Wall Street Journal: Mature technology chips suffer the most from global chip shortages
Nov 12,2021
According to the Wall Street Journal, Gartner said that global chip makers are expected to invest about $146 billion in capital expenditures this year, an increase of about one-third from the previous year and 50% higher than before the new crown pandemic in 2019. This investment is more than twice the industry spending five years ago.
However, according to Gartner's estimates, less than $1 out of every $6 investment is currently designated for mature process chips with the longest order backlog.
Such small investments reflect the scarcest chips—many of which cost only a few dollars each, and are made with old technology and old equipment that require less capital to purchase. But this also shows that many semiconductor manufacturers are cautious about investing billions of dollars in the required chips, considering the risk of meager profits and declining demand.
Gartner said that three companies-TSMC, Samsung and Intel, accounted for about three-fifths of the chip industry investment in 2021. Almost all of these investments have been used in cutting-edge technology, and there is still plenty of room for expansion in this area.
According to industry analysts, this investment direction is likely to mean that the supply of ordinary chips used in automobiles, home appliances and small accessories will continue to be tight, and that the waiting time for order delivery may still be very long.
TSMC and Sony said they will build a $7 billion chip factory in Japan to produce mature process semiconductors, and strive to fill the gap in this regard. The plant will not start mass production until the end of 2024, so it does not help solve the current problems affecting the production of automobiles and electronic products. Although this is a considerable expenditure, it has little effect in terms of overall global investment.
This mismatch reflects the imbalance in the world's chip supply issues: not all chips have an equal status in the $464 billion semiconductor industry.
The economic return gap between the production of cutting-edge chips and mature technology chips is very obvious. According to management consulting firm Bain, 5-nanometer wafers for advanced chips will sell for about $17,000 this year. In contrast, the price of a 28-nanometer wafer is about US$3,000.
The semiconductor industry uses nanometers or the size of transistors used in production as the classification standard for this industry. The smaller the transistor, the newer and more advanced the process technology, the greater the number of chips that can be manufactured on a single silicon chip.
Chips manufactured using a process of 28 nanometers or above are generally regarded as traditional chips, and the higher the number, the older the technology. Chips manufactured using smaller nanotechnology are considered advanced, and the most sophisticated chips are manufactured using single-digit nanotechnology.
Morgan Stanley believes that, driven by the reopening of the economy and the rebound in consumption, companies in various industries around the world have begun a "red-hot capital expenditure cycle." Global investment will return to the level before the new crown pandemic this year, and will exceed the new crown next year. The pre-pandemic level.
But no industry can match chip manufacturers in terms of accelerating investment. According to Standard & Poor’s analysis of the world’s 2,000 largest non-financial listed companies, among the 20 industries with the largest capital expenditure expenditures, the semiconductor industry’s capital expenditures this year has the largest year-on-year increase of 32%, which is about 2.5 times the average.
This increase reflects the production cost of next-generation semiconductors. The cost of a chip manufacturing plant or fab can be as high as 20 billion U.S. dollars, the establishment of a clean room may cost 500 million U.S. dollars, and a lithography machine can reach 150 million U.S. dollars. Even for process control equipment, the total value of each equipment may reach 10 million US dollars, and the most advanced fab may have hundreds of such machines.
Semiconductor equipment manufacturers are booming. Lam Research Corp., a wafer processing equipment manufacturer based in Fremont, California, has achieved record revenue for six consecutive quarters, and ASML's orders for early 2023 have been fully booked.
"I don't think this is the culmination," ASML CEO Peter Wennink said on a recent earnings call. He said that the increase in sales can continue until 2025.
A technology market researcher at Counterpoint Research estimates that, looking ahead, the limited investment in the hardest hit semiconductor types means that the supply of traditional chips cannot keep up with the expected demand and will continue until 2024.
Many traditional chip manufacturers are reluctant to make large-scale investments in new capacity, because when the new factory starts production in a few years, there may be no demand as it is now, resulting in insufficient equipment usage and losses.
Peter Hanbury, a Bain partner who specializes in semiconductors, said that a new factory that produces mature process chips, such as 28-nanometer capacity, will incur losses due to the upfront cost and low output when it starts production. This is the case in the old factory. The industry’s largest competitors, who run old equipment but also have an efficient cost structure, are unwilling to face it.
As a major manufacturer of mature process chips in the world, UMC has noticed that these market considerations make the expansion of mature process chips produced on 8-inch and 12-inch wafers face challenges.
"If the economic situation remains the same, it will be difficult to have a reasonable return on investment," UMC co-president Jason Wang told investors in July.
