Lead:
In 2022, the global integrated circuits, discretes, optical optoelectronics, and sensors market size was $4,799.88, $340.98, $437.77, and $22.262 billion, respectively.
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First, the size of the semiconductor market
Semiconductors are widely used in downstream applications and are closely related to economic development. Semiconductor refers to a material with conductivity between conductors and insulators at room temperature, and its resistivity increases with the increase of temperature, which can be used to make integrated circuits and semiconductor devices. Semiconductor downstream applications are wide, covering smartphones, PCs, automotive electronics, medical, communication technology, artificial intelligence, Internet of Things, industrial electronics and military and other industries.
From the perspective of downstream demand structure, computers (mainly PCs and servers) and communication products (mainly smartphones) constitute the main sources of demand for global semiconductor demand, accounting for nearly three-quarters of the total. According to IC Insights data, in 2020, sales in the computer field accounted for 39.7% of semiconductor downstream sales, and sales in the communication field accounted for 35.0%, followed by consumer electronics and automotive electronics, accounting for 10.3% and 7.5% respectively.
Exhibit 1: Downstream sales structure in the semiconductor industry
Source: IC Insights, Dongguan Securities Research Institute
In the electronic information age, semiconductor sales are increasingly closely related to global economic growth and play an important role in economic development. In the era of electronic information, semiconductors play an increasingly important role in economic development, and semiconductor sales are closely related to global economic development. According to data provided by WSTS and the IMF, the correlation coefficient between global semiconductor sales growth rate and GDP growth rate was 0.13 from 1987 to 1999, and the correlation coefficient increased to 0.46 from 2000 to 2022, which greatly increased. As the silicon content of downstream PCs, servers, smartphones and new energy vehicles continues to increase, it is expected that the correlation between semiconductor sales and economic development level is expected to continue to increase in the future.
Exhibit 2: Year-on-year growth rate of global semiconductor sales, real growth rate of global GDP, 2000-2022
Source: WSTS, International Monetary Fund, Dongguan Securities Research Institute
Industry sales scale review: downstream innovation drives the development of the industry, and the industry scale grows in fluctuations. We reviewed the semiconductor sales over the years and found that the market size of the industry is mainly determined by downstream innovation, and the downstream terminal sales and enterprise capacity release jointly determine the cyclical fluctuation, and the overall characteristics of growth in fluctuations. From 2015 to 2022, global semiconductor sales increased from US$335.2 billion to US$573.5 billion, with a compound annual growth rate of 7.97%, higher than the global GDP growth rate in the same period.
2015-2018: Smartphones are still in a period of rapid penetration, driven by the strong demand for consumer electronics such as downstream smartphones and TWS, the global semiconductor market is booming, the market size has grown from US$335.2 billion to US$468.8 billion, with a compound growth rate of 11.83% from 2015 to 2018;
2019: The prosperity of the smart terminal market represented by smartphones declined, the global semiconductor cycle declined, and the intensification of international trade frictions, the global semiconductor industry market size was US$412.3 billion, down 12.05% year-on-year;
2020-2022: With the continuous expansion of the scale of 5G terminals, the increase in demand for data centers, the gradual expansion of intelligent scenarios such as AIoT and the continuous penetration of automotive electronics, coupled with the increase in demand for remote office and home entertainment under the background of the epidemic, the scale of the global semiconductor industry is rising, and the global semiconductor market size in 2020, 2021 and 2022 will be $440.4 billion, $555.9 billion and $573.5 billion, respectively, an increase of 6.82% year-on-year. 26.83% and 3.17%.
Exhibit 3: Global semiconductor market size 2015-2022
Source: WSTS, Dongguan Securities Research Institute
Semiconductor industry classification. According to the World Semiconductor Trade Statistics (WSTS), semiconductor products are subdivided into four categories: integrated circuits, discrete devices, optoelectronic devices and sensors. Among them, integrated circuits occupy more than eighty percent of the industry scale, and their subdivisions include logic chips, memory, microprocessors and analog chips, etc., which are widely used in 5G communications, computers, consumer electronics, network communications, automotive electronics, Internet of Things and other industries, and are the core components of the vast majority of electronic equipment.
