Recently, there have been constant news about the market's 8-inch wafer foundry capacity being fully loaded, tight production capacity, and price increases. Industry insiders predict that the visibility of some wafer foundry orders has reached the second quarter of 2021. This situation of tight wafer foundry capacity may not be alleviated within half a year.

Not only that, due to the tight 8-inch wafer foundry capacity and rising prices, which have raised the costs of IC design manufacturers, the prices of panel drivers, touch components and other components have also increased. Among them, panel driver IC manufacturer Novatek has raised its prices by 10%-15%. It is not ruled out that other IC design manufacturers will also follow the price increase trend.

8-inch wafer production capacity is tight and prices are even rising. Why?   

1. 5G, automobiles, Internet of Things, etc. have driven a substantial increase in demand

The shortage of 8-inch wafer production capacity has actually appeared in 2018 and 2019, mainly due to the increase in demand for CMOS image sensors, fingerprint recognition chips, etc. driven by multiple cameras in mobile phones and fingerprints. By 2020, the penetration rate of 5G mobile phones, automobiles, and the Internet of Things will increase rapidly, which will greatly increase the demand for power, power management, and power devices. In addition, the "epidemic" will drive the increase in demand for home offices and online education, which will increase the demand for notebooks, tablets, and other electronic products, thereby driving the demand for driver IC chips, discrete components, and other semiconductor components.

Relevant IC design industry insiders said that in the past, customers often placed orders on demand because they did not want to bear the pressure of high inventory. However, in 2020, due to the impact of uncertain factors such as the epidemic and international trade tensions, some customers considered the tight wafer foundry production capacity and began to place long-term orders early to ensure stable supply, especially for 8-inch wafer production capacity. The visibility has reached March and April 2021.

According to SEMI data, between 2019 and 2022, the production capacity of microelectromechanical systems (MEMS) and sensor component-related wafer fabs is expected to increase by 25%, and power component and wafer foundry production capacity is expected to increase by 23% and 18% respectively. The overall 8-inch industry performance continues to be strong.

2. 12-inch wafers are the mainstream, and 8-inch wafer production capacity is limited.

Before 2008, 8-inch (200mm) wafer fabs were still the mainstream, but with the increase in the number of new 12-inch (300mm) wafers built every year, they have become the current mainstream. According to IC Insights, the number of 12-inch wafer fabs worldwide will grow to 123 in 2021, and the total number of 12-inch wafer fabs worldwide will reach 138 by 2023.

Source: public information

Compared with 12-inch wafers, the number of 8-inch wafer fabs has been declining, and equipment manufacturers are now focusing on the equipment of 12-inch wafer fabs. The equipment of 8-inch wafer fabs is limited, and second-hand equipment is expensive and has low circulation, resulting in limited growth in new production capacity of 8-inch wafers.

According to relevant statistics, from 2008 to 2016, at least more than 30 8-inch wafer fabs were closed, and more than 10 factories were converted from 8-inch to 12-inch. From 2015 to 2017, the global 8-inch wafer fab capacity growth rate was only about 7%. By 2019, the total number of 8-inch wafer fabs in the world has been less than 200.

In addition, between 2010 and 2016, more than 20 6-inch wafer fabs were closed, and the demand for products such as discrete devices, power devices, MEMS, and analog chips was switched to 8-inch wafers, which additionally increased the burden on 8-inch production capacity.

Wafer foundry market: What is the distribution of factories of mainstream companies, and what is their attitude towards tight production capacity and price increases?  

The wafer foundry market has maintained a continuous growth trend. According to IC Insights data, global semiconductor wafer foundry will have a compound annual growth rate of nearly 10% from 2019 to 2024, which is significantly higher than the 6% compound growth rate from 2014 to 2019.

In terms of market structure, there are mainly TSMC, Samsung, GlobalFoundries, UMC, SMIC and other businesses. Among them, TSMC dominates with a share of more than 50%. At the same time, wafer foundry companies in mainland China have also sprung up, mainly focusing on wafer production capacity below 8 inches.

Faced with market conditions such as tight 8-inch wafer production capacity and rising prices, the following summarizes the factory capacity distribution and planning of mainstream foundry companies, as well as their attitudes towards market price increases.

There has been no increase in 8-inch wafer foundry prices for the time being.

As the leader in wafer foundries, TSMC’s wafer fabs are mainly 12-inch and 8-inch wafer fabs, as well as a 6-inch wafer fab. Benefiting from the strong demand for 7nm and 5nm advanced processes from customers such as Apple, AMD, Nvidia, Qualcomm, and MediaTek, TSMC's production capacity is already tight during this wave of shortages and there is no excess capacity to accept new customers.

Regarding the tight 8-inch wafer production capacity in the market, TSMC CEO Wei Zhejia once stated at the third quarter performance briefing that the company did not increase the 8-inch wafer foundry price due to its close cooperative relationship with customers. 