Government subsidies can provide incentives for manufacturers to build new factories, but manufacturers focus on next-generation chip technology. In June, the US Senate approved US$52 billion in funding to support semiconductor research and production, but only US$2 billion was used for the production of mature process chips.
Such small investments reflect the scarcest chips—many of which cost only a few dollars each, and are made with old technology and old equipment that require less capital to purchase. But this also shows that many semiconductor manufacturers are cautious about investing billions of dollars in the required chips, considering the risk of meager profits and declining demand.
Gartner said that three companies-TSMC, Samsung and Intel, accounted for about three-fifths of the chip industry investment in 2021. Almost all of these investments have been used in cutting-edge technology, and there is still plenty of room for expansion in this area.
According to industry analysts, this investment direction is likely to mean that the supply of ordinary chips used in automobiles, home appliances and small accessories will continue to be tight, and that the waiting time for order delivery may still be very long.
TSMC and Sony said they will build a $7 billion chip factory in Japan to produce mature process semiconductors, and strive to fill the gap in this regard. The plant will not start mass production until the end of 2024, so it does not help solve the current problems affecting the production of automobiles and electronic products. Although this is a considerable expenditure, it has little effect in terms of overall global investment.
This mismatch reflects the imbalance in the world's chip supply issues: not all chips have an equal status in the $464 billion semiconductor industry.
The economic return gap between the production of cutting-edge chips and mature technology chips is very obvious. According to management consulting firm Bain, 5-nanometer wafers for advanced chips will sell for about $17,000 this year. In contrast, the price of a 28-nanometer wafer is about US$3,000.
The semiconductor industry uses nanometers or the size of transistors used in production as the classification standard for this industry. The smaller the transistor, the newer and more advanced the process technology, the greater the number of chips that can be manufactured on a single silicon chip.
Chips manufactured using a process of 28 nanometers or above are generally regarded as traditional chips, and the higher the number, the older the technology. Chips manufactured using smaller nanotechnology are considered advanced, and the most sophisticated chips are manufactured using single-digit nanotechnology.
Morgan Stanley believes that, driven by the reopening of the economy and the rebound in consumption, companies in various industries around the world have begun a "red-hot capital expenditure cycle." Global investment will return to the level before the new crown pandemic this year, and will exceed the new crown next year. The pre-pandemic level.
But no industry can match chip manufacturers in terms of accelerating investment. According to Standard & Poor’s analysis of the world’s 2,000 largest non-financial listed companies, among the 20 industries with the largest capital expenditure expenditures, the semiconductor industry’s capital expenditures this year has the largest year-on-year increase of 32%, which is about 2.5 times the average.
This increase reflects the production cost of next-generation semiconductors. The cost of a chip manufacturing plant or fab can be as high as 20 billion U.S. dollars, the establishment of a clean room may cost 500 million U.S. dollars, and a lithography machine can reach 150 million U.S. dollars. Even for process control equipment, the total value of each equipment may reach 10 million US dollars, and the most advanced fab may have hundreds of such machines.
Semiconductor equipment manufacturers are booming. Lam Research Corp., a wafer processing equipment manufacturer based in Fremont, California, has achieved record revenue for six consecutive quarters, and ASML's orders for early 2023 have been fully booked.
"I don't think this is the culmination," ASML CEO Peter Wennink said on a recent earnings call. He said that the increase in sales can continue until 2025.
A technology market researcher at Counterpoint Research estimates that, looking ahead, the limited investment in the hardest hit semiconductor types means that the supply of traditional chips cannot keep up with the expected demand and will continue until 2024.
Many traditional chip manufacturers are reluctant to make large-scale investments in new capacity, because when the new factory starts production in a few years, there may be no demand as it is now, resulting in insufficient equipment usage and losses.
Peter Hanbury, a Bain partner who specializes in semiconductors, said that a new factory that produces mature process chips, such as 28-nanometer capacity, will incur losses due to the upfront cost and low output when it starts production. This is the case in the old factory. The industry’s largest competitors, who run old equipment but also have an efficient cost structure, are unwilling to face it.
As a major manufacturer of mature process chips in the world, UMC has noticed that these market considerations make the expansion of mature process chips produced on 8-inch and 12-inch wafers face challenges.
"If the economic situation remains the same, it will be difficult to have a reasonable return on investment," UMC co-president Jason Wang told investors in July.
Government subsidies can provide incentives for manufacturers to build new factories, but manufacturers focus on next-generation chip technology. In June, the US Senate approved US$52 billion in funding to support semiconductor research and production, but only US$2 billion was used for the production of mature process chips.