The price of memory chips has recently bottomed out, shining a light on global semiconductors traveling in a dark tunnel. The first three quarters of this year are almost over, and industrial inventories have been adjusted for a long time. Some manufacturers have already seen the results of inventory adjustments, and the capacity utilization rate of wafer fabs has also rebounded. AI is regarded as a new driving force for semiconductors.

The International Semiconductor Industry Association (SEMI) pointed out that the global semiconductor boom has bottomed out in the second quarter of this year.

Looking at semiconductor revenue, Omdia said that after experiencing five consecutive quarters of revenue decline, the industry finally reversed its decline in the second quarter of 2023 and saw a revenue rebound. In terms of chip inventory, Jiwei Consulting believes that the third quarter of this year is a turning point for the industry-wide inventory decline.

In terms of foundry, TrendForce predicts that the output value of the world's top ten foundries is expected to rebound from the bottom in the third quarter and grow slowly in the future.

The year-on-year decline in global semiconductor sales continues to narrow. Financial reports from major chip manufacturers such as Intel and AMD reveal that the worst may be over. All signs are pointing to an exciting result. Optimistic signals believe that semiconductors will begin to recover as soon as the third or fourth quarter of this year, or the first half of next year. Has semiconductors finally begun to improve?

01 Which ones are recovering? Which ones have no signs yet?

Although major research institutions or analysts are somewhat optimistic about the bottoming out of the semiconductor industry, judging from the demand in the major chip segments, there are no signs of a full recovery.

According to industry information collected by Xinshixiang, demand recovery is mainly concentrated in memory chips, DDIC, LED lighting chips, and passive components. Other chips such as CIS have not yet shown signs of recovery.

Memory chip:

Prices hit bottom, original manufacturers start to increase prices

In terms of NAND Flash, news of price increases have been spreading since the beginning of August. Major original manufacturers have continued to reduce production, which has begun to have effects. Samsung took the lead in raising prices, and other manufacturers followed suit. From upstream original manufacturers to downstream SSD manufacturers, prices have begun to increase. Prices of consumer SSDs, memory cards, and mobile phone-related components such as eMMC and eMCP are rising across the board.

Micron raised its quotation by 10%, and flash memory manufacturer Phison saw stronger demand from module and smartphone customers, with some customers accepting a 30%-35% price increase. As Samsung further expands production cuts and effectively reduces inventory, it is expected to drive Nand Flash to start rising in the fourth quarter.

In terms of DRAM, the Nomura report pointed out that the prices of major memory chips have stabilized or increased in the third quarter, making the average unit price of memory chips expected to increase by 5%-10%. Original notebook memory manufacturers no longer offer low prices, and the market is chasing higher prices to buy products. HBM has a relatively clear demand direction. SK Hynix predicts that the AI chip boom will drive the HBM market to a compound annual growth rate of 82% by 2027.

From the perspective of the overall environment, since September, upstream quotations have increased significantly and prices have continued to rise. The inventory in the spot market is limited, and only a few low prices are quoted. The storage market has bottomed out and is expected to rebound.

Display driver IC (DDIC):

Sporadic urgent orders, lack of follow-up motivation

Since the second half of last year, the price of large-sized LCD TV panels has rebounded, while the price of small- and medium-sized LCD panels has stopped falling. In the second quarter of this year, the profitability of panel companies such as BOE, Shentianma, and Visionox continued to improve.

BOC Securities believes that the display driver chip DDIC will follow the recovery of the panel, and the price increase momentum of large-size LCD panels has gradually been transmitted to the upstream Driver IC link.

SMIC co-CEO Zhao Haijun previously stated that there were urgent orders for 12-inch products in the second quarter, especially for 40nm and 28nm. The capacity utilization rate of 40nm and 28nm has returned to 100%, and the first application area to recover is display panel driver IC.

However, TrendForce believes that the inventory of some TV parts has fallen to the bottom, and the booming mobile phone repair market has boosted the demand for TDDI. Sporadic urgent orders appeared in the supply chain in the second quarter, which became the main support for the utilization and revenue of wafer foundry in the second quarter. Momentum, but the benefits of this wave of urgent orders should be difficult to extend into the third quarter.

Passive components:

The trough has passed and inventories are generally below healthy levels

The passive component industry has experienced more than a year of inventory adjustments. Major manufacturers have actively controlled production capacity utilization and strictly managed output. The current inventory has dropped below the healthy level in the past.

Taiwan media reports pointed out that the industry believes that the low period of passive components has passed. As Apple launches new products, mainland Chinese brands may see a wave of price cuts, which will stimulate demand and help boost shipments of passive component manufacturers.

Murata, the leader of MLCC, expects that smartphone demand will slowly improve starting from the second half of the third quarter of this year and its full-year performance will remain unchanged. Yageo believes that it will take two quarters for the passive component industry to recover. Overall, the current market trend is more like an L-shape rather than a V-shape.