Data source: Compiled by ChinaFlashMarket

Are considering expanding production of 8-inch wafer fab

Samsung's wafer foundry is mainly 12-inch, with only one 8-inch wafer foundry. There are a total of 6 production lines in production, 5 of which are located in South Korea (2 in Jiheung, South Korea, 3 in Hwaseong, South Korea), and one is located in the Austin factory in the United States. Samsung's Hwaseong V1 production line has a total cumulative investment of US$6 billion and has been mass-produced in 2020. It is a 7nm and 5nm chip based on EUV lithography technology and was delivered in the first quarter.

Samsung Hwaseong V1 is Samsung's first EUV semiconductor production line. In order to further expand the EUV production line and improve the process technology below 7nm, Samsung started building a new production line in Pyeongtaek in May 2020. It will focus on 5nm and below process technology based on EUV technology. It is expected to be fully put into production in the second half of 2021.

Faced with a shortage of 8-inch wafer production capacity and rising wafer foundry prices, there are reports that Samsung is considering investing in automation for its 8-inch wafer fab to improve production efficiency and meet market demand.

Data source: Compiled by ChinaFlashMarket

Plans to build a new 8-inch wafer fab to meet future demand

GlobalFoundries' wafer foundries are mainly located in Germany, Singapore and the United States, with 8-inch and 12-inch wafer fabs accounting for half each. Among them, 8-inch wafers are mainly concentrated in Singapore, and 12-inch wafers are mainly located in the United States and Germany.

In 2019, GlobalFoundries sold Singapore's Fab 3E 8-inch wafer fab to World Advanced for US$236 million. In the same year, it sold the 12-inch Fab 10 wafer fab in New York State to ON Semiconductor for US$430 million. The newly built Chengdu factory in 2020 has also been shut down, but then GlobalFoundries announced that it would purchase a piece of land in Malta, New York, to build an advanced 8-inch wafer fab to meet future growth needs.

Source: GlobalFoundries official website

Data source: Compiled by ChinaFlashMarket

Prices have been increased for some 8-inch wafer customers

UMC has a total of 12 wafer fabs, including 4 12-inch wafer fabs, 7 8-inch wafer fabs, and 1 6-inch wafer fab. They are mainly concentrated in Singapore, Japan, mainland China and Taiwan, with a monthly production capacity of more than 750,000 wafers (approximately 8-inch wafers).

In 2020, benefiting from the demand for large-size panel driver ICs and 5G mobile phone power management chips, as well as customers continuing to build safety inventories, UMC's overall capacity utilization rate has increased to 98% in the second quarter, and wafer shipments reached 2.22 million pieces of approximately 8-inch wafers. As 8-inch wafer production capacity continues to be tight in the second half of 2020, UMC has increased prices for some 8-inch wafer customers and is even considering raising prices in the first quarter of 2021.

Source: UMC official website

8-inch wafer production capacity is indeed tight, and production capacity will be increased within this year

Regarding the current market situation of 8-inch wafers, SMIC said: "Production capacity is indeed tight." Thanks to strong orders, SMIC has raised its Q3 financial forecast, with revenue expected to be between US$930 million and US$950 million, a further sequential increase from Q2 revenue of US$938 million.

SMIC expects to increase production capacity by 30,000 wafers per month at its three 8-inch wafer production bases in Tianjin, Shanghai and Shenzhen this year. In terms of 12-inch wafers, SMIC expects to increase its monthly production capacity by 20,000 wafers.

In addition, SMIC is signing a cooperation framework agreement with the Beijing Development Zone Management Committee to establish a joint venture focusing on 28nm and above wafer foundry projects. In the first phase, it is planned to build a wafer production capacity of 100,000 pieces/month (calculated on 12-inch wafers), which will add momentum to subsequent performance growth.

Source: SMIC Financial Report

The Chinese market is overwhelmed with orders for 8-inch chips

SK Hynix initially focused on the foundry business at its Cheongju M8 production line in South Korea. Later, in 2017, it officially split its wafer foundry business into an independent business entity called SK Hynix System IC Company. It mainly focuses on the wafer foundry business and mainstreams the manufacturing of 8-inch wafers.

In recent years, the Chinese market has been overwhelmed by the influx of 8-inch wafer orders. In 2018, SK Hynix System IC Company and Wuxi Industrial Group established a US$350 million joint venture subsidiary, with investment proportions of 50.1% and 49.9% respectively, and built an 8-inch wafer foundry. After the project is put into production, it can achieve a monthly production of 115,000 8-inch wafers, and was successfully tape-out in March 2020.

Supply will still exceed demand in 2021, and we are indeed considering raising prices.

In 1999, with the assistance of TSMC, World Advanced successfully introduced logic product foundry technology and became TSMC's foundry partner. In 2020, World Advanced announced its transformation from a DRAM factory to a wafer foundry company. In July 2004, World Advanced Technology officially ended DRAM production and manufacturing and successfully transformed into a 100% wafer foundry company.

