Fast Turn Chip Opinion: Lack of core in the second half of 2022? Or is it overstocking?

If the “out of stock, price increase” market is the curse that has plagued companies for two years, then the “order cut and price reduction” market that will rapidly reverse in 2022 will become another nightmare for the industry.

Since July, the market has successively reported the news of “substantial reduction of orders” in the semiconductor supply chain, involving Apple, Samsung, Dell, HP, AMD, NVIDIA, TSMC and other leading manufacturers, covering driver IC, TDDI, PMIC, Key chips/components such as CIS, MCU, SoC, and MOSFET have revived the pessimism of the entire industry chain. But in fact, as early as March and April, there were a small wave of rumors of order cutting, but at that time, the scope of order cutting was small and the chip categories covered were limited, so it did not attract widespread attention.

In July, market news said that the storm of semiconductor chip cutting orders and price reductions expanded again, mainly involving MCUs, especially for consumer applications, where the price dropped the most. Unconfirmed news – you know, MCU was at the cusp of the “lack of core price increase” in the past two years – now the market has reversed greatly, and the “order cut” and “price reduction” are coming, which is really surprising. Confused.

Semiconductors cut a single wave, is it true or false?

It should be emphasized that this semiconductor “slashing wave” is mainly concentrated in the field of consumer electronics. This means that it is not the entire semiconductor order that has been cut, the semiconductor demand in the automotive and industrial control fields is still full, and the industry needs to look at and evaluate it objectively from a multi-dimensional perspective.

(1) Who is cutting orders?

The first shot of consumer electronics brand manufacturers in the partial “slashing storm” of semiconductors. Anecdotal news (Table 1) found that Samsung was the first company to cut orders, and it was also the most frequent company to cut orders. It has cut orders three times throughout the year, and has revised down its annual shipment target many times. Coincidentally, Apple, Xiaomi, OPPO, vivo and other manufacturers that are the same as Samsung in the field of consumer electronics are also suspected of “cutting orders”. Then there is the PC field. It is rumored that Dell will cut orders by 50% for the entire PC product line in order to avoid inventory declines. HP, the world’s second PC manufacturer, is also evaluating, which may make the PC market in the third quarter “not prosperous”. In addition, home appliance manufacturers also show signs of cutting orders, such as Samsung and LG Electronics.

(Table 1) The data is obtained through the Internet, if there is any inaccuracy, please contact to delete

(2) Who was cut off?

The orders of consumer electronics brand manufacturers have been transmitted to the upstream of the supply chain, and the fastest manifestation is the foundry and panel links, followed by some types of chips and components. According to observation, this time the order cut is the first action of downstream terminal brand manufacturers, the purpose is to deal with the weak market on the demand side and digest inventory. Some large terminal brand manufacturers will cooperate directly with large foundries, so the downstream order cut market will be transmitted to the foundry link faster. Subsequently, terminal brand manufacturers will cancel orders for some key chips. After these chip manufacturers are cut off, they will feed back to the foundry again upstream, causing the foundry process to be “attacked from both sides”. According to TrendForce’s survey, wafer foundries are seeing a wave of order cuts, and the first wave of order revisions comes from large-size driver ICs and TDDI, whose mainstream processes are 0.1Xμm and 55nm, respectively. It is expected that in the second half of the year, the phenomenon of order cutting may occur in 8-inch and 12-inch factories, and the process includes 0.1Xμm, 90/55nm, 40/28nm, and even the advanced process of 7/6nm. It is worth mentioning that even the foundry leader TSMC is also rumored to be the target of cutting orders, and its customers include semiconductor giants such as Apple, AMD, and Nvidia. In this regard, the relevant department of TSMC replied that it does not comment on market speculation or rumors. Most of the terminal application products of panels are consumer electronic products, so when leading manufacturers such as Samsung and Dell suddenly suspend purchases, panel manufacturers will also be hit hard. According to industry analysis, currently affected by the cut orders include BOE, LGD, AUO, Innolux, CSOT, Sharp and other panel makers in mainland China, Taiwan, and South Korea. In terms of chips, the categories that were initially cut off were large-size driver ICs and TDDIs, because these two types of chips were directly used in panel applications; followed by consumer-grade PMICs, CIS, MCUs, and SoCs. Packaging demand for consumer electronics ICs such as MOSFETs and low-end logic ICs has declined significantly and may continue until the end of the first quarter of 2023.

