China is purchasing a large amount of semiconductor equipment for rapid expansion of production.
The semiconductor industry is facing a new round of capacity competition, with countries frantically building new or expanding wafer fabs. Recent data shows that despite restrictions from the United States, China still leads in the scale of chip factory construction and production, mainly reflected in the construction of wafer fabs and the purchase of semiconductor equipment, especially photolithography machines.
According to SEMI statistics, from 2022 to 2024, the global semiconductor industry plans to put 82 new facilities into operation, with 11 and 42 facilities starting production in 2023 and 2024, respectively, covering production lines for wafers from 4 inches (100mm) to 12 inches (300mm).
SEMI estimates that Chinese chip manufacturers will start operating 18 projects in 2024, with production capacity increasing by 13% from 7.6 million wafers per month in 2023 to 8.6 million wafers per month in 2024.
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This means that Chinese wafer fabs that start operation in 2024 will account for more than 42% of the global market. These mature process chips produced will be mostly consumed in the Chinese domestic market, with only a small part exported.
According to customs data, the total trade volume between China and the Netherlands in 2023 was 107.2 billion euros, and the main commodity between the two parties was photolithography machines. In 2023, China imported about 225 photolithography machines from the Netherlands; and according to public data, another 32 photolithography machines were imported in the first two months of 2024. That is, within 14 months, China purchased 257 photolithography machines from ASML.
According to ASML's financial data for the first quarter, the sales revenue of photolithography machines in the Chinese mainland market accounted for 49%, up from 39% in the fourth quarter of 2023. Europe, the Middle East, and Africa (EMEA) became the second-largest market, with a revenue share of 20%. South Korea was the third-largest market, with a revenue share of 19%.Data shows that China has become the most important market for global lithography equipment, indicating a huge demand for domestic chips and the semiconductor industry in China.
Estimated to have the largest chip production capacity in the world by 2026
According to the first quarter 2024 report released by SEMI, the current quarterly production capacity of wafer fabs has exceeded 40 million wafers (converted to 12-inch wafers), with a growth of 1.2% in the first quarter, and an expected increase of 1.4% in the second quarter. China continues to be the fastest growing region among all regions.
According to data released by the semiconductor research institution Knometa Research, the global semiconductor production capacity share at the end of 2023 was 22.2% for South Korea, 22.0% for Taiwan, China, 19.1% for Mainland China, 13.4% for Japan, 11.2% for the United States, and 4.8% for Europe. It is expected that Mainland China's semiconductor production capacity share will gradually increase and will account for 22.3% of the global production capacity in 2026, becoming the first in the world.
On the other hand, Japan's share is expected to decrease from 13.4% in 2023 to 12.9% in 2026.
The report believes that although semiconductor regulations centered on the United States attempt to restrict Chinese enterprises from developing and introducing cutting-edge processes, Mainland China will continue to increase wafer production capacity in the next few years, focusing on traditional or mature process technologies.
The recovery of the wafer foundry industry
With the increase in electronic sales, the stabilization of inventory, and the increase in wafer fab production capacity, the global semiconductor manufacturing industry showed signs of improvement in the first quarter of 2024. It is expected that the industry will see stronger growth in the second half of the year.J.P. Morgan Securities (Little Morgan) pointed out in its latest "Wafer Foundry Industry" report that the wafer foundry inventory liquidation will end, and the industry's prosperity will widely recover in the second half of 2024 and further strengthen in 2025.
Gokul Hariharan, head of J.P. Morgan's Taiwan research department, analyzed that the prosperity hit bottom in the first quarter, coupled with the continuous rise in AI demand and the gradual recovery of non-AI demand, what's more important is that urgent orders have begun to appear, including large-size panel driver ICs (LDDIC), power management ICs (PMIC), WiFi 5 and WiFi 6 chips, etc., all clearly showing that the wafer foundry industry has shaken off the trough and turned to recovery.
It is worth noting that the recovery speed of the utilization rate of wafer foundry factory capacity in mainland China is relatively fast, mainly because mainland foundry-free semiconductor companies started to adjust inventory earlier, and after actively reducing inventory for the first six quarters, the inventory is gradually normalizing.
In terms of non-AI demand, consumer, communication, and computing in the 3C field also hit bottom in the first quarter of this year; however, the demand for automobiles and industry may recover at the end of 2024 and the beginning of 2025, mainly because the overall inventory adjustment was later.
SEMI pointed out that the sales volume of electronic terminal products in the first quarter of this year increased by 1% year-on-year, while the IC sales volume grew strongly by 22% compared with the same period last year. It is expected that the sales volume of electronic terminal products in the second quarter will increase by 5% year-on-year, coupled with the increase in shipments of high-performance computing (HPC) chips and the continuous improvement of memory prices, which will also drive the IC sales volume to maintain strong growth, increasing by 21% year-on-year. The IC inventory level has also stabilized in the first quarter, and it is expected to further improve this quarter.
However, SEMI frankly stated that the utilization rate of wafer factory capacity is still low, especially in the mature process field, which is still a worrying problem. There is no sign of recovery in the first half of this year, and the memory utilization rate in the first quarter was lower than expected, mainly due to strict supply control.
The capital expenditure of wafer factories is consistent with the trend of capacity utilization rate, maintaining a conservative attitude, with a year-on-year decrease of 17% in the fourth quarter of last year, and a continuous decline of 11% in the first quarter. It is expected to return to growth in the second quarter, with a small increase of 0.7%, and it is expected that the capital expenditure related to memory will increase by 8%, higher than the non-memory field.
SEMI Global Senior Director Zeng Ruiyu said that some semiconductor demands are recovering, but the pace of recovery is not consistent, mainly from AI chips and high-bandwidth memory (HBM), driving investment and capacity expansion in related fields. However, due to the dependence of AI chips on a few key suppliers, the contribution to the growth of IC shipments is limited.
TechInsights Market Analysis Director Boris Metodiev said that the demand for semiconductors in the first half of this year is mixed. Due to the surge in generative AI demand, memory and logic rebound, but the recovery of the consumer market is slow, coupled with the inventory adjustment of the automotive and industrial market demand, which interferes with the analog IC and discrete component market.
Metodiev expects that as AI gradually spreads to edge devices, it is expected to drive consumer demand, and semiconductors are expected to fully recover in the second half of this year. In addition, as the Federal Reserve lowers interest rates, it will increase consumer purchasing power and drive down inventory levels, and the automotive and industrial control markets will return to growth in the second half of this year.
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2023 / 5 / 14
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