Before commenting on the intrinsic strength of China's semiconductor industry, we must have an elaborate study on China's semiconductor market and industrial structure. According to Semiconductor Industry Association (SIA), the total output of the global semiconductor market in 2021 was US$555.9 billion, up 26.2% from 2022, of which US$192.5 billion was generated from the Chinese market, accounting for 34.6% of the global total. However, this figure refers to the sales to local Chinese companies plus sales into China's domestic market, excluding the demand brought by foreign companies assembling diver products such as notebooks and mobile phones in China.
With the change of the industrial environment, the business strategies of enterprises must keep pace with the times. For about 20 years since the mid-1980s of the PC-led industry era, iconic brands had the final say. Taiwan manufacturing plants were moved to China, and local governments were wooing foreign investments. Manufacturers scrambled for orders to keep production capacity fully utilized, and makers strived to increase economies of scale - these were variables in market competition. Iconic brand vendors even introduced the "online bidding" model, uplifting the notebook industry with an annual demand of 200 million units. It was a rat race at this stage, when Taiwanese makers were fighting to survive, and Japanese and Korean manufacturers suffered heavy defeats. It was clear who would remain after the successive withdrawals of IBM, Texas Instruments (TI), LG, and Toshiba.
DIGITIMES started under the critical moment of the Asian financial crisis in 1998, during which Taiwan survived with its abundant foreign exchange reserves and relatively conservative financial management mechanism.
Acer founder Stan Shih, who has been in the IT industry for 50 years, has been my role model since I was young. When I got older, I started my business, and his experience had become my valuable entrepreneurial references. A while ago, I received Shih's newly released book "The Keys to Innovation and Entrepreneurship." I quickly finished reading it and tried to identify and come up with some industrial paradigms and insights. From the perspective of an entrepreneur, I am delighted to share my entrepreneurial experiences and thoughts.
Apple is cutting costs by adding more Chinese companies to its supply network, even though it has distributed production to many countries outside China. TSMC and Unimicron are making the M1 Ultra that will be featured in some of the newest and most glamorous Apple products. Industry observers estimate that revenue from Apple made up approximately 26% of TSMC's total revenue for 2021.
Even though a typical inventory of application processors might be only 100 days, MediaTek has noted that it is holding more than 160 days of inventory for application processors used in phone handsets. Several networking equipment makers that would typically use 28nm chips have decided to order 16nm chips to make the same products. Because customers continue to order foundry services, TSMC plans to raise the prices of its 8-inch foundry services, starting in 3Q22.
The customers of Taiwanese MCU makers are stockpiling, and MCU deliveries will proceed despite high buy inventories. IC design houses have promised to make chips at foundries, and now want to sell those chips over the long term to notebook makers. Thanks in part to 28nm production, UMC has a lucrative long-term agreement with Samsung that will move image processors and display driver ICs.
Tesla's Model 3 has been selling well, but Tesla's Model Y will probably upstage the Model 3, and meanwhile, the competing brands of electric cars are struggling to seize leadership in the electric vehicle market. The worldwide shortage of chips has prevented laptop computer makers from shipping their products on time as promised. With no end in sight, the Russian invasion of Ukraine has disrupted world markets and experts are discussing the likely consequences.
Most of the electronics sector is doing brisk business, and the few parts that are lagging are likely to perk up quickly. Printed circuit boards and integrated circuit substrates are in high demand, and Nan Ya PCB is expanding its production capacity to keep up with the market. MOSFETs and diodes are in such high demand that 6-inch wafer foundries expect to be working at full capacity utilization for the first half of the year. Smartphone sales will probably stagnate this year, but the demand for smartphone components is likely to bounce back in March, while new features may entice customers to buy new phones.
The world's markets demand more chips than are readily available. Multiple chipmakers have begun capacity expansion projects, even though some critics fear that oversupply could be possible in the future. Reportedly, TSMC will start construction a new factory in Japan in April. Suppliers are struggling to secure enough 28nm production capacity to fulfill the orders they have on hand. Sources say that Sanan's mini LED chips are of sufficiently high quality to illuminate the screens of Apple products.
ESG stands for "Environment, Social Impact and Governance", which has become a standard for ethical operations in the view of global investors. ESG deserves more attention from Asian supply chain companies. To give our readers a more in-depth and comprehensive knowledge about ESG from the investor's perspective, DIGITIMES has invited QIC as a contributing partner to share their insights in a 5-part series: 1) Should companies invest in ESG? 2)Third-party ESG reporting 3)ESG metrics matter 4)A Resource Guide for Staying Up To Date on the Recent Trend Towards Global Unification of ESG Reporting Standards and 5) Getting Ready for Climate-related Financial Disclosures. The article is the second part of the QIC ESG Series, which was originally published on QIC website.
Due to sanctions on Russia, TSMC has stopped selling chips to Russia, but the amount of lost revenue is so tiny that few people are likely to notice. Even though DRAM prices have been falling, that trend is likely to stop in the second quarter of this year, and prices may rise. Inadequate inventory levels are troublesome for server ODMs, and the trouble is likely to continue for months to come.
By the end of 2021, there were as many as 958 unicorn enterprises in the world, of which 487 were American companies maintaining a significant portion of 50.8%. But the number of Chinese unicorn enterprises has dropped to 18.6% from 24% when I started calculating the number of unicorns four years ago. Owing to uncertainty in the future, coupled with the fall of many Chinese unicorns, few are talking about unicorns in China now. On the contrary, Taiwan has begun to examine why we cannot keep the unicorns that we've nurtured.
Upstream supply chains of handsets and notebooks are expected to witness order reductions as demand shrinks. A lack of capacity expansion has led to a shortage of NAND flash products. UMC invested in a fab, and is expected to earn back its investment in just one year, due to overwhelming demand.
NAND flash prices are being pushed up by Micron's and Western Digital's latest moves to increase their NAND flash prices by about 10%. While memory chip makers have been cautious about increasing output, semiconductor foundry house UMC has announced a plan to expand its fab in Singapore. Despite the Russia-Ukraine conflict, Taiwan's chipmakers see little impact on their supply chains.
The whole world demands microchips and electronics, and the frenzy for related products has set big plans in motion. The microcontroller units (MCUs) required for automobiles are already expensive and are only expected to get pricier. Both Qualcomm and MediaTek are relying on TSMC for 3nm chips that are in overwhelming demand. Unimicron's staggering revenues and profits have stirred it to plan for expansion, as it negotiates with its suppliers.