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The "price rise due to lack of core" market which lasted for about two years dropped significantly in the second half of this year. Dragged down by the weak demand in the consumer electronics market of the "leading big brother", international semiconductor giants have reduced their capital expenditure. The profit of A-share semiconductor listed companies slowed down for the first time in the third quarter. The high inventory from the client end to the channel end has become the "winter" that the entire industry has to go through.

As the COVID-19 prevention and control measures are liberalized, the electronics industry represented by consumer electronics is expected to move towards a recovery channel.

The insiders pointed out to the Securities Times that with the continuous optimization of epidemic control policies, consumer electronics is expected to benefit first and drive the demand for semiconductors to gradually recover. From the supply side, domestic semiconductors have entered the "deep-water area" in an autonomous and controllable process. A number of industry leading companies in chip segmentation have expanded against the trend, aiming at high computing chips, automotive electronics, industrial control and other fields, improving product lines, upgrading business structure, and strengthening cooperation with the upstream and downstream of the industrial chain.

The ebb of "price rise due to lack of core"

Slow recovery of consumer electronics

On December 7, the Comprehensive Group of the Joint Prevention and Control Mechanism of the State Council issued the Notice on Further Optimizing the Implementation of the Prevention and Control Measures for the COVID-19 (referred to as the "New Ten"), which proposed scientific and accurate division of risk areas, further optimization of nucleic acid detection, optimization and adjustment of isolation methods, etc. With regard to the latest impact of the adjustment of epidemic prevention control, a wafer factory engineer told the reporter that the employees were still waiting for the notification of the adjustment of the company's epidemic prevention measures, and the closed-loop production status of the factory and dormitory was expected to improve in the last two weeks.

"Looking around, almost half of the production lines in the workshop have been idle, which is very rare in the past two years." The wafer factory engineer also revealed to the reporter that the turnover rate of the production line has dropped significantly compared with the same period last year. The company has restricted employees from working overtime in the second half of the year, and the recruitment has been basically suspended.

In the past two years, under the "price rise due to lack of core" market, customers once competed to pay advance payment to the wafer factory to lock the wafer production capacity in the next 3 to 5 years, and the production line ran at full load.

The production status of the wafer factory has become a microcosm of the semiconductor cycle adjustment.

As the leader of A-share wafer foundry, SMIC International's net profit in the third quarter of this year was 3.138 billion yuan, up 51.1% year on year, but down month on month; The Company's capacity utilization rate and gross profit margin decreased by 5 percentage points and 0.2 percentage points respectively on a month on month basis.

Zhao Haijun, the joint CEO of SMIC International, said at the third quarterly report performance briefing that the slow destocking of smartphones and consumer electronics led to a weak desire of customers to film; Although the industrial control field is relatively stable, the growth rate is limited; Automobile terminal consumption has strong resilience, and there is still a demand gap in the industry. Therefore, SMIC International expects its operating revenue in the fourth quarter to drop by 13% to 15% month on month, and its annual operating revenue is expected to be about 49.4 billion yuan, up about 38% year on year.

"This round of adjustment of the wafer foundry industry will last at least until the first half of next year, and there is no sign of recovery in the industry at present," Zhao Haijun said.

During the COVID-19 that began in early 2020, the semiconductor market experienced a special situation of continuous revenue growth, creating a historical quarter of revenue growth for eight consecutive quarters, but the market began to shrink in the past two quarters.

As the largest segment of the semiconductor market, the memory market has become a "disaster area" under the semiconductor cycle fluctuations.

Taking DRAM as an example, Jibang Consulting pointed out that in the third quarter of 2022, the revenue of DRAM industry was US $18.19 billion, a month on month decline of 28.9%, the second highest recession since the 2008 financial crisis. Among them, the demand for consumer electronics continued to shrink, and the decline in contract price not only expanded to 10%~15%, but also the server DRAM field, where shipments were relatively stable, also suffered from client inventory adjustment, and the momentum of goods pulling fell significantly compared with the second quarter. In addition, the revenue of Samsung, SK Hynix and Micron, the world's three largest storage manufacturers, declined month on month in the third quarter. The market expects that the inventory reduction in 2022 will last at least until the first half of 2023, and the profit space will continue to be compressed.

