Business and Markets

Christian G. Dieseldorff, Industry Research Statistics Group, SEMI (June 12, 2018)The semiconductor industry is nearing a third consecutive year of record equipment spending with projected growth of 14 percent (YOY) in 2018 and 9 percent in 2019, a mark that would extend the streak to a historic fourth consecutive growth year, according to the latest update of the World Fab Forecast report published by SEMI. The industry last saw four consecutive years of equipment spending growth in the mid 1990s.Korea and China are leading the growth, with Samsung dominating global spending and ascendant China on a fast, steep rise, surging ahead of all other markets. See figure 1.Figure 1: equipment spending by region (includes new and refurbished)Samsung is expected to reduce equipment investments in 2018. Despite the ebb, the company still accounts for a dominant 70 percent of all investment in Korea. At the same time, SK Hynix is increasing its equipment spending in Korea.China’s equipment spending is forecast to jump a whopping 65 percent in 2018 and 57 percent in 2019. Notably, 58 percent of investments in China in 2018 and 56 percent in 2019 stem from companies with headquarters in other regions such as Intel, SK Hynix, TSMC, Samsung, and GLOBALFOUNDRIES. Domestic, Chinese-owned companies – backed by large government initiatives – are building an impressive number of new fabs that will start equipping in 2018. The companies will double their equipment investments in 2018 and again in 2019.Meanwhile, other regions are also ramping up investments. Japan is beefing up equipment spending by 60 percent in 2018, with the largest increases by Toshiba, Sony, Renesas and Micron.The Europe and Mideastern region will boost investments by 12 percent in 2018, with Intel, GLOBALFOUNDRIES, Infineon and ST Microelectronics as the largest contributors. Southeast Asia will increase investments by more than 30 percent in 2018, although total spending is proportionately smaller than in other regions owing to its size. The main contributors are Micron, Infineon and GLOBALFOUNDRIES, though companies including OSRAM and ams are also increasing investments.The SEMI World Fab Forecast, which also includes information on other companies, covers data and predictions through the end of 2019, including milestones, detailed investments by quarter, product types, technology nodes and capacities down to fab and project level.Learn more about the SEMI fab databases at:www.semi.org/en/MarketInfo/FabDatabase and www.youtube.com/user/SEMImktstats.

Years of industry consolidation in the critical subsystems market appears to be coming to an end.The top 10 suppliers’ share of the critical subsystems market has stabilised at around 50 percent after many years of industry consolidation. Through a combination of acquisitions and organic growth, this percentage has been increasing steadily from 38 percent at the turn of the millennium. However, in recent years the trend has slowed considerably as medium and smaller sized suppliers are starting to provide stiffer competition for incumbents. Driven by a number of factors, consolidation produces a number of benefits that accrue to the resulting larger suppliers, including the following: Economies of scale Combined research and development budgets Improved access to global markets through strategic regional acquisitions Stronger financial backing that can facilitate any required rapid scale up in production For their part, buyers must rely on a smaller pool of larger suppliers and face these downsides: Less innovation Less flexibility In some cases, dependency on a single supplier for a particular subsystem that can lead to supply chain bottlenecks Until 2014, the balance was clearly in favour of consolidation, but since then the trend has stalled and there is strong evidence that over the next few years the trend may even revert, favouring medium and smaller sized suppliers. The current industry upswing has already allowed these companies, versatile and nimble enough to quickly develop and deliver innovative solutions, to gain market share from overstretched incumbents. What’s more, OEMs and chipmakers, increasingly concerned about having to rely on a single or dominant source for their most critical subsystems, are effectively imposing a spending cap with some large suppliers while collaborating with medium and smaller sized suppliers and encouraging them to step up.The data supporting these observations suggests that the main beneficiaries are companies ranked between 11th and 30th in size, with many of these organizations’ market share growth slightly outpacing that of the top 10 in recent years.For more information about VLSI Research and Critical Subsystems, visit www.vlsiresearch.com. Julian West is a technical and marketing analyst at VLSI Research Europe.