According to WSTS data, the global integrated circuits, discretes, optical optoelectronics, and sensors market size was $479.988 billion and $34.098 billion, respectively, in 2022. $43.777 billion and $22.262 billion, accounting for 82.7%, 5.9%, 7.5% and 3.8% of the global semiconductor industry, respectively. In the above semiconductor product distribution, integrated circuits are the most technically difficult and fastest growing subdivision products, and are the most important component of the semiconductor industry.
Figure 4: Semiconductor classification
Source: WSTS, Dongguan Securities Research Institute
Exhibit 5: Semiconductor segment sales share (2022)
Source: WSTS, Dongguan Securities Research Institute
Exhibit 6: Changes in market size by semiconductor segment from 2011 to 2022
Source: WSTS, Dongguan Securities Research Institute
Integrated circuit: Integrated circuit (IC) is a miniature electronic device or component, using a certain process, the required transistors, resistors, capacitors and inductors in a circuit and wiring interconnection, made on a small or several small semiconductor wafers or dielectric substrates, and then packaged in a tube shell, into a miniature structure with the required circuit function, also called chips.
According to the different types of processing signals, integrated circuits can be divided into digital chips and analog chips. According to the different types of processing signals, integrated circuits can be divided into two categories: digital integrated circuits and analog integrated circuits, of which digital integrated circuits are used to perform arithmetic and logic operations on discrete digital signals, including logic chips, memory chips and microprocessors, which is a digital logic circuit or system made by integrating components and wires on the same semiconductor chip; Analog integrated circuits mainly refer to integrated circuits composed of capacitors, resistors, transistors, etc. integrated circuits that are integrated together to process analog signals. According to WSTS data, logic chips, memory chips, microprocessors and analog chips accounted for 32.78%, 32.52%, 19.29% and 15.41% of the integrated circuit market size in 2020, respectively.
Exhibit 7: Global IC product composition in 2020
Source: WSTS, Dongguan Securities Research Institute
Exhibit 8: Analog ICs vs. Digital ICs
Discrete devices: refers to semiconductor devices with fixed single characteristics and functions, and can no longer be subdivided in function, such as diodes, transistors, thyristors, power semiconductor devices (such as LDMOS, IGBT), etc. It does not integrate any other electronic components inside, only has simple voltage and current conversion or control functions, but does not have the system function of the circuit. Compared with integrated circuits, discrete devices are larger, but in ultra-high power, semiconductor lighting and other occasions, discrete devices have advantages over integrated circuits.
Second, the structure of the semiconductor industry
Semiconductor industry chain. From the perspective of production process, semiconductor production is mainly divided into three major processes: design, manufacturing and packaging and testing, and requires upstream semiconductor equipment and materials as support. Different products represented by integrated circuits are widely used in the downstream of different products, and the demand growth led by downstream innovation is the core driving force for the rapid development of the semiconductor industry.
Exhibit 15: Semiconductor value chain
Source: Shengmei Shanghai Prospectus, Dongguan Securities Research Institute
Integrated circuit design: refers to the design of the required circuit diagram according to the established functional requirements, and the final output result is the mask layout. The mainland's integrated circuit design industry has a low starting point for development, but relying on favorable factors such as huge market demand and a good industrial policy environment, it has become a new force in the global integrated circuit design industry. From the perspective of industrial scale, the sales scale of the integrated circuit design industry in mainland China increased from 38.30 billion yuan in 2010 to 451.90 billion yuan in 2021, with a compound annual growth rate of about 25.15%; The gradual improvement of the local industrial chain has also provided wafer manufacturing support for domestic start-up chip design companies, superimposed industrial capital and policy support, as well as the return of overseas talents, and the number of mainland chip design companies has increased rapidly. According to data from the China Semiconductor Industry Association, since 2010, the number of chip design companies in mainland China has increased significantly, from only 582 in 2010 to 3,243 in 2022, with an average annual compound growth rate of about 15.39% from 2010 to 2022.