"The memory industry is characterized by 'three years without opening, three years without opening'." Chen Lei, deputy general manager of Dongxin, also pointed out that when the market rose, some memory suppliers even increased their prices on a monthly basis. After reaching the top, the product prices directly took the "slide", and dropped a lot every month or even every order. Relatively speaking, Dongxin's income mainly comes from the fields of communication and industrial control and contributes to the vehicle gauge market, so it is relatively less affected.

As for the impact of deregulation of epidemic prevention control on industry demand, insiders generally said that consumer electronics would be the first to benefit, but it needs a certain process. Chen Lei still kept his previous prediction to reporters, and the market price is expected to improve in the second half of next year.

"Consumer electronics is expected to rebound from the bottom and drive the demand for semiconductors to recover." Zhao Zhanxiang, partner and CTO of Yunxiu Capital, told reporters that the price rise due to the lack of core in the past two years has led customers and channels to accumulate a large amount of inventory, which is expected to reach a relatively normal level by the first half of next year.

A TWS master chip manufacturer told reporters that consumer electronics is expected to recover slowly with the liberalization of domestic epidemic prevention control policies. Specifically, the low-end products in the fourth quarter of this year have gradually recovered, and the shipment volume has increased month on month. There is still a gap from the previous level.

High inventory "cold winter" hit

"2021 is an abnormal year. According to the normal fluctuation cycle, this round of semiconductor market adjustment is long overdue." The head of the leading company of A-share local electronic distributors stressed to the reporter that the COVID-19 has disrupted the cycle adjustment rhythm, and now the industry has shifted from the "seller" market to the "buyer" market.

In the context of the fall back of consumer electronics demand, the ebb signal of the lack of core appeared repeatedly from the end of 2021. The middle and low-end categories that had been the first to rise in price had ebbed first, and the LED price rise had converged first, driving the share prices of IC and MCU listed companies to decline from the third quarter of 2021. As the demand for consumer electronics in major categories such as smartphones and PCs dropped significantly this year, the overall lack of "core" in the electronics industry turned to structural shortage of some varieties. The downward pressure of the semiconductor industry cycle spread to other categories. By the third quarter of this year, the overall profits of semiconductor listed companies had slowed significantly, and the inventory pressure had risen to an unprecedented historical level.

According to the statistics of the reporter of Securities Times · e Company, (Shen Wan) listed semiconductor companies achieved a net profit of 340.5 billion yuan in the first three quarters of this year, up 15% year on year, breaking through the 300 billion mark for the first time. However, against the background of the increase in the number of listed semiconductor companies, the profit scale only increased by about 5% year on year, while the inventory scale reached 143.3 billion yuan, an increase of about 80% year on year, and the inventory turnover rate declined as a whole. At the same time, the scale of provision for impairment in the semiconductor industry in the first three quarters of this year hit a new high in recent three years.

Among them, IC Design Company and Weier, the leading image sensor company, accrued 452 million yuan, and Wentai Technology, Nasda, Gekewei, etc. accrued more than 200 million yuan. A number of companies that have made provision for impairment pointed out that due to the decline in demand in the downstream consumer electronics market, the competition in the consumer electronics market, represented by smartphones, is more intense, and the unit prices of some products have declined. Therefore, the inventory falling price reserves for related consumer electronics products and some products with longer stock ages have been made.

For different segments of the semiconductor industry, the inventory pressure is also different. According to statistics, Lihe Micro, Tuojing Technology-U, Hongwei Micro, Luwei Optoelectronics, Zhichun Technology, Taiji Shares, Shanghai Silicon Industry-U, Sai Microelectronics, etc. have bucked the trend year on year to improve the inventory turnover efficiency. They are mainly distributed in the semiconductor equipment, materials and power semiconductor sub sectors, with relatively stronger anti cyclical risk ability. Driven by the new energy industry, IGBT (insulated gate bipolar transistor) The production capacity of such subdivided semiconductor fields as silicon carbide substrate is still in short supply.

