The output value of the world’s top 10 foundries in 4Q21 reached US$29.55 billion, or 8.3% growth QoQ, according to TrendForce’s research. This is due to the interaction of two major factors. One is limited growth in overall production capacity. At present, the shortage of certain components for TVs and laptops has eased but there are other peripheral materials derived from mature process such as PMIC, Wi-Fi, and MCU that are still in short supply, precipitating continued fully loaded foundry capacity. Second is rising average selling price (ASP). In the fourth quarter, more expensive wafers were produced in succession led by TSMC and foundries continued to adjust their product mix to increase ASP. In terms of changes in this quarter’s top 10 ranking, Nexchip overtook incumbent DB Hitek to clinch 10th place.

TrendForce believes that the output value of the world’s top ten foundries will maintain a growth trend in 1Q22 but appreciation in ASP will still be the primary driver of said growth. However, since there are fewer first quarter working days in the Greater China Area due to the Lunar New Year holiday and this is the time when some foundries schedule an annual maintenance period, 1Q22 growth rate will be down slightly compared to 4Q21.

Top 5 foundries account for nearly 90% of global market share, Samsung recovers share with advanced processes

Looking at the top five industry players, TSMC’s 4Q21 revenue reached US$15.75 billion, a QoQ increase of 5.8%. Although 5nm revenue spiked thanks to the new iPhone, 7/6nm revenue dropped due to a weak Chinese smartphone market, becoming the only TSMC node in decline in 4Q21, and inducing a contraction in TSMC revenue growth in 4Q21, though TSMC still accounts for more than 50% of global market share. As one of TSMC’s few competitors in advanced processes below 7nm, Samsung strengthened 4Q21 revenue to US$5.54 billion, a quarterly increase of 15.3% owing to the gradual completion of new advanced 5/4nm process capacity and the mass production of new flagship products from major client Qualcomm. Although Samsung’s foundry business has posted record revenue, the slower ramp-up of advanced process capacity continues to erode overall profitability. Therefore, TrendForce believes that improving advanced process capacity and yield in 1Q22 is one of Samsung’s top priorities.

Constrained by limited growth in new production capacity and the fact that the new wave of wafers contracted at the latest pricing has yet to be produced, UMC’s revenue stalled slightly in 4Q21, to US$2.12 billion, up 5.8% QoQ. GlobalFoundries benefited from the release of new production capacity, product mix optimization, and new long-term agreement (LTA) pricing, pushing up ASP performance. Revenue in 4Q22 hit US$1.85 billion, up 8.6% QoQ. SMIC posted 4Q21 revenue of US$1.58 billion, 11.6% QoQ, due to mounting demand for products such as HV, MCU, Ultra Low Power Logic, and Specialty Memory as well as factors such as product mix adjustment and appreciating ASP.

Surpassing DB Hitek, Nexchip officially breaks into the top 10 in 4Q21

The foundries ranked 6th to 9th are HuaHong Group, PSMC, Vanguard International Semiconductor (VIS), and Tower Semiconductor (Tower), respectively. Each has benefiting from factors such as a utilization rate uniformly at full capacity, release of new production capacity, and adjustment of ASP and product mix, sustaining the growth of revenue performance. It is worth mentioning, the acquisition of Tower by Intel netted Intel mature process technologies and a customer base and expanded the diversity and production capacity of its foundry business. However, before this transaction is officially completed, Tower is still considered an independent entity in terms of the accounting process. TrendForce states, after Intel’s foundry business is properly integrated with Tower, Intel will officially enter the ranking of top ten foundries.

Coming in 10th on the top 10 foundry ranking is Nexchip with revenue of US$352 million and a quarterly growth rate of 44.2%, the fastest growth rate among the top ten, and officially surpassed DB Hitek. According to TrendForce investigations, the primary reason Nexchip was able to break into the top 10 in 4Q21 was the company’s diligent production expansion. Nexchip also plans to develop more advanced processes such as the 55/40/28nm nodes and multiple product lines including TDDI, CIS, and MCU, to compensate for its current single product line and limited customer base. Since Nexchip is currently ramping-up operations quickly, its growth performance in 2022 should not be underestimated.

Regarding rising tensions stemming from the Russian-Ukrainian war, TrendForce indicates that Russia is not one of the Taiwanese foundry industry’s primary markets. Hence, while sanctions against Russia continue to pile up, their impact on Taiwanese foundries will likely remain limited, though the war may potentially result in a decline in sales of end-devices, thereby indirectly reducing manufacturers’ component demand and, subsequently, wafer inputs at foundries.

TrendForce indicates that the smartphone industry will be noticeably affected by the ongoing war. Take the ranking of smartphone brands by market share in Russia and Ukraine last year, for instance; the top three brands sold included Samsung, Xiaomi, and Apple, which had a combined annual sale of about 45 million units for 2021. Since the inception of the armed conflict, there have been continued fluctuations in currency exchange rates, with the Ruble plummeting in value, and this devaluation has been noticeably reflected in retail sales of iPhones. More specifically, the retail price for the iPhone 13 Pro 128 GB has risen by almost 50% in Russia. Such price hikes pertaining to electronic items will likely prompt consumers to reallocate a rising portion of their spending to other daily necessities instead. Therefore, the two countries’ demand for chips is expected to rapidly shrink, in turn leading IC design companies to reduce their wafer input at foundries.