Source: World Advanced Financial Report

The world currently has four 8-inch wafer fabs, including the acquisition of GlobalFoundries Singapore Fab 3E 8-inch wafer fab in 2019, located in Taiwan and Singapore. World Advanced's annual production capacity in 2019 was approximately 2.5 million 8-inch wafers, with shipments reaching 2.12 million wafers, and a capacity utilization rate of 85%. It is expected to produce approximately 2.6 million 8-inch wafers in 2020.

World Advanced believes that due to strong market demand, 8-inch wafer foundry production capacity is tight and is expected to remain in short supply throughout 2021. It is indeed discussing with customers related issues related to increasing 8-inch wafer foundry prices.

The customer placed an order with a higher price and decided to start the 12-inch factory construction plan

Powerchip Group completed its corporate reorganization in May 2019. Its subsidiary Powerchip Technology transferred three 12-inch wafer fabs and related businesses and assets to Powerchip Electronics Manufacturing Co., Ltd. ("Powerchip"). It currently owns two 8-inch and three 12-inch wafer fabs.

Power Semiconductor Manufacturing Co., Ltd. said: Since the supply of wafer foundry production capacity is indeed in short supply, the company is currently at full capacity, and there are indeed IC design companies placing orders with increased prices to compete for production capacity. In response to the strong demand from customers for new production capacity, it has decided to launch the Tongluo 12-inch factory construction plan, and is scheduled to start construction of the factory in the second quarter of 2021. In addition, Hefei Jinghe, the wafer foundry in mainland China invested by Powerchip, is also in full production. As of the end of July 2020, the monthly production capacity is 25,000 pieces, and the monthly production capacity is expected to reach 30,000 pieces by the end of the year.

Source: Power Semiconductor official website

The Wuxi factory continues to increase production capacity and is considering expanding the second phase of the factory

Huahong Semiconductor has three 8-inch wafer fabs and three 12-inch wafer production lines. In 2019, its monthly production capacity increased from 174,000 wafers to 201,000 8-inch equivalent wafers, with a capacity utilization rate of 91.2%. Due to the accelerated localization of power semiconductors, market demand in 2020 is better than expected. Huahong Semiconductor's 8-inch production capacity utilization rate has reached 100%, and the 12-inch production capacity utilization rate continues to rise.

At the same time, the Wuxi plant aims to increase its production capacity to 40,000 pieces/month by the end of 2020 or early 2021, and is considering the second phase of expansion of the Wuxi plant. The total production capacity is expected to reach 80,000 pieces/month. The 8-inch plant also has room for expansion of 10,000 to 20,000 pieces/month in the future.

Data source: Compiled by ChinaFlashMarket

Production capacity is tight and the possibility of raising OEM prices cannot be ruled out.

DB HiTek is a wafer foundry in South Korea that mainly uses 8-inch wafer fabs to produce power managers and image sensors. Its headquarters and two factories (Fab1 & Fab2) are located in South Korea. The factory production capacity is fully loaded. In 2019, nearly 100,000 8-inch wafer orders were unable to be delivered. This number was nearly twice the number of orders that could not be delivered in 2018. Capacity supply will remain tight in 2020, so Eastern Hi-Tech does not rule out raising OEM prices.

Source: Eastern Hi-Tech official website

The 8-inch production line is fully loaded, and there is no price increase for the time being. It depends on the situation.

Currently, most of China Resources Micro's wafers are 6-inch wafers, and the utilization rate of 8-inch wafers is not high yet. In terms of 12-inch wafers, an agreement was signed with Chongqing in 2018 to build a 12-inch production line in the company's existing factory in Chongqing. The project is progressing as planned and is planned to be launched in 2020.

China Resources Micro said that since entering the third quarter, the 8-inch production line has been fully loaded, and the overall capacity utilization rate has been above 90%. There has been no price increase for the time being, and it will continue to pay attention to market and price trends.

Source: public data

Jita Semiconductor focuses on wafer manufacturing of analog circuits and power devices. In 2018, the Shanghai project officially started construction, and it was built into an 8-inch production line with a monthly production capacity of 60,000 pieces and a 12-inch specialty process production line with a monthly capacity of 50,000 pieces. The products focus on industrial control, automobiles, electric power, energy and other fields, and improve the production capacity of power devices (IGBT), power management, sensors and other chips.

In 2020, Jita Semiconductor also formally reached a strategic cooperation with Shengmei Semiconductor Equipment (Shanghai) Co., Ltd. Both parties will give full play to their respective advantages and join hands in the innovation of semiconductor equipment and related processes.

Jinghe Integration is a 12-inch wafer foundry in Anhui. It has achieved a monthly production volume of 20,000 wafers at the end of 2019. It plans to reach a monthly production capacity of 30,000 12-inch wafers by the end of 2020 and a monthly production capacity of 40,000 to 45,000 wafers by the end of 2021.

The "8-inch MEMS international foundry line construction project" invested and constructed by the holding subsidiary of Saiwei Electronics Co., Ltd. was officially put into operation in September 2020, with a production capacity of 10,000 pieces/month. The project will be constructed in phases. After reaching full production, it will eventually form a production capacity of 30,000 pieces/month, which represents the entry of the advanced 8-inch MEMS chip production line into the actual production stage.

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