Figure 16: Growth of the number of chip design companies in China from 2010 to 2022
Source: China Semiconductor Industry Association, Dongguan Securities Research Institute
Exhibit 17: Sales and year-on-year growth rate of IC design industry in China
Source: China Semiconductor Industry Association, Dongguan Securities Research Institute
Integrated circuit manufacturing: integrated circuit manufacturing refers to the design of the circuit diagram to silicon wafers and other substrate materials link, that is, the transistors, diodes, resistors and capacitors and other components required by the circuit are made on a small silicon wafer, glass or ceramic substrate in a certain process, and then interconnected by appropriate processes, and then packaged in a tube shell, so that the volume of the entire circuit is greatly reduced, and the number of lead wires and solder points is also greatly reduced.
From the perspective of process flow, the integrated circuit manufacturing process is generally divided into Front End of Line (FEOL) and Back End of Line (BEOL). The front-end process generally refers to the manufacturing process of transistors and other devices, mainly including isolation, gate structure, source drain, contact hole and other formation processes. The post-stage process mainly refers to the formation of interconnection lines that can transmit electrical signals to each device of the chip, mainly including dielectric deposition between interconnects, metal line formation, and the preparation process of leading out the pad (Contact) as the dividing line.
In recent years, benefiting from the rise of local wafer foundries such as SMIC and Hua Hong Semiconductor, as well as the establishment of factories in Chinese mainland by leading wafer foundries such as TSMC, the market scale of the mainland integrated circuit manufacturing industry has achieved rapid growth. According to data from the China Semiconductor Industry Association, from 2010 to 2021, the scale of the Chinese mainland integrated circuit manufacturing industry increased from 40.90 billion yuan to 317.63 billion yuan, with a compound growth rate of 20.48% from 2010 to 2021; Among them, SMIC's annual revenue increased from 8.4 billion yuan to 50.757 billion yuan, with a compound growth rate of 17.77% from 2011 to 2022.
Exhibit 18: Chinese mainland IC manufacturing sales and year-over-year growth rate
Source: China Semiconductor Industry Association, Dongguan Securities Research Institute
Exhibit 19: SMIC's annual revenue and year-over-year growth rate from 2011 to 2022
Source: SMIC Financial Report, Dongguan Securities Research Institute
Industry competition pattern: TSMC is the only one, SMIC and Hua Hong semiconductor are rising rapidly. Integrated circuit manufacturing requires thousands of steps, close cooperation and error control between each link requires a lot of experience accumulation, the error of any step may lead to a significant decline in chip yield, so it has a very high technical threshold. In addition to technology, semiconductor manufacturing also has extremely high capital requirements, and the capital expenditure to build a fab requires billions or even tens of billions of dollars. Extremely high technical and capital barriers lead to extremely high industry concentration, and the industry currently presents a unique competitive pattern of TSMC, maintaining a double lead in process technology and market share.
According to Trendforce data, TSMC achieved revenue of $19.962 billion in 22Q4, with a market share of 58.5%, a year-on-year increase of 2.4pct, far ahead of other wafer foundries; In terms of domestic investment, the mainland semiconductor manufacturing industry, represented by SMIC and Hua Hong Semiconductor, has continuously improved its process technology and expanded its production scale in recent years, achieving a rapid rise. In the fourth quarter of 2022, SMIC and Hua Hong Semiconductor achieved revenue of US$1.621 billion and US$882 million, respectively, ranking fifth and sixth in the world.
Exhibit 20: Top 10 global foundry revenue rankings in Q4 2022
Source: Trendforce, Dongguan Securities Research Institute
Note: PSMC includes wafer foundry revenue; Huahong Group includes Huahong Hongli and Shanghai Huali
Integrated circuit packaging and testing: Benefiting from the transfer of industries, the growth rate of the mainland IC packaging and testing industry is higher than the global average. The packaging and testing industry is located in the downstream of semiconductor manufacturing and requires a large amount of equipment and personnel investment, which is a capital-intensive and personnel-intensive industry. Compared with other fields of integrated circuits, the threshold for packaging and testing is relatively low, and it is the field with the highest technological maturity and the easiest to achieve domestic substitution in the domestic semiconductor industry chain. In the past ten years, under the promotion of semiconductor industry transfer, human resource cost advantages, tax incentives and other factors, the global integrated circuit packaging and testing capacity has gradually shifted to the Asia-Pacific region, the mainland IC packaging and testing industry started early, relying on labor cost advantages and the broad downstream market to undertake a large number of packaging and testing orders transfer, so the development is relatively rapid, in recent years the market scale has grown steadily.