LED lighting chip:

LED supply chain players generally have a strong willingness to increase prices

In June, some LED manufacturers adopted price increase measures. The main price increase items were concentrated in lighting LED chips. Low-power lighting chip items with an area of less than 300 mil² (inclusive) increased the most, with an increase of about 20%. At 3-5%; for special sizes, the increase can reach up to 10%.

According to TrendForce's survey, currently LED supply chain companies generally have a strong willingness to increase prices. In addition to the number of companies that want to increase prices, some LED chip companies are full of orders, and the items to be increased are also expanding, in order to reduce the price increase. losses, and at the same time proactively reduce low-margin orders.

CIS:

It is difficult to repeat the huge growth in previous years

Affected by the significant decline in consumer electronics demand, CIS revenue stagnated in 2022 at only $21.3 billion compared with the substantial growth in previous years. Yole has revised down its long-term CIS forecast, expecting revenue to grow at a compound annual growth rate of 5.1% between 2022 and 2028.

The growth momentum of the smartphone CIS market is weak, and shipments are expected to decline simultaneously. TrendForce predicts that global smartphone CIS shipments will be approximately 4.3 billion units in 2023, an annual decrease of 3.2%.

Mobile phone SoC:

The short-term outlook is more cautious, and a price war may come

Qualcomm's revenue and profits fell in the second quarter, and its net profit even fell by 51.7%, directly cut in half. Qualcomm CFO Akash Palkhiwala predicts that sales in the global mobile phone market will continue to decline by "high single-digit percentages" in 2023. Looking forward to the next few quarters, Qualcomm expects that the current macroeconomic environment challenges will continue, customers will continue to reduce their inventory and have a negative impact on the company's revenue, operating results and cash flow.

Tianfeng International Securities analyst Ming-Chi Kuo recently said that Qualcomm is expected to reduce SoC shipments to Chinese mobile phone brands year by year starting in 2024. In order to maintain its market share in the Chinese market, Qualcomm may start a price war as early as the fourth quarter of 2023.

MediaTek's second-quarter revenue fell 37% year-on-year, and its gross profit fell 39.2% year-on-year, mainly reflecting changes in product prices and costs. Previously, there was news that MediaTek would begin to slash the number of films released in 2024, but the official denied it. Although MediaTek said that customer demand has shown a certain degree of stability, it also admitted that judging from the current global consumer electronics trends, terminal inventory management is still conservative.

TrendForce said that demand for mainstream consumer products such as smartphones, PCs and NBs is still weak, resulting in continued sluggish high-end advanced process capacity utilization in the second quarter. It is optimistic that orders for high-priced main chips such as APs and modems and peripheral ICs are expected to be supported in the third quarter. Capacity utilization performance of Apple’s supply chain partners.

02 various sounds - Has it gotten better?

It is difficult for the semiconductor industry to make waves this year. This is the consensus of most research institutions, or most people in the industry. Zhao Haijun, co-CEO of SMIC, once said that it currently appears that the industry as a whole will be declining in 2023 compared with the previous year.

However, compared with the stagnant water last year, the semiconductor industry this year shows some signs of improvement.

China's integrated circuit output achieved its first monthly growth since January 2022 in April, and the growth momentum remained the same in August, reaching a year-on-year rate of 21.1%.

Experts predict that the computer and mobile phone chip markets will slow down their downward trend. Kim Woo-hyun, financial officer of South Korea's SK Hynix Semiconductor Company, said, "Demand has gradually returned to strength." When announcing the second quarter financial report of this year, Kim Woo-hyun said that an important reason for the market's optimism is that the use of AI is expanding.

SIA President and CEO John Neuffer noted that the global semiconductor market has experienced modest but steady monthly growth this year, with sales increasing for the fourth consecutive month in July. Global sales are still down compared to last year, but the year-over-year decline in July was the smallest gap so far this year. He is optimistic that this rebound will continue in the second half of this year.

Judging from inventory levels, signs of reversal will begin to appear in the third quarter of this year. Jiwei Consulting pointed out in the report that the inventory problem of the semiconductor industry has fundamentally improved in the third quarter of this year. Inventory levels in consumer electronics, storage and other sub-sectors will gradually decline from this quarter, while automotive chips are overestimated due to growing demand. , the inventory has been significantly higher than the normal level, and there will be an oversupply situation in the second half of the year.

Judging from the financial reports of major manufacturers, both AMD and Intel will perform poorly after 2022. Intel barely returned to profitability in the second quarter of this year, and AMD is expected to begin to recover in the third quarter. It seems that the worst moment has passed.

Samsung's semiconductor division has plummeted after hitting a record of 28.4 trillion won in the second quarter of 2022. In the fourth quarter of the same year, operating profit plummeted to only 0.3 trillion won. In the first quarter of 2023, it fell to a deficit of 1.4 trillion won. It can be seen that Samsung's deteriorating operating performance bottomed out in the first quarter of 2023 and began to recover.

The same situation exists for SK Hynix. In the second quarter of this year, the deficit narrowed and sales began to increase. It is expected to resume growth next year.

