Wafer foundry duo bucks the trend to expand semiconductor production capacity digestion to be solved

Source of this article: Times Weekly Author: Yang Lingling

On November 9, SMIC (688981. SH,00981.HK), Huahong Company (688347. SH, 01347.HK) also disclosed its third quarterly report.

According to the data, SMIC achieved operating income of 33.098 billion yuan in the first three quarters, down 12.4% year-on-year, and net profit attributable to the parent company of 3.675 billion yuan, down 60.9% year-on-year; Huahong Company achieved revenue of 12.953 billion yuan in the first three quarters, a year-on-year increase of 5.64%; The net profit attributable to the parent company was 1.685 billion yuan, a year-on-year decrease of 11.61%.

It is worth mentioning that although the performance of the two foundries is under pressure, it has not stopped them from expanding their production capacity.

Source: Picture Worm Creative

Among them, SMIC raised its full-year capital expenditure to about US$7.5 billion this year, and the company's capital expenditure is mainly used for capacity expansion and new plant infrastructure; The production capacity of Huahong's Wuxi 12-inch production line project continues to climb, and at the same time, the company's second 12-inch production line Huahong Wuxi manufacturing project is also in full swing.

It is still unknown when the inflection point of the semiconductor cycle will come, and why are SMIC and Hua Hong expanding production capacity against the trend? Will there be an overproduction dilemma in the future?

Expand production capacity against the trend

On November 9, SMIC released a financial report showing that its revenue in the third quarter was 11.780 billion yuan, a year-on-year decrease of 10.6%; The net profit attributable to the parent company was 678 million yuan, a year-on-year decrease of 78.4%.

Source: SMIC's official website

When summarizing the results of the third quarter, Zhao Haijun said that the market did not have the U-shaped or V-shaped rebound that everyone had hoped for, and the overall situation was still at the bottom, showing a "double U-shaped" trend. He also said that the industry originally expected a one-year downturn and a recovery by the end of the year, but it currently looks like it will last for two years.

At the same time, Huahong Company disclosed that its revenue in the third quarter was 4.109 billion yuan, down 5.13% year-on-year, and the net profit attributable to the parent company was 95.8341 million yuan, down 86.39% year-on-year.

Source: Huahong company's official website

Tang Junjun, president and executive director of Huahong, commented that the semiconductor market has not yet recovered, with a gross profit margin of 16.1% in the current quarter, and the company's third-quarter performance is in line with the guidance expectations.

Despite the fluctuations in performance, the foundry duo is vigorously expanding production capacity and maintaining capital expansion.

According to the data, in the third quarter of this year, SMIC's capital expenditure increased by about 26% quarter-on-quarter to 15.31 billion yuan, and raised the capital expenditure for the whole year to about 7.5 billion US dollars, an increase of about 18% year-on-year. According to SMIC's 2022 semi-annual report, the company's capital expenditure is mainly used for capacity expansion and new plant infrastructure.

The significant increase in capital expenditure means that SMIC's production capacity will be further increased in the future.

At the same time, Huahong is also committed to improving the overall production capacity. In September this year, Hua Hong Company used the raised funds to increase its capital by 12.632 billion yuan to its wholly-owned subsidiary, Hua Hong Grace, which was mainly used to increase the capital of Hua Hong Semiconductor Manufacturing (Wuxi) Co., Ltd., the main body of Hua Hong Manufacturing (Wuxi) project, and the rest will be used for 8-inch factory optimization and upgrading projects, characteristic process technology innovation research and development projects, etc.

The company said that the production capacity of the Wuxi 12-inch production line project is constantly climbing, and as of the end of the third quarter, the company's monthly production capacity equivalent to the 8-inch production line has increased to 358,000 pieces. At the same time, Huahong's second 12-inch production line Huahong Wuxi manufacturing project is also in full swing.

How is the production capacity digested?

In the second half of the year, the consumer electronics sector has shown a warming trend, especially the recent release of new smartphones led by the Huawei Mate 60 series, which has injected a shot in the arm for the semiconductor industry.

At the performance briefing after the release of the financial report, SMIC Co-CEO Zhao Haijun proposed that the emergence of a relatively obvious "small spring" in China's mobile phone market is mainly due to the release of the replacement demand accumulated in previous years, as well as the launch of new models, and the expansion of the demand for chips such as fast charging, battery management chips, Bluetooth, WiFi, etc., which has driven the industrial chain to increase stocking and basically returned to the level of last year's winning period, but it is expected that the increase in mobile phones in the coming year will be the same as the average volume this year.

Source: Picture Worm Creative

According to TrendForce statistics, the global wafer foundry production capacity ratio of mature process (28nm and above) and advanced process (16nm and below) will remain approximately 7:3 in 2023~2027.

TrendForce believes that as mature process production capacity in China continues to be released, the trend of localized production for Driver IC, CIS/ISP, and Power discrete will become increasingly clear, and second- and third-tier foundries with similar process platforms and production capacity may face the risk of customer loss and price pressure, and technological progress and yield will be the decisive points for consolidating production capacity in the future.

In this context, the capacity digestion of wafer foundries such as SMIC and Huahong has attracted attention from all parties.

Zhao Haijun proposed at the performance briefing: "From a global point of view, it is overcapacity, and it takes a lot of time to slowly digest the production capacity that has been built up in recent years. But from another point of view, there are some very large markets, like the Chinese market, which does not have enough local production. Therefore, we are also in the process of alliance and binding with customers, and the production capacity built by SMIC has actually communicated with customers in advance, and there are customers' intentions to put how much production will be in SMIC in the future. ”

Therefore, Zhao Haijun said: "Based on such an exchange, we believe that the demand for semiconductors in China will require a large amount of local manufacturing capacity in the future. Then, these customers also have strategic intentions to engage with SMIC. ”

At the same time, Tang Junjun, President and Executive Director of Hua Hong Company, replied at the performance briefing that with years of technology accumulation in the field of characteristic processes and diversified process platform advantages, Hua Hong Semiconductor's products, especially IGBT and super junction, have continued to make efforts in the fields of new energy and automotive electronics, and have been highly recognized by customers.