With foundries terminating their supply to Russia, will Chinese companies subsequently benefit from redirected orders?

Although Russia is not a major market for the Taiwanese foundry industry, certain Elbrus-branded chips, used in military and networking applications, are manufactured by TSMC. Notably, the Washington Post indicated that TSMC is no longer manufacturing and shipping Elbrus products, while there have also been rumors suggesting Chinese semiconductor companies may reap benefits in response. TrendForce, however, believes that, even though Chinese foundries are able to provide the 1Xnm and more mature process nodes necessary for Elbrus chip production, the requisite redesign and verification processes will likely take at least one year. As such, Russia will have a difficult time immediately redirecting orders for Elbrus chips to Chinese foundries, and the Chinese semiconductor industry will not be able to take advantage of these orders in the short-term.

Escalating warfare places significant stress on transportation, logistics, and supply chains

In light of the ongoing conflict, various parties have been imposing diverse sanctions on Russia, and the shipping industry has, in turn, sustained both direct and indirect ramifications pertaining to their businesses’ stability and safety. Logistic disruptions and skyrocketing prices, for instance, represent some of the issues that have emerged post-conflict and placed undue stress on the global supply chains. As a hotbed of semiconductor production, then, Taiwan would naturally be assumed to have domestic semiconductor companies stockpile component inventories. However, according to TrendForce’s investigations, not only do most of these companies currently possess healthy inventory levels, but Russia and Ukraine also do not represent the sole sources of semiconductor materials for Taiwan, since Taiwanese companies have been sourcing materials from China as well. Hence, the Russian-Ukrainian war has caused neither noticeable stock-up activities nor production bottlenecks for Taiwanese semiconductor companies.

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Since February 14, UMC subsidiary Hejian Technology (HJTC), had entered phased shutdown and temporary suspension due to the pandemic, according to TrendForce‘s investigation. The plant is an 8-inch fab and its production capacity accounts for approximately 25% of UMC’s total 8-inch capacity and approximately 3% of global 8-inch capacity. Since this incident was not an unforeseen accident, utilization rate during the phased shutdown was maintained at roughly 25~30% and wafers on the production line did not need to be scrapped. The plant has gradually resumed operation today (2/24). Since it takes approximately five to seven days to recalibrate semiconductor equipment, full recovery of overall utilization rate is expected to fall in early March with an estimated wafer input loss of 14~20 days, affecting approximately 4~5% of the company’s 8-inch production capacity this quarter or approximately 0.4~0.5% of global 8-inch production capacity, a manageable situation overall.

UMC HJTC Fab 8N contains 0.5μm~0.11μm node production lines and is a full eight-inch fab. The actual proportion of customer products on the production line at the time of the incident is as follows: HJTC’s largest client Silergy accounted for 40% of the production line for PMICs, with most end applications being consumer and industrial products such as IP cams, air conditioners, and refrigerators. SinoWealth and Novatek each accounted for 13% of the production line with products such as MCUs and large size DDIs. Other PMIC clients include Mediatek and GMT who accounted for approximately 35% of the plant’s production capacity.

Since most customer products allocated to this fab are simultaneously produced at the UMC fab in Taiwan or at other fabs and end-user products including smartphones, TVs, and laptops are all currently in the off-season, restocking momentum is weak. TrendForce believes that although the shutdown was longer than expected, since no wafers were scrapped on the production line and the cycle time of some PMICs is short, wafer input losses have an opportunity to be mitigated through expedited order production and have limited impact on shipments. In terms of revenue, due to the relatively low selling price of 8-inch wafers, the impact of this incident on UMC’s annual revenue performance falls within a 0.3% range.

Intel officially confirmed on February 15 that it will acquire Israeli foundry Tower Semiconductor for nearly US$6 billion, and the deal will likely contribute to the growth of Intel’s foundry business if it reaches a successful conclusion, according to TrendForce’s latest investigations. Tower was 9th place in the global ranking of foundries by revenue for 4Q21 and operates a total of seven production sites across Israel, the US, and Japan. Tower’s foundry capacity in 12-inch wafer equivalents accounts for about 3% of the global total. The majority share of Tower’s foundry capacity is for 8-inch wafers, and Tower’s share of the global 8-inch wafer foundry capacity is around 6.2%. Regarding manufacturing process platforms, Tower offers nodes ranging from 0.8µm to 65nm. It has a diverse range of specialty process technologies for manufacturing products in relatively small quantities. Products that Tower has been contracted to manufacture are mostly RF-SOI components, PMICs, CMOS sensors, discretes, etc. As such, the Tower acquisition is expected to help Intel expand its presence in the smartphone, industrial equipment, and automotive electronics markets.