(3) Industries with high shortages such as automobiles and industrial control are still in a “core shortage trend”

What needs to be viewed objectively is that from the perspective of current market supply and demand changes, semiconductors are not in a wave of cutting orders across the board. Although the supply of chips for consumer electronics has been loosened and the prices of some products have fallen, demand in popular fields such as automobiles, industrial control, data centers, new infrastructure, and medical care is still high. Taking MCU as an example, the price of MCU before June was still very strong, leading manufacturers also extended the delivery period (generally 50 weeks), overseas major manufacturers also started multiple rounds of price increases, and domestic manufacturers also followed the price increase trend. But in July, the supply of consumer MCUs is oversupplied, and the price has dropped significantly (for example, STM32F103C8T6 has already cut its price, and STM32F103RCT6 has dropped from a high of 100 yuan to double-digit prices); on the other hand, automotive chips, industrial control chips, and medical chips are still in short supply. , especially 32-bit high-priced MCUs. Taking TI chips as an example, the power management IC (TPS51200DRCR) dedicated to DDR memory has dropped from 2 digits when the market price was high to today’s single digits; on the other hand, the price of car specifications has risen from the normal price to several hundred yuan, which can be described as It’s the “two layers of ice and fire”. From this assessment, it is believed that part of the order cut should be true, especially in the field of consumer electronics. However, the impact of order cutting is still within the controllable range; at the same time, after the end of the shortage of cores, it is inevitable for the industry to enter a new downward channel. For the time being, the industry does not need to talk about the discoloration of “order cutting” and “price reduction”.

Reason analysis: demand side, supply side, domestic substitution

The fundamental factor behind this round of single-handling cuts is the cooling of the demand side.

With the weakening of the home economy effect, coupled with the outbreak of the epidemic, the Russian-Ukrainian war, global inflation and other events that have successively impacted the supply chain, the market demand for consumer electronics has been suppressed in the short term, and the demand for consumer electronics such as PCs, NBs, and mobile phones has cooled significantly. . Faced with the dual pressures of declining consumer demand and excessive existing inventory, downstream end customers have to moderately reduce operating pressure by cutting orders. Shipments of nearly every consumer electronics product, from phones to TVs, laptops to tablets to desktops, will decline in 2022. According to data from the China Academy of Information and Communications Technology, from January to June 2022, the total shipments of mobile phones in the Chinese domestic market totaled 136 million units, a year-on-year decrease of 21.7%. Among them, 5G mobile phone shipments were 109 million units, a year-on-year decrease of 14.5%. Sunny Optical, a mobile phone camera module supplier, said in an institutional survey that the company predicts that global mobile phone sales in 2022 will be 1.22 billion units, a year-on-year decrease of 7.9%; Chinese mobile phone sales will be 260 million units, a year-on-year decrease of 16.9%; European market sales will be 170 million units , down 15% year-on-year; 790 million units in other regions, down 2.6% year-on-year. The TV market is also not optimistic.

Omdia forecast in May that global TV shipments were estimated at 212 million units this year, the lowest since 2010 and about 1.89 million fewer than last year. In the first quarter, demand in North America, Europe and China fell sharply by around 20% from a year ago. In terms of PC, market research firm Gartner predicts that global PC shipments will drop by 9.5% in 2022. Among them, the demand for PCs by enterprises is expected to decline by 7.2% year-on-year in 2022, while the demand for PCs by individual consumers will decline more significantly, falling by 13.1%.

