Semiconductor downturn? Don't panic, get that device first

Release time:

2023-12-01 15:23

Although there has been noise in the market recently, or the overall foundry expansion has not progressed as expected, or orders have been cut significantly, and chip prices have dropped, equipment manufacturers in the upper reaches of the industry chain are not limited to this. From the mid- to long-term trend, capacity expansion is still the main theme. Combining various data from global equipment manufacturers and industry opinions, equipment has now become the segment with the strongest performance certainty in the semiconductor industry. Equipment manufacturers are relatively optimistic about future development expectations and generally have a strong willingness to expand production.

 

However, equipment manufacturers are also very anxious. According to TrendForce Consulting in late June, the delivery period of semiconductor equipment is facing a dilemma that has been extended to 18 to 30 months. Industry sources show that if more equipment cannot be supplied, the deployment of additional new production capacity will be far away. As a result, "getting that equipment" has become the key to whether major wafer foundries can win in this chip production capacity competition.

 

This article mainly discusses the following issues, why the supply of equipment is insufficient and the solutions that can be discussed, as well as the specific development situation of equipment manufacturers in mainland China.

 

1. Why is the equipment continuously out of supply?
 

The shortage of semiconductor equipment can be seen as early as 2020. According to feedback from industry sources, before the outbreak, the equipment delivery period was between 3 and 6 months; by the Q1 quarter of 2021, the delivery cycle has been lengthened to 10 months. Starting from the Q3 quarter of 2021, the delivery cycle will be further extended to 12 to 14 months. Since its development, the delivery time of semiconductor equipment has been extended to 18 to 30 months.

 

Behind the gradual lengthening of equipment delivery times are the multiple dilemmas of long-term equipment shortages, parts shortages, and unexpected equipment demand. Looking at the underlying reasons, we can see the complex chip supply and distribution issues in the industry chain.

 

Core shortage cycle

If there is a shortage of cores, we need to expand production. Expansion of production requires equipment, and the equipment is also short of cores.

 

There is no doubt that the biggest constraint in current equipment production is core shortage. It is reported that common semiconductor manufacturing equipment such as etching machines, plasma implanters, CMP, etc. need to carry a small number of chips to maintain operations. From a volume perspective, the chips required in the equipment field account for a very small proportion of the global semiconductor market, and only the most advanced equipment (such as photolithography machines) require more chips in terms of quantity and type.

 

However, according to feedback from the industry chain, the supply of industrial MCUs, FPGAs, embedded processors and other key chips required in the equipment field is currently tight, and some chips have been out of supply for a long time. Industry news in May this year showed that the shortage of industrial control chips may last until the end of 2023, and related suppliers such as STMicroelectronics, Infineon, NXP, Renesas, etc., driven by the scarcity of things and the high value of things, also suffered losses in the second quarter of this year. Increased chip prices.

 

contradictory status quo

Parts are in short supply, but manufacturers are not willing to expand production.

 

In addition to missing cores, the equipment is also severely lacking in spare parts. In the first half of this year, head equipment manufacturers such as ASML, Applied Materials, and KLA have issued warnings that some key machines need to wait 18 months. Parts ranging from lenses, valves and pumps to microcontrollers, engineering plastics and electronic modules are missing.

 

However, many parts manufacturers are not willing to expand production. Talking about the main reasons, on the one hand, the current downstream demand is huge, and the orders in hand of parts manufacturers are pointing to saturation. The company considers that if it expands production, it will need to bear an excessive burden of equipment investment, and may need to bear the risk of overcapacity in the future; on the other hand, due to the impact of core shortage, even if parts manufacturers produce parts, they will not be able to The chip is mounted and delivered to the equipment factory as finished product. After comprehensive consideration, we may choose to maintain the status quo.

 

reality collision

Insufficient supply and unexpected demand

 

In the past two years, fabs' enthusiasm for capacity expansion has resulted in higher-than-expected demand for equipment. According to SEMI data, between 2020 and 2024, 86 new wafer fabs or large-scale wafer fab expansion projects will be put into operation around the world. In 2022, the total global wafer fab equipment expenditure will exceed 80 billion US dollars. Global wafer fab equipment expenditure It is on track to hit record highs for three consecutive years.

 

However, hidden behind the doubling of stock prices and eye-catching financial reports of equipment manufacturers are sweet troubles. Public data shows that most equipment manufacturers around the world have nearly full orders on hand, and their production capacity is approaching saturation. Many people are excited about "orders".

 

Combining the 2021 financial report data of major equipment manufacturers shows that the top five companies in global revenue are Applied Materials, ASML, Tokyo Electronics, Lam Group and Kelei. The total revenue of the above five equipment manufacturers accounts for most of the global equipment market, and the head effect is obvious.

