China's chip production capacity has soared at an astonishing rate

The semiconductor industry is vertical

2024-05-18 13:59Posted in Guangdong science and technology creators

THIS ARTICLE IS SYNTHESIZED BY THE SEMICONDUCTOR INDUSTRY (ID: ICVIEWS).

China has purchased a large amount of semiconductor equipment and rapidly expanded its production capacity.

The semiconductor industry is ushering in a new round of capacity competition, and countries are frantically building or expanding wafer fabs. Recent data shows that despite the restrictions imposed by the US ban, China is still leading in the scale of chip construction and production, mainly in the construction of wafer factories and the purchase of semiconductor equipment, especially lithography machines.

According to SEMI statistics, in 2022~2024, the global semiconductor industry plans to have 82 new facilities put into operation, of which 11 and 42 will be put into operation in 2023 and 2024 respectively, covering production lines from 4-inch (100mm) to 12-inch (300mm) wafers.

SEMI expects Chinese mainland chipmakers to start operating 18 projects in 2024, increasing production capacity by 13% from 7.6 million wafers per month in 2023 to 8.6 million wafers per month in 2024.

In other words, the Chinese wafer fabs that will start operation in 2024 will account for more than 42% of the world, and a small part of these mature process chips will be used for export, and most of them will be digested in the Chinese domestic market.

According to customs data, the total value of trade between China and the Netherlands in 2023 will be 107.2 billion euros, and the largest commodity between the two sides is lithography machines. In 2023, China will import a total of about 225 lithography machines from the Netherlands; According to public data, another 32 lithography machines were imported in the first two months of 2024. In 14 months, China purchased 257 lithography machines from ASML.

According to ASML's first-quarter financial data, ASML's lithography machine sales revenue in the Chinese mainland market further increased from 39% in the fourth quarter of 2023 to 49%. Europe, the Middle East, and Africa (EMEA) became the second largest market, accounting for 20% of revenue. South Korea, the third-largest market, accounted for 19% of revenue.

The data shows that China has become the most important market for lithography equipment in the world, indicating that China has a huge demand for domestic chips and semiconductor industries.

It is estimated that in 2026, the chip production capacity will be the largest in the world

According to the first quarter report of 2024 released by SEMI, the quarterly production capacity of the wafer fab has exceeded 40 million wafers (converted to 12-inch wafers) at this stage, with an increase of 1.2% in the first quarter and another 1.4% in the second quarter. China continues to be the fastest-growing region of all regions.

According to data released by Knometa Research, a semiconductor research institution, the share of global semiconductor production capacity at the end of 2023 is 22.2% in South Korea, 22.0% in Taiwan, 19.1% in Chinese mainland, 13.4% in Japan, 11.2% in the United States, and 4.8% in Europe. It is expected that Chinese mainland's share of semiconductor production capacity will gradually increase and will account for 22.3% of global production capacity in 2026, becoming the world's first.

On the other hand, Japan's share is expected to decline from 13.4% in 2023 to 12.9% in 2026.

The report argues that while US-centric semiconductor regulations seek to restrict Chinese companies from developing and introducing cutting-edge processes, Chinese mainland will continue to increase wafer capacity in the coming years, focusing on traditional or mature process processes.

The wafer foundry industry is recovering

The global semiconductor manufacturing industry in the first quarter of 2024 showed signs of improvement as electronics sales increased, inventories stabilized, and fab capacity increased. Stronger growth is expected in the industry in the second half of the year.

JPMorgan Chase (J.P.) Securities pointed out in the latest report on the "wafer foundry industry" that the destocking of wafer foundry inventories will end, and the industry boom will recover broadly in the second half of 2024 and further strengthen in 2025.

According to Gokul Hariharan, director of the research department of Xiaomo Taiwan, the economy bottomed out in the first quarter, coupled with the continuous rise in AI demand, the gradual recovery of non-AI demand, and more importantly, urgent orders began to appear, including large-size panel driver ICs (LDDIC), power management ICs (PMICs), WiFi 5 and WiFi 6 chips, etc., all of which clearly show that the wafer foundry industry has gotten out of the trough and turned to recovery.

It is worth noting that the capacity utilization rate of wafer foundries in Chinese mainland has recovered rapidly, mainly because mainland fabless semiconductor companies began to adjust inventories earlier, and after active destocking in the first six quarters, inventories are gradually normalizing.

In terms of non-AI demand, vertical fields such as consumption, communications, and computing in the 3C field also bottomed out in the first quarter of this year. However, automotive and industrial demand may recover at the end of 2024 and early 2025, mainly due to the late adjustment of overall inventories.

SEMI pointed out that in the first quarter of this year, electronic terminal product sales increased by 1% year-on-year, while IC sales increased strongly by 22% year-on-year, and electronic terminal product sales are expected to increase by 5% year-on-year in the second quarter. IC inventory levels have also stabilized in the first quarter and are expected to improve further this quarter.

However, SEMI admitted that the capacity utilization rate of wafer fabs is still low, especially in the mature process field, which is still a concern, and it is expected that there will be no signs of recovery in the first half of this year, and the memory utilization rate in the first quarter is lower than expected, mainly due to strict supply control.

Fab capex remains conservative in line with capacity utilization trends, with spending down 17% year-on-year in the fourth quarter of last year and down 11% in the first quarter, and is expected to return to growth with a slight increase of 0.7% in the second quarter, and memory-related capex is expected to increase by 8%, which is higher than the non-memory segment.

Zeng Ruiyu, global senior director of SEMI, said that some semiconductor demand is recovering, but the pace of recovery is not consistent, and the demand mainly comes from AI chips and high-bandwidth memory (HBM), driving investment and capacity expansion in related fields, but because AI chips rely on a few key suppliers, the growth of IC shipments is limited.

Boris Metodiev, director of market analysis at TechInsights, said that semiconductor demand in the first half of this year was mixed, with memory and logic rebounding due to a surge in generative AI demand, but disrupting the analog IC and discrete component markets due to the slow recovery of the consumer market and inventory adjustment in the automotive and industrial markets.

Metodiev expects a full recovery in semiconductors in the second half of the year as AI gradually spreads to edge devices, which is expected to drive consumer demand. In addition, as the Federal Reserve cuts interest rates, which will increase consumer purchasing power and drive down inventory levels, the automotive and industrial control markets will return to growth in the second half of this year.

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