On November 28th, the World Semiconductor Trade Statistics Organization (WSTS) released its latest forecast for the semiconductor market. Due to the popularity of generative AI and the sharp increase in demand for related semiconductor products, as well as the expected significant recovery in storage demand, the estimated global semiconductor sales in 2024 have been revised up from the previous estimate of $575.997 billion on June 6 to $588.364 billion, an annual increase of 13.1%, surpassing the $574.084 billion in 2022 and setting a new historical high.

The global semiconductor industry is expected to bottom out and rebound in 2024, but currently, the semiconductor industry is still experiencing cyclical lows and grinding repeatedly. Relevant indicators in the wafer foundry field are still weak, and a recovery is still waiting. But the good news is that the storage market has seen a comprehensive increase in prices, with strong demand in terminal markets such as AI, data centers, and automobiles. The future prospects of the industry are still worth looking forward to.

Storage chips: prices are rising across the board, and early spring is coming?

There has been a lot of discussion about the recovery of storage chips recently, especially with Nvidia's latest H200GPU using HBM, which has pushed the demand for storage chips to a new height. Based on the latest market conditions of the five major storage companies, Samsung, SK Hynix, Micron, Armor, and Western Data, although they have seen a decline in revenue, the pace of decline has significantly slowed down. Many manufacturers have expressed that some downstream demand is slowly recovering and they are optimistic about the future market.

In terms of market prices, Wu Yating, Senior Vice President of Research at Jibang Consulting, recently stated that the global flash memory market has finally seen a comprehensive price increase in the fourth quarter of 2023, with suppliers adopting aggressive production reduction strategies. According to TrendForce consulting data, the contract price of NAND Flash rose comprehensively in the fourth quarter, with an increase of about 8-13%.

TrendForce Consulting estimates that the annual growth rate of supply levels in 2023 will be -2.8%, marking the first negative growth in several years, driving the overall efficiency ratio to -3.7% and becoming the foundation for the stabilization of flash memory prices in the second half of the year. However, Wu Yating believes that due to the lack of strong demand from physical terminals, the continuity of the current upward trend is still unclear. If demand recovers as scheduled in the second half of 2024, especially with an increase in server SSD procurement momentum, coupled with suppliers not rushing to restore production capacity utilization, it is expected that the overall efficiency ratio can be controlled at -9.4%, accelerating supply and demand balance, and flash memory prices are expected to show a pattern of annual increase.

In terms of DRAM, TrendForce Consulting estimates that the contract price of DRAM will increase by about 3-8% in the fourth quarter. And it is believed that the continuation of this upward trend depends on whether suppliers continue to adhere to production reduction strategies and the degree of actual demand recovery, with the most critical being in the field of general-purpose servers.

Previously, Li Peiying, the General Manager of South Asia Science and Technology, stated at a press conference in France that prices in the fourth quarter will be more stable than in the third quarter, and all suppliers are trying to lock in the decline of DDR4, or even raise prices. Whether they can succeed depends on the changes in the next few weeks. Currently, DDR5 prices have risen, and DDR4 has already reduced pressure on two large factories, and the probability of sustained price drops is not high. We are optimistic that DDR4 and DDR3 prices are expected to rise.

In addition, regarding the memory industry, Wu Yating pointed out at the MTS2024 Storage Industry Trends Seminar that looking ahead to 2024, the memory market will have the following three concerns: first, the original factory inventory level has begun to decline after production reduction, but it is still necessary to observe whether inventory can continue to be transferred to buyers; 2、 It is expected that the original factory production capacity will slowly increase. If the market conditions warm up and the crop growth rate is restored early, it will cause a further imbalance between supply and demand; 3、 Whether the demand of each terminal meets the expected return temperature, with the sustained focus on AI related orders.

Wafer foundry: Relevant indicators are still weak, and we still need to wait for temperature recovery

In the past two years, the wafer utilization rate and capital expenditure of related wafer foundries have been continuously decreasing. Although we have seen an improvement in the consumer electronics and storage market, the manufacturing indicators are still weak. From the Q3 performance of the seven global wafer foundries, their revenue and net profit have both declined compared to the same period last year. From the perspective of capacity utilization and wafer foundry quotations, except for TSMC, which benefited from advanced manufacturing processes, its capacity utilization has rebounded and its quotations have remained stable, the other six foundries have both experienced a decline.