In recent years, the global integrated circuit packaging and testing industry has entered a period of steady development, with a compound growth rate of 4.27% in the industry market size from 2014 to 2021, while the mainland benefits from the vigorous development of terminal applications such as downstream smartphones, and the growth rate of the packaging and testing industry leads the world. According to the statistics of China Semiconductor Industry Association, the annual sales of China's integrated circuit packaging and testing industry increased from 125.6 billion US dollars in 2014 to 276.3 billion US dollars in 2021, and the growth rate from 2014 to 2021 was about 11.92%, which was much higher than the global average in the same period.
Exhibit 21: Global IC packaging and testing industry market size and year-on-year growth rate from 2014 to 2021
Source: Yole, Dongguan Securities Research Institute
Exhibit 22: China IC packaging and testing sales and year-on-year growth rate from 2014 to 2021
Source: China Semiconductor Industry Association, Dongguan Securities Research Institute
Packaging and testing is the most competitive link in the field of integrated circuits in mainland China, with a total of four manufacturers entering the top ten in the world. At present, the overall domestic self-sufficiency rate in the field of mainland integrated circuits is low, especially in the links of semiconductor equipment, materials and wafer manufacturing, which is far from the international leading level, and packaging and testing is the most internationally competitive link in the field of mainland integrated circuits. In recent years, several domestic packaging and testing leading enterprises represented by Changdian have made continuous efforts in the field of advanced packaging through independent research and development, mergers and acquisitions, and now have strong market competitiveness and have the ability to participate in international market competition. According to the data of the Silicon Thought Research Institute, in 2022, 4 companies in Chinese mainland entered the top ten global packaging and testing manufacturers, namely Changjian Technology, Tongfu Microelectric, Huatian Technology and Zhilu Packaging and Testing, and the annual revenue ranked 3rd, 4th, 6th and 7th in the world.
Exhibit 23: 2022 Global Closed Beta Top 10 Estimated Rankings
Source: Chipthought Research Institute (January 2023), Dongguan Securities Research Institute
Note: The revenue of Zhilu packaging and testing includes UTAC and Riyuexin Semiconductor
The mainland integrated circuit market continues to grow, and the industrial structure is constantly optimized. According to the China Semiconductor Industry Association, the sales of integrated circuits in mainland China increased from 142.40 billion yuan to 1,045.83 billion yuan from 2010 to 2021, with a compound annual growth rate of 19.87%. After taking the lead in experiencing global industrial transfer and multiple industrial mergers and acquisitions, the integrated circuit packaging and testing industry has become the most globally competitive semiconductor segment in mainland China, ranking first in the three major links in sales before 2016; In recent years, the rapid rise of domestic IC design companies represented by Huawei HiSilicon has led to a rapid increase in the proportion of sales in the IC design industry, surpassing the packaging and testing industry in 2016 to rank first. The rise of local wafer fabs such as SMIC and Hua Hong Semiconductor has also driven the growth of the market scale of the mainland integrated circuit manufacturing industry, surpassing IC packaging and testing to rank second in 2020. The increase in the proportion of integrated circuit design and manufacturing industries with higher added value indicates that the structure of the mainland IC industry has been gradually optimized, and the model of packaging and testing industry has developed from a single model to a complete integrated circuit industry chain with three industries: IC design, manufacturing and packaging and testing.
Exhibit 24: Sales by segment of Continental IC
Source: China Semiconductor Industry Association, Dongguan Securities Research Institute
Figure 25: Proportion of sales of integrated circuits in China
Source: China Semiconductor Industry Association, Dongguan Securities Research Institute
The full report is set out below