In the second quarter, SMIC's customer inventories for some applications in domestic smartphones and consumer electronics declined, and they gradually resumed placing orders. Wafer shipments increased month-on-month, and revenue also achieved a slight month-on-month increase. At the same time, the capacity utilization rate increased from 68.1 in Q1. % increased to 78.3%.

Different from the previous performance of the semiconductor industry, which has been declining steadily, the semiconductor industry has narrowed its decline, bottomed out and is preparing to rebound.

The global semiconductor boom has obvious cyclical characteristics. It will go through a complete cycle every 3-4 years, and we are currently in a downward cycle since February 2022.

Semiconductor cycle changes can be felt from changes in sales.

The sales growth rate of China's semiconductor industry has bottomed out and rebounded month-on-month. Data released by SIA show that China's semiconductor sales increased by 2.6% month-on-month in July. Outside of China, monthly sales in the Americas, Europe and other Asia-Pacific regions also increased month-on-month. Moreover, global semiconductor sales increased by 4.7% in the second quarter compared with the first quarter. SIA believes that the market will continue to rebound in the second half of the year.

Snowball columnist Yu Laotou superimposed China's Kitchin cycle with the year-on-year growth rate of global semiconductor sales and found that often the starting point and end point of each China Kitchin cycle correspond to the low point of the year-on-year growth rate of global semiconductor sales. . Let’s look at the time nodes of the last two cycles of global semiconductors: bottoming out in June 2019 and bottoming out in January 2023.

It can be said that both domestic and global semiconductors are currently at the bottom, waiting for a rebound.

According to another set of semiconductor sales data released by SIA, the year-on-year growth in 2022 is not so good. Only Europe increased by 5.9% year-on-year, while Japan, the Americas, other Asia-Pacific regions, and China decreased by 4.3%, 7.1%, and 16.2% respectively. %, 18.7%. The decline has been so severe this year that everyone has some expectations or expectations for subsequent growth.

03 What kind of recovery will it be? Strong or weak?

How strong is the rebound in semiconductor prices? How fast will sales grow and how long will they continue to rise? There is a recovery curve in economics. Depending on the shape of the curve, there are different explanations for the trend of economic recovery. The recovery of the semiconductor industry can also be used. So, is this a quick and strong V-shaped recovery? Or is it a U-shaped recovery that will take some time? Or is it a W-shaped recovery with extreme volatility, or an L-shaped recovery with very slow recovery?

TSMC President Wei Zhejia said in January this year about the prospects of semiconductors that it will definitely not be a U-shaped recovery and does not believe that the industry will recover in the second half of the year. Morgan Stanley doesn’t think so. It said in July that the current industry is at the bottom of a “U-shaped” cyclical recovery, and the long-term demand for AI may trigger the next upward cycle, believing that recovery may begin in the fourth quarter.

Japanese semiconductor scholar Yunoue Takashi believes that it is difficult to see positive growth this year (2023), and a full recovery is likely to take until the first half of next year (2024). However, some people in the industry have seen that there are many uncertainties and the recovery is slower than expected, making it impossible to draw a conclusion on the comprehensive recovery of semiconductors.

Each company has its own opinions, and there seems to be no unified tone in the industry. Some believe that the second half of this year will be a sign of recovery, while others believe that this year will be over, and it will not be until next year at the earliest, and some who are more cautious think that it will not be until the year after next.

Most people who are involved in this market are sensitive to the market situation. Xinshixiang asked some market partners and most of them believe that there are no signs of recovery yet. The terminal demand is still relatively sluggish, and there are only some orders for foreign trade.

Even with the wave of phone purchases triggered by Huawei, not many people are optimistic about it. Companies as strong as Apple have to cut shipments, and consumer electronics continues to be weak and sluggish. TrendForce predicts that the smartphone market may undergo another round of changes in the fourth quarter of this year due to global economic conditions, and production volume in the second half of the year may be revised downwards again.

"The market is not so fast yet, so I don't expect it this year." "I don't expect it next year, it is estimated to be 2025."

The worst of the market has passed. Some sporadic demand from AI, consumer panels, storage, etc. is not enough to trigger a rapid rebound in the entire market. From their answers, it can be seen that the spot market will continue to endure, and the demand for major chip brands in the spot market has dropped significantly. Some are continuing to cut prices, and some have experienced price inversions.

At the same time, the increase in global semiconductor inventory days still reveals that the overall demand is insufficient. In the second quarter, the median inventory days of mainland China's semiconductor companies (including IC design, IDM and wafer foundry) rose from 109.6 days to 157.6 days during this period. , the median inventory days of enterprises in Taiwan, China and the United States increased from 84.9 days and 117.5 days to 131.8 and 144.7 days respectively.

Although the semiconductor industry has clearly bottomed out, combined with the chip spot market and inventory performance, semiconductor growth is weak, and the possibility of recovery this year is low. If it recovers next year, it may have to go through another "unbearable" period. Fortunately, prices for large-capacity storage and eMMC for mobile phones have begun to rebound, and semiconductor sales are warming up. While semiconductors are facing a dark cloud, they are finally seeing some light.

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