It is obvious that mature processes in the wafer foundry market are greatly affected, and in the third and fourth quarters of this year, the wafer manufacturing end frequently fell into a "price war". According to TrendForce Consulting, the proportion of global wafer foundry mature processes (28nm and above) and advanced processes (16nm and below) production capacity will remain around 7:3 from 2023 to 2027. As Chinese Mainland is committed to promoting policies and subsidies such as localized production, the expansion progress is the most positive. It is estimated that the proportion of mature process capacity in Chinese Mainland will grow from 29% this year to 33% in 2027, with SMIC, HuaHong Group and Nexchip being the most positive.

For future expectations, with the gradual recovery of the market next year and the price reduction strategy of wafer foundries for mature processes, Jibang Consulting predicts that the capacity utilization rate of 8-inch wafer foundries will continue to rise in 2024. By the end of 2024, the 8-inch capacity utilization rate of most wafer foundries will reach over 60% (an increase of 5 to 10 percentage points), TSMC and SMIC will reach over 70%, and Huahong will reach 90%.

Application market: AI, data center, and automotive businesses are relatively strong

In addition, according to the latest financial reports of companies such as NVIDIA, Intel, Qualcomm, and MediaTek, the AI, data center, and automotive businesses are relatively strong, and the market's positive trend is more obvious.

Nvidia's Q3 revenue for fiscal year 2023 was $18.12 billion, a year-on-year increase of 206%, about 13% higher than expected, far exceeding Nvidia's own guidance of $15.68 billion to $16.32 billion; The revenue of the data center was 14.514 billion US dollars, a year-on-year increase of 279% and a month on month increase of 38%, accounting for 80% of the total revenue.

Intel's latest quarterly revenue was $14.158 billion, a year-on-year decrease of 8% and a month on month increase of 9%, marking seven consecutive quarters of year-on-year decline. However, it is worth noting that the revenue of all major business lines of Intel Q3 exceeded expectations, with Intel foundry services (IFS) revenue of $311 million, a year-on-year increase of 299%; The data center revenue was $3.8 billion, exceeding Intel's internal forecast.

In terms of Qualcomm and MediaTek, Qualcomm's revenue for the fourth quarter of fiscal year 2023 was $8.67 billion, slightly higher than the expected $8.51 billion. Compared to the same period last year, it decreased by 24% from $11.39 billion. Qualcomm's adjusted total revenue for this fiscal year decreased by 19% compared to last year, to $35.83 billion, with a net profit of $1.49 billion for the quarter. Among them, the chip business revenue was 7.37 billion US dollars, an increase of 3% compared to the previous quarter, and the GAAP operating profit margin has rebounded to 26% compared to the previous quarter. QCT, Qualcomm's largest processor sales division, saw a 26% decrease in sales this quarter to $7.37 billion. The sales of mobile phone chips decreased by 27% to $5.46 billion, while the sales of the automotive business increased by 15% year-on-year to $535 million, exceeding expectations. From a revenue perspective, Qualcomm has ended three consecutive quarters of decline and started an upward cycle.

MediaTek's net operating revenue in the third quarter was NT $110.098 billion (approximately RMB 24.817 billion), a month on month increase of 12.2%, and a year-on-year decrease of 22.6% in net revenue. The gross profit for the third quarter was NT $52.192 billion (approximately RMB 11.764 billion), an increase of 11.9% month on month and a decrease of 25.5% year-on-year; The gross profit margin is 47.4%, a decrease of 0.1 percentage points from the previous quarter and a decrease of 1.9 percentage points from the same period last year. It is worth noting that MediaTek's inventory has declined for five consecutive quarters with only 90 turnover days remaining, significantly lower than the 115 days in the second quarter and the 111 days in the same period last year. In its performance briefing, MediaTek CEO Cai Lixing stated that in the fourth quarter, the new generation Dimensity 9300 series began to be shipped, driving a revenue increase of 9-15% in the quarter, a new high in five quarters. He also believes that smartphones with AI computing capabilities will shorten the replacement cycle.

epilogue

Overall, for the upcoming fourth quarter, most manufacturers still hold a conservative view. Based on industry opinions, inventory adjustments in consumer electronics fields such as PCs and smartphones have gradually come to an end, and some manufacturers have already enjoyed the upward dividend; However, the inventory adjustment of automotive electronics and industrial applications was relatively late, and it is expected that this downward trend will be postponed for a period of time. At present, there are many optimistic predictions for 2024, including SEMI, WSTS, and many semiconductor industry companies, all holding a good outlook for 2024. The downward trend of the cycle has gradually reached its bottom, and a new round of upward trend is approaching. The market needs to gather more energy and wait for it.