The second factor in this round of single-sale cuts comes from the supply side.

Since 2020, global foundries and international IDMs have announced production expansion news one after another, such as TSMC, UMC, Intel, Samsung, NSMC, SMIC, Micron, STMicroelectronics, Hua Hong, GF, Silan Micro , BYD Semiconductor, etc. Although this does not mean that with the completion of the construction of the factory, the production capacity can be quickly converted into output, but the terminal manufacturers have more or less reduced the behavior of repeated orders and panic orders – from repeated orders to normal orders , the current situation of reduced order volume is also regarded as “order cut”. In the middle link, the chips previously ordered by many spot merchants have arrived one after another. These are the goods that were hoarded at high prices in the early stage. The epidemic has repeatedly caused a lot of goods to be unable to be shipped, making a large amount of inventory in their hands, superimposed on multiple factors such as sluggish downstream demand. They had to sell goods at lower prices to reduce losses. The wait-and-see mood of terminal manufacturers has increased. Even though it is clear that the chip inventory is almost unable to meet the production demand, they have been hesitant to deliver the goods, waiting for the price of chips in the fields they need to drop. Despite the current situation, there are still colleagues who actively predict that the Russian-Ukrainian war and the epidemic will eventually pass. With the weakening of the impact of the epidemic and the war, the enthusiasm for resumption of work and production, and consumption stimulus policies, market demand will gradually be driven by factors such as policies. Recovery, release, and the current capacity growth is lower than expected.

Domestic substitution has made progress, and chip imports have decreased year-on-year.

The development of domestic substitution also plays an important role in this wave of price cuts. On the one hand, domestic chip manufacturers are accelerating their entry into the chip field, realizing independent R&D and manufacturing of chips, and reducing their dependence on imported chips; on the other hand, the prices of some imported chips have soared, and many terminal manufacturers cannot afford them, so they began to adjust their plans and look for domestic alternatives. , the domestic chips also flowed smoothly to the downstream terminal factories. According to data, from January to April this year, the purchase of imported chips by Chinese enterprises has decreased by 24 billion pieces; from January to May, the number has risen to 28.3 billion pieces, which is equivalent to an average monthly reduction of 5.6 billion pieces of imported chips. However, in terms of automotive and industrial chips, foreign technologies are mature, and the threshold for substitution is still high. Domestic semiconductors will still show a catching up trend in the long run. Taking ST as an example, the price of some ST models is still firm, mainly concentrated in the mid-to-high-end chips that are not easy to replace in China, such as the STM32F7, STM32F4, and STM32H series, which are still in extreme shortage.

What is the impact of the local single wave on the industry chain?

(1) Equipment and material links

First of all, the performance of all industrial chain links closely related to terminal demand has not been as good as expected; while the upstream material and equipment links have maintained a relatively stable growth. Based on the performance guidance, operating conditions, institutional research and analyst judgments of A-share semiconductor companies, the “slashing wave” of semiconductors has not affected the two upstream links of equipment and materials. In terms of equipment, many companies have given forecasts on the amount of orders/performance in the first half of the year, and even the amount of new orders of some companies has exceeded the annual revenue of last year, and many manufacturers have disclosed that “the orders are sufficient” during the survey. For example: the amount of new orders of Zhichun Technology in the first half of the year has exceeded the annual revenue of last year; the order amount of Zhongwei Company is also equal to the revenue of last year; the net profit attributable to the parent company of Xinlai Yingcai in the first half of the year is close to the level of the whole year of last year. The semiconductor business is full of orders on hand. In addition, among the companies that have not announced their performance, the demand for many orders is also quite optimistic. For example, the new orders signed by Xinyuan Micro in Q2 are still growing rapidly, and the previous products have been imported by companies such as Silan Micro and China Resources Micro; Demand for some products is even “more optimistic than the company’s own calculations.” Equipment manufacturers such as North Huachuang, Shengmei Shanghai, and Tuojing Technology, without exception, have clearly stated that they have sufficient orders in hand.