Starr semi conductors told reporters that the demand for IGBT has always been very full. From January to September this year, the revenue from new energy industry (including new energy vehicles, new energy power generation and energy storage) accounted for more than half of the total revenue, which became the main driving force for the company's performance growth. Among them, the company's vehicle specification level semiconductor modules have been applied in large quantities in domestic mainstream new energy vehicle manufacturers for many years, and the market share has been continuously improved, becoming the main supplier of vehicle specification level power semiconductor modules for domestic new energy vehicles.

For the cyclical overall fluctuation of the semiconductor industry, industry insiders are calm, and most expect the adjustment to last until the second half of 2023.

"Consumer electronics will decline in the past two years due to the epidemic, and the mobile phone market accounts for the largest proportion of consumer electronics. However, in the long run, after years of rapid development, it is also very reasonable for consumer electronics to undergo periodic adjustment." Zhang Jiancheng, general manager of Juchen, said at the recent IC special session of the third quarter of 2022 performance presentation of the Science and Technology Innovation Board that the semiconductor industry fluctuates periodically, With the change of the whole world economic situation, it has become increasingly complex.

Others believe that major adjustments such as storage are expected to bottom out "passively" in the fourth quarter of this year. According to the research report released by Tianfeng Securities recently, under the background of weak demand, customers are expected to reduce capital expenditure or make the cycle bottoming out gradually, which is expected to help improve the supply and demand of memory chips. The price of memory chips will further decline month on month in the fourth quarter of 2022, which may be a negative expectation.

Recently, CESTC executives pointed out that in the consumer market, the demand of domestic customers has not fully recovered, but in some segments, especially in areas with high product complexity and relatively high technical threshold, some customer inventory adjustments have shown relatively positive inflection points.

Countertrend expansion

Fali high-end production line

Under the downward pressure of the semiconductor industry cycle, the wafer foundry giants such as TSMC, World Advanced, Li Electromechanical, and storage manufacturers such as Micron, South Asia Branch, SK Hynix, and Armour have reduced their capital expenditure on semiconductor equipment. SEMI (International Semiconductor Industry Association) again lowered its expenditure on global wafer factory equipment in 2022, which was the latest US $99 billion, compared with the historical high of US $102.6 billion set by the global semiconductor equipment market in 2021.

However, the giants did not slow down the development of advanced processes. On December 6, TSMC held a relocation ceremony at its new plant in Arizona, the United States, and announced that it would increase its investment in the new plant to US $40 billion, making it one of the largest foreign direct investment projects in American history. TSMC will build a second factory to introduce the most advanced 3nm process. It is estimated that the annual revenue will reach US $10 billion in 2026 for mass production.

"Even if the international situation changes and it is more difficult for domestic semiconductors to catch up with the international advanced level, the investment is still optimistic about the more difficult sectors. These areas are highly scarce, and the P/E ratio will also be higher." Zhao Zhanxiang told reporters that the logic standard of semiconductor investment is still scarce, optimistic about the development of high-end chips, and optimistic about the characteristic process products and highly difficult chips, such as silicon light, high-end sensors High end analog chips, etc.

In FPGA (field programmable logic gate array) chips with relatively low localization rate, domestic semiconductors are also continuing to achieve breakthroughs in product upgrading.

Anlu Science-U's net profit increased from a loss in the first three quarters of last year to a profit of 61.61 million yuan in the first three quarters of this year, mainly from breakthroughs in industrial, medical and other fields. On December 2, Anlu Technology announced the launch of several products and devices of "Phoenix" series and "Spirit" series. The company's four major series of products have been able to cover the multi-level market of high performance, high efficiency, low power consumption and high integration.

In addition, Fudan Microelectronics, the A-share FPGA leader, has broken through a number of core key technologies of EDA software supporting FPGA. Its main businesses include security and identification chips, nonvolatile memory, smart meter chips, FPGA and other products. The company's net profit in the first three quarters of this year also doubled year-on-year.