 

△Picture source: Global Semiconductor Observer compiled based on public information

 

Since the first quarter of this year, official news from the above-mentioned manufacturers shows that their equipment orders are currently full, and new orders have accumulated seriously. Among them, ASML's backlog of orders has reached a record high. All the above-mentioned manufacturers stated that they were greatly affected by the shortage of cores and parts, and their deferred income increased significantly. It is reported that Lam Semiconductor’s deferred revenue has exceeded US$2 billion.

 

In addition, the failure of equipment to be delivered on time has also brought a series of cost increases to equipment manufacturers. Lam Semiconductor CEO Timothy M. Archer said that it faces problems such as rising logistics and freight costs, raw materials driven by commodities such as nickel/aluminum, and increased costs of integrated circuits. Applied Materials Chief Financial Officer Brice Hill also mentioned that its inventory and shipping costs are rising, leading to a decline in the company's gross profit margin.

 

At present, there is still some time before the large-scale implementation of wafer foundry production capacity, and equipment demand continues to rise. Coupled with the continued shortage of chip components, even if OEMs want more equipment, equipment manufacturers are powerless.

 

2. Discussion on feasible measures for equipment chip supply
 

For equipment manufacturers, the core of the problem is that the shortage of chips is not only competed by peers in the equipment field, but also by other manufacturers such as automobile manufacturers, and the quantities they need are huge. Equipment manufacturers have not obtained priority for chips, even under the current trend of global production expansion.

 

Fortunately, the above-mentioned problems have already appeared in the supply chain. Recently, voices in the industry have gradually emerged to "prioritize the supply of equipment chips." Some manufacturers have also taken measures such as self-development or mergers and acquisitions of component suppliers to solve the core shortage problem.

 

The first is self-help from device manufacturers. Gary Dickerson, president and CEO of Applied Materials, said at the second quarter fiscal 2022 earnings call that Applied Materials is solving the shortage problem by strengthening contact with suppliers and tracking customer needs. This not only strengthens cooperation with suppliers, but also sets up Solutions that can overcome parts shortages will accelerate product delivery efficiency in the coming years.

 

Tokyo Electronics' solution to this problem has obvious reference significance. Recently, Tokyo Electronics executives stated at a financial report meeting that Tokyo Electronics has close ties with suppliers, and most suppliers have offices near their factories. Tokyo Electronics currently holds production update meetings every six months to share long-term market trends with suppliers, and established a corporate production department in September last year to focus on solving parts shortages.

 

In addition, international semiconductor equipment manufacturers including ASML and Applied Materials are trying to overcome the problem through their own technologies or acquiring upstream manufacturers to keep key components in their own hands.

 

The chip manufacturing side has also responded. Ganesh Moorthy, chief executive of Microchip Technology Inc., a maker of microcontroller chips, said the company now considers chip equipment suppliers as priority customers, and if any equipment maker finds that a particular Microchip product is a bottleneck for itself, that product will be put on the company's priority list.

 

In the short term, the problem of tight equipment supply cannot be solved quickly, but the adjustment consultation on the supply side will accumulate certain experience for the development of the industry, which will be beneficial to the long-term development of the enterprise.

 

3. The focus of the equipment dispute: Who will win the lithography machine?
 

If the acquisition of most equipment plays a first-mover role in the current production capacity expansion, then the competition for lithography machines means the degree of control of technology in the future. Therefore, the current equipment battle is highly focused on the competition for lithography machines.

 

According to TrendForce, equipment shortages are most serious with DUV lithography machines, followed by CVD/PVD deposition and etching. As the architecture transitions from FinFET structure to GAAFET structure technology node, the competition for advanced nodes is fierce, and the competition for EUV lithography machines has also become the focus.

 

Since ASML is the dominant player in lithography equipment, its supply of lithography machines affects the semiconductor industry chain. With the current severe shortage of cores and parts in equipment, ASML's situation is also very tight.

 

Official news shows that in 2021, ASML sold a total of 309 lithography machines, including 42 EUV lithography machines. In 2022, ASML is expected to produce and deliver 55 EUV lithography machines and 240 DUV lithography machines. This year, ASML has received more than 100 orders for EUV lithography machines, and has a backlog of more than 500 DUV orders. ASML estimates that the company will be able to digest its backlog of orders in 2024.

 

ASML officials stated that 85% of ASML's components are jointly developed by the company and the supply chain, and the materials and products used in them are unique. Currently, ASML has 700 product-related suppliers, 200 of which are key suppliers. Therefore, whether ASML can successfully and quickly increase its production capacity will largely depend on whether its supply chain partners can continue to follow up.