Although Intel undertook a series of business strategies to compete with TSMC and Samsung, IFS (Intel Foundry Services) has historically manufactured with platform technologies for processors such as CPUs and GPUs. Furthermore, competition still persists between Intel and certain foundry clients that require advanced processes below the 10nm node, such as AMD and Nvidia, which have long histories of developing server products, PC CPUs, GPUs, or other HPC-related chips. Intel’s preexisting competitive relationship with these companies may become a barrier to IFS’ future expansion because IFS will be relatively unlikely to attract them as customers.

Taking the aforementioned factors into account, TrendForce believes that the Tower acquisition will likely expand IFS’ business presence in the foundry industry through two considerations. First of all, the acquisition will help Intel both diversify its mature process technologies and expand its clientele. Thanks to advancements in communication technologies and an increase in demand for new energy vehicles, there has been a recent surge in demand for RF-SOI components and PMICs. Tower’s long-term focus on the diverse mature process technologies used to manufacture these products means it also possesses a long-term collaborative relationship with clients in such markets. By acquiring Tower, Intel is therefore able to address IFS’ limited foundry capabilities and limited clientele. The second consideration pertains to the indigenization of semiconductor manufacturing and supply allocations, which have become increasingly important issues in light of current geopolitical situations. As Tower operates fabs in Asia, EMEA, and North America, the acquisition is in line with Intel’s current strategic aim to reduce the disproportionate concentration of the foundry industry’s supply chain in Asia. As well, Intel holds long-term investments and operates fabs in both the US and Israel, so the Tower acquisition will give Intel more flexibility in allocating production capacities, thereby further mitigating risks of potential supply chain disruptions arising from geopolitical conflicts.

In addition to the aforementioned synergy derived from acquiring Tower, it should also be pointed out that Intel is set to welcome an upcoming partnership with Nuvoton. Tower’s three Japan-based fabs were previously operated under TowerJazz Panasonic Semiconductor, a joint venture created by Tower and Panasonic in 2014, with Tower and Panasonic each possessing 51% and 49% ownership, respectively. After Nuvoton acquired PSCS (Panasonic Semiconductor Solutions Co.) in 2020, Panasonic’s 49% ownership of the three fabs was subsequently transferred to Nuvoton. Following Intel’s Tower acquisition, Intel will now possess the 51% majority ownership of the fabs and jointly operate their production lines for industrial MCUs, automotive MCUs, and PMICs along with Nuvoton. Notably, these production lines also span the range of CIS, MCU, and MOSFET technologies previously developed by Panasonic.

For more information on reports and market data from TrendForce’s Department of Semiconductor Research, please click here, or email Ms. Latte Chung from the Sales Department at lattechung@trendforce.com

Ukraine is a major supplier of raw material gases for semiconductors including neon, argon, krypton, and xenon, according to TrendForce’s investigations. Ukraine supplies nearly 70% of the world’s neon gas capacity. Although the proportion of neon gas used in semiconductor processes is not as high as in other industries, it is still a necessary resource. If the supply of materials is cut off, there will be an impact on the industry. TrendForce believes that, although the Ukrainian-Russian conflict may affect the supply of inert gas regionally, semiconductor factories and gas suppliers are stocked and there are still supplies from other regions. Thus, gas production line interruptions in Ukraine will not halt semiconductor production lines in the short term. However, the reduction in gas supply will likely lead to higher prices which may increase the cost of wafer production.

Inert gases are primarily used in semiconductor lithography processes. When the circuit feature size is reduced to below 220nm, it begins to enter the territory of DUV (deep ultraviolet) light source excimer lasers. The wavelength of the DUV light generated by the energy beam advances circuit feature sizes to below 180nm. The inert gas mixture required in the DUV excimer laser contains neon gas. Neon gas is indispensable in this mixture and, thus, difficult to replace. The semiconductor lithography process that requires neon gas is primarily DUV exposure, and encompasses 8-inch wafer 180nm to 12-inch wafer 1Xnm nodes.

TrendForce research shows, in terms of foundries, global production capacity at the 180~1Xnm nodes accounts for approximately 75% of total capacity. Except for TSMC and Samsung, who provide advanced EUV processes, for most fabs, the proportion of revenue attributed to the 180~1Xnm nodes exceeds 90%. In addition, the manufacturing processes of components in extreme short supply since 2020, including PMIC, Wi-Fi, RFIC, and MCU all fall within the 180~1Xnm node range. In terms of DRAM, in addition to Micron, Korean manufacturers are gradually increasing the proportion of 1alpha nm nodes (using the EUV process) but more than 90% of production capacity still employs the DUV process.  In addition, all NAND Flash capacity utilizes DUV lithography technology.

For more information on reports and market data from TrendForce’s Department of Semiconductor Research, please click here, or email Ms. Latte Chung from the Sales Department at lattechung@trendforce.com