In terms of material companies, under the large-scale expansion of downstream fabs, the demand for this link is expected to surge. Some manufacturers will show a continuous growth in orders in the four quarters of 2022. For example: Leon Micro’s net profit in the first half of the year is expected to increase by 132.09%-146.44% year-on-year; Dinglong Co., Ltd. is expected to achieve a net profit of 177 million-198 million yuan in the first half of the year, an increase of 93%-116% year-on-year, close to the net profit of last year (2.14 100 million yuan); Anji Technology revealed that the company’s sales in the first half of the year were not affected by the epidemic. At the same time, with the continuous iterative upgrade of customer technology, the company’s product usage will continue to grow.

(2) Wafer foundry link

As for the link that is greatly affected by the wave of cutting orders, the first to bear the brunt is the upstream foundry, such as TSMC. But the actual capacity of the foundry remains fully loaded. It was reported in early July that due to the cooling down of the demand for terminal consumer electronics, the inventory level was too high. The market reported that TSMC had been cut by three major customers, Apple, AMD and Nvidia. TSMC’s stock price ended July 1 at 453.5 yuan, a sharp drop of 22.5 yuan. Yuan, a drop of more than 4.7%, and the market value fell below the 12 trillion yuan mark. TSMC Chairman Mark Liu has previously admitted that demand for chips for consumer electronics such as smartphones and personal computers has weakened. But at the same time, he is also optimistic that for TSMC, thanks to the strong demand for chips for automotive and high-performance computing products, its production capacity will continue to remain fully loaded this year, mainly due to the steady demand for automotive and high-performance computing chips. For its full-year revenue forecast, TSMC said its revenue will grow by about 30% this year, compared to last year’s 24.9% increase (in U.S. dollars); this is in line with the company’s April forecast. The figure was higher than the 20% increase expected for the entire wafer manufacturing industry, executives said at the company’s recent annual shareholder meeting.

(3) Terminal and consumption links

For terminal manufacturers, order cutting is only a temporary measure, and relying on order cutting will lead to insufficient market innovation and form a vicious circle. Taking a smartphone as an example, it is well known that even if the current mobile phone product design maximizes peripheral configurations such as fast charging and imaging, as long as the user experience does not usher in a qualitative change, it will be difficult to arouse users’ desire to buy. It can even be said that smartphones have fallen into the bottleneck of innovation, with fast replacement and less innovation, which makes the replacement time of ordinary consumers gradually prolonged, and the enthusiasm for replacement is greatly reduced. Nowadays, there is a wave of slashing orders, which seems to be a “strong man’s broken arm”, but in fact, it may restrict its own replacement cycle, resulting in a narrower and smaller range of choices for consumers, and the consumer market continues to slump. According to data from the China Academy of Information and Communications Technology, from January to June 2022, a total of 201 new models were launched in China, a year-on-year decrease of 5.6%.

(4) Distribution link

Finally, let’s talk about the component distributors in the middle of the industry chain, their views on the single wave of cutting. Ten representatives of distributors were randomly surveyed, and all of them said that “the tide of cutting orders has had a direct impact.” The worst impact is that the downstream end customer does not pick up the goods. “Some goods are bought at high prices, but now they cut orders and cut prices, either stop losses or stick to profits, both of which are pressures for companies.” An anonymous interviewee said, “So, whether it is a lack of The market price of goods is rising, or the current situation of cutting orders and lowering prices. The value of distributors cannot only be reflected in traditional services such as invoicing, order distribution, and billing. Today’s distributors are required to achieve “decathlon” To provide customers with more professional, one-stop value-added services.”

(The above opinions are all from the editors of Fsat Turn Chip. If they are not true, please contact to delete them.)

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