 

At the end of June this year, Samsung officially announced the mass production of 3-nanometer chips, and TSMC will also begin mass production of 3-nanometer chips in the second half of the year. However, recently, TSMC has hinted that 4nm, 3nm and other production capacity will become tight. The reason may be the delay in the arrival of advanced manufacturing equipment, which directly points to DUV and EUV lithography machines. The industry speculates that due to the shortage of photolithography equipment, advanced process production capacity may face a shortage in the past two years.

 

4. Domestic equipment ushered in a golden period of development
 

According to the latest report recently released by the International Semiconductor Industry Association (SEMI), global semiconductor manufacturing equipment sales will increase to a record high of US$102.6 billion in 2021, an annual increase of 44%. China has once again become the world's largest semiconductor equipment market.

 

The performance of mainland Chinese equipment manufacturers in the past two years can be described as outstanding. Although in terms of revenue volume, there is a big gap between mainland equipment manufacturers and global leading companies. However, it is worth noting that the year-on-year revenue growth of mainland China's semiconductor equipment companies in 2021 and the first quarter of 2022 is generally higher than that of foreign equipment companies.

 

△Picture source: Global Semiconductor Observer compiled based on public information

 

Unlike foreign equipment manufacturers, which are deeply affected by core shortages and parts supply shortages, mainland manufacturers are less affected by these factors. Among them, companies such as Northern Huachuang and China Micro and Enterprise have achieved greater results through over-purchasing to ensure supply, as well as focusing on building local industrial chains and strengthening domestic substitution.

 

Take Northern Huachuang as an example. According to its financial report data, its total purchases in 2021 will be 17.6 billion yuan, which is three times the raw material cost of 5 billion yuan that year. At the end of Q1 this year, Northern Huachuang's inventory continued to hit new highs. This shows that the company has ample orders on hand and downstream demand remains strong.

 

In addition, due to concerns about the uncertainty of the global equipment supply chain, mainland semiconductor companies are turning more attention to the local parts and equipment supply chain, allowing mainland manufacturers to obtain more verification opportunities.

 

According to China Micro, there are more than 700 suppliers around the world, and more than 450 of them are active. The localization level of its etching machine parts reaches 60%, and the localization level of MOCVD equipment reaches 80%. Official sources show that its high degree of localization is the key to Sinomicron's ability to maintain 100% product shipments and on-time performance despite rising material costs and delayed shipping times.

 

In addition, the prosperity of the mainland equipment market is also reflected in the equipment bidding winning data in the first half of this year. By sorting out the bidding situation on the China International Tendering Network, it can be clearly found that the equipment localization rate of mainland semiconductor factories has increased.

 

It is reported that in the first half of 2022, major mainland fabs opened bids for a total of 765 process equipment. Arranged from high to low according to the number of bids opened for different process equipment, the top five are furnace tube equipment (119 units), thin film deposition equipment (142 units), etching equipment (90 units), cleaning equipment (86 units), and front-end inspection Equipment (64 units). From the perspective of companies, Shanghai Jita Semiconductor, Huahong Semiconductor, and Yandong Microelectronics ranked among the top three in terms of number of bids opened.

 

 

Based on the bid winning data, in the first half of 2022, major mainland equipment factories won bids for a total of 379 units of process equipment. The top five are wet cleaning equipment (81 units), etching equipment (70 units), thin film deposition equipment (47 units), furnace tubes (45 units), and glue coating and development equipment (35 units). The top five mainland manufacturers that have won the most bids are Northern Huachuang, China Microelectronics Corporation, Tuojing Technology, Xinyuan Micro, and Shengmei Shanghai.

 

 

Based on comprehensive data, mainland equipment manufacturers have advantages in thin film deposition, etching, wet cleaning, glue coating and development. Among them, in terms of etching equipment, Northern Huachuang and China Microelectronics won the bid for more than 60 units in the first half of the year, far more than Lam Semiconductor and Tokyo Electronics combined. According to Yin Zhiyao, founder of China Microelectronics Corporation, in the field of etching equipment, the domestic production rate is expected to reach 50% in the future.

 

Generally speaking, mainland equipment manufacturers have ushered in a golden period of development in the past two years. They have blossomed in the fields of thin film deposition, etching, cleaning, glue development, polishing and other fields. The localization rate has increased, and it has driven the retail industry. Related industries including parts and components are developing rapidly.

 

5. Conclusion
 

There are already signs of cyclical ups and downs in various subdivisions of the industrial chain. The current phenomenon is a follow-up reaction to previous changes in the industry, and all opportunities and challenges are contained in it. Nowadays, the equipment field continues to be prosperous. Generally speaking, the next two years will still be a period of rapid development. Equipment manufacturers from various countries are only focusing on this big piece of meat. This may become a key turning point in the long history of my country's equipment development. Will it usher in a key change? We'll see.

 

 Article source: Global Semiconductor Observer Wang Kaiqi