On the whole, under the background of semiconductor cycle downturn, A-share semiconductor listed companies did not cut capital expenditure, but kept expanding against the trend, "rushing to make up for lessons".

In the third quarter of this year, SMIC's capital expenditure was about 12.47 billion yuan, and this year's annual capital expenditure was increased from about 32.05 billion yuan to 45.6 billion yuan, to pay for long-term equipment advances.

At the third quarterly report performance presentation meeting, Zhao Haijun said that in the next five to seven years, the company will have about 340000 pieces of 12 inch new production lines in total, such as SMIC Shenzhen, SMIC Capital, and SMIC Orient. Based on the long-term arrangement of these projects, the Company has to pay the advance payment for the order of equipment with long delivery period in advance, so the annual capital expenditure has been increased. At the same time, according to the long-term market demand, the company's construction progress may be appropriately adjusted according to market changes, procurement cycle, cost and other factors.

According to the analysis of Soochow Securities, the gap between supply and demand of local wafer production capacity is still large. By the end of 2021, China's global wafer production capacity accounted for only 16% (including TSMC, Hynix and other foreign capacity), which is far lower than the global semiconductor sales (35%). Self control is still the core driving force for counter cyclical expansion.

Even if TSMC cut its capital expenditure, it was still more than 5 times of SMIC's capital expenditure. However, some chip manufacturers are worried about the capacity intensive expansion of the wafer factory in recent years. If demand does not rise significantly, there will also be a surplus situation.

Changdian Technology, the A-share semiconductor seal test leader, also maintained its counter trend expansion. This year, the company plans to spend 6 billion yuan on capital, a significant increase year on year. Company executives pointed out that the equipment orders placed by the company are in line with the planned rhythm. Due to the increase of capital expenditure accounted for by infrastructure projects and the extension of delivery date of some equipment, the Company has extended part of the payment period according to the payment terms, and the cash capital expenditure is expected to be less than 6 billion yuan.

Zhao Zhanxiang, partner and CTO of Yunxiu Capital, told reporters that the reduction of overseas giants was mainly due to oversupply, while the continuous capital expenditure of domestic semiconductor giants was due to the low localization rate and the need to continuously increase investment; In addition, under the process of technology decoupling between China and the United States, localization has entered a deep-water area.

Although the profit of listed semiconductor companies slowed down, the scale and intensity of R&D investment increased significantly.

According to Wind's statistics, in the first three quarters of 2022, the research and development expenditure of listed semiconductor companies totaled 35.7 billion yuan, an increase of about 40% year on year. The average research and development expenditure accounted for 18% of the operating revenue from about 15% last year, and took high-end development as the development direction.

"The downtrend of the industry is an opportunity for the company to expand investment and adjust its production capacity structure by taking advantage of its own basic advantages." CESTC executives recently said that on the one hand, the delivery time of equipment in the downtrend cycle has improved significantly, and on the other hand, the company can better judge the demand in the reverse cycle, take the opportunity to expand investment, gradually adjust the product structure, and accelerate the rapid growth from consumer to market demand for automotive electronics, 5G communications, high-performance computing Strategic layout of storage and other high-value added markets, supplement capacity and business weaknesses, smooth the impact of semiconductor cycle fluctuations, and actively meet customers' medium and long-term capacity needs.

Industrial chain accelerates collaborative innovation

In recent years, with the "lack of core" and the geopolitical boost, semiconductor supply chain security has been concerned, IDM (chip design, wafer manufacturing, packaging and testing vertical integration model) has been highly praised, and collaborative innovation has also been accelerated upstream and downstream of the industrial chain.

In the view of CESTC executives, the division of labor in the semiconductor industry is becoming more and more obvious, and with the development of Chiplet heterogeneous integration technology, the cooperation and division of labor between the wafer factory and the packaging and testing enterprise is becoming more and more important. With the promotion and support of customers, the cooperation between the wafer factory and the post chip finished product manufacturer will be closer, forming a benign complement, and jointly breaking the physical limit of the progress of integrated circuit technology in the post Moore's Law era.

In 2021, Changdian Technology established a design service business department to assist and undertake the new design requirements for Chiplet products for design companies.