleneck period, performance growth is slightly weak. Therefore, actively promoting the "domestic circulation", promoting the "domestic and international dual circulation", and exporting domestic chips on a large scale has become one of the important development paths of the domestic chip industry.
China's integrated circuit industry started and rose in the wave of globalization, and is accustomed to global resource allocation. Now that the industrial development situation has changed, Chinese companies must adjust their strategies as soon as possible, how to reduce imports, increase local products, and enhance the export of domestic large chips while ensuring the security of their own supply chains is a new idea for the development of chip companies after the epidemic.
Wei Shaojun, chairman of the Design Branch of the China Semiconductor Industry Association, said at the Xiamen Integrated Circuit Industry Innovation and Development Summit Forum in December 2022 that China's integrated circuit industry has made great progress in recent years, and an important reason is that it is backed by the Chinese market, which is a market that attracts global attention and is also a market that competes globally. Previously, relying on globalization, domestic integrated circuit users could have the advantages of global procurement and global resource allocation, so the situation of domestic chips was more passive. But now the situation is different, many of the chips that were used very habitually and easily can not be imported, foreign dependence is unreliable, and it is necessary to find alternative products in China, which gives Chinese integrated circuit design enterprises a rare opportunity.
"Of course, we have always had faith in globalization and hope to continue to play an active role in the development of global supply chains, but we must also understand that many things are not up to us. What we can do is to seek the best position in the complicated environment and strive to make our development invincible. Wei Shaojun said.
According to statistics from the China Semiconductor Industry Association, from January to September 2022, the sales of China's integrated circuit industry reached 790.63 billion yuan, a year-on-year increase of 15.3%, and the growth rate was 0.8 percentage points lower than the same period in 2021. The three industries of design, manufacturing, packaging and testing all achieved positive growth, with manufacturing having the highest growth, up 24.5% year-on-year. Wei expects sales of China's integrated circuit design industry to be 534.57 billion yuan ($78.74 billion) in 2022.
As of 2022, the number of integrated circuit design enterprises in China will be 3,243, a year-on-year increase of 15.4%, and the growth rate of the number of design companies will decline for the first time in recent years. Wei Shaojun stressed that the member enterprises of the design branch have generally developed healthily, and although some enterprises have indeed encountered difficulties, the development of most of the backbone enterprises is still remarkable.
In fact, judging the success and failure of China's chip industry by the number of registered companies is not very accurate, but this data has a strong reference significance and can see the changing trend of the entire industry.
In the past few years, as the popularity of the chip industry has continued to rise, some beginners with no semiconductor technology experience have founded companies and entered this high-tech industry. But the problem is that because the semiconductor industry chain is very complex, this "chip gold rush" has not solved the fundamental problem of "self-sufficiency" of domestic chips in the short term, and there are no large companies in the large market.
Recently, iResearch summarized the financing of domestic semiconductor startups in China. From 2014 to May 2022, China's chip industry conducted a total of 865 investments and financings. In terms of business field, 64.2% of the "fabless" companies that focus on circuit design and entrust chip manufacturing to external parties. This means that most of the domestic chip start-ups are concentrated in the field of design.
(Image source: Nikkei Chinese website)
However, it is an obvious fact that whether it is the three giants of electronic design automation (EDA) software at the chip design end Synopsys, Cadence and Siemens EDA, the core architecture of mobile phone processors ARM, or ASML EUV lithography machine at the equipment manufacturing side, TSMC 3nm advanced process technology, etc., China's chip industry still needs to rely on the technology and product supply of overseas companies.
Today, the industry prosperity is declining, the "chip gold rush" has faded, reversing the overheating of the lack of cores, and everything is returning to the benign development track of the industry. TSMC had expected that the global semiconductor industry would bottom out in the first half of 2023 and begin to recover in the second half of 2023.
Wei Shaojun proposed to make full use of China's huge market, drive product innovation with application, and create China's product standards and China's product system. The chip design industry is a product developer, should calm down, look inward, start from research and application, strengthen their product definition capabilities, form unique product solutions from applications, designs, chips and other aspects, and create their own standards and paradigms. This is a unique advantage of China's integrated circuit design industry, which cannot be snatched away by others.
Wei Shaojun stressed that fundamentally getting rid of the external dependence of the technology path and forming its own product system and technical standards will be the foundation for making China's chip industry invincible. (This article was first published on Titanium Media App, author | Lin Zhijia)