Broad Global U.S. Electronic Supply Chain GrowthThe first quarter of this year was very strong globally, with growth across the entire electronics supply chain. Although Chart 1 is based on preliminary data, every electronics sector expanded – with many in double digits. The U.S. dollar-denominated growth estimates in Chart 1 have effectively been amplified by about 5 percent by exchange rates (as stronger non-dollar currencies were consolidated to weaker U.S. dollars), but the first quarter global rates are very impressive nonetheless. U.S. growth was also good (Chart 2) with Quarter 1 2018 total electronics equipment shipments up 7.2 percent over the same period last year. Since all the Chart 2 values are based on domestic (US$) sales, there is no growth amplification due to exchange rates.We expect continued growth in Quarter 2 but not at the robust pace as the first quarter.Chip Foundry Growth ResumesTaiwan-listed companies report their monthly revenues on a timely basis – about 10 days after month end. We track a composite of 14 Taiwan Stock Exchange listed chip foundries to maintain a “pulse” of this industry (Chart 3).Chip foundry sales have been a leading indicator for global semiconductor and semiconductor capital equipment shipments. After dropping to near zero in mid-2017, foundry growth is now rebounding.Chart 4 compares 3/12 (3-month) growth rates of global semiconductor and semiconductor equipment sales to chip foundry sales. The foundry 3/12 has historically led semiconductors and SEMI equipment and is pointing to a coming cyclical upturn. It will be interesting to see how China’s semiconductor industry buildup impacts this historical foundry leading indicator’s performance. Passive Component Shortages and Price IncreasesPassive component availability and pricing are currently major issues. Per Chart 5, Quarter 1 2018 passive component revenues increased almost 25 percent over the same period last year. Inadequate component supplies are hampering many board assemblers with no short-term relief in sight.Peeking into the FutureLooking forward, the global purchasing managers index (a broad leading indicator) has moderated but is still well in growth territory.The world business outlook remains positive but requires continuous watching!Walt Custer of Custer Consulting Group is an analyst focused on the global electronics industry.

Can it be that no more new semiconductor fabs are being built in the U.S.?The last new volume fab known is Micron’s Building 60 in Utah, according to the SEMI World Fab Forecast report published in February 2018. The catch is Building 60 is not a new or greenfield facility but rather an existing structure being retooled for 3D NAND. Fab equipment spending for this fab is expected to be high in 2018.Then there is Fab 42 from Intel. Construction started in 2011 before it was shelved. It is expected to begin equipping by end of this year, with equipment spending expected to be high next year.Other fabs built many years ago are still ramping such as Globalfoundries Fab 8 phase 3 (TDC) and D1X (module 1 and module 2). D1X is a research and development pilot, not a high-volume fab. And Globalfoundries’ plans for a second fab in Malta have been pushed out.Samsung in Austin has space for more modules, but there is no indication they will ever be added.The SEMI World Fab Forecast shows five smaller facilities either planned or under construction, but these have little impact in this U.S. fab construction trend.And that’s basically it! No more volume fabs!If we divide fab equipment spending into two categories – investment in new capacity versus upgrades – we see a declining trend for fabs adding capacity. See chart below. (Compare 2005-2011 with 2017-2019). If we look at 2017, 2018 and 2019, Globalfoundries, Intel, and Micron are the big investors in new capacity.This year 60 percent of all fabs are expected to invest in equipment to add capacity, but just one or two volume fabs (Micron and Globalfoundries) account for the bulk of this growth. Same story for 2019, with two volume fabs (Intel and Globalfoundries) representing the lion’s share of the growth. Strike the Intel and Globalfoundries fabs from the equation, and investments in additional capacity would fall below upgrade spending levels.Once these fabs have reached full capacity, additional equipment investments will significantly lag spending increases for upgrades, signaling the end of new fabs in the U.S.

The global semiconductor packaging materials market reached $16.7 billion in 2017. While slower growth of smartphones and personal computers – the industry’s traditional drivers – is reducing material consumption, the slowdown was offset by strong unit growth in the cryptocurrency market in 2017 and early 2018. Flip chip package shipments into the cryptocurrency market, while providing a windfall to many suppliers, are not expected to remain at high levels, SEMI, the industry association representing the global electronics manufacturing supply chain, and TechSearch International reported in The Global Semiconductor Packaging Materials Outlook.The outlook shows that, despite growth in automotive electronics and high-performance computing, continuing price pressure and declining material consumption will constrain future material revenue growth to steady single-digits, with the materials market forecast to reach $17.8 billion in 2021. IC leadframes, underfill, and copper wire are among the materials segments that will see single-digit unit volume growth through 2021.Laminate substrate suppliers participating in the sale of flip chip substrates for cryptocurrency saw volume increases in 2017, but this segment continues to be battered by increased use of multi-die solutions and the shift to wafer level packages (WLPs), including fan-out WLP, slowing growth. Wafer-level packaging (WLP) dielectrics and plating chemistry suppliers will experience stronger revenue growth as the adoption of advanced packaging continues. Over the next several years, advances in the semiconductor materials market will present a number of opportunities driven by trends including: Continued adoption of FO-WLP including FO-on-substrate solutions with high density geometries down to 2µm lines and spaces Liquid crystal polymer (LCP) under consideration as a possible material option because of its good electrical performance and low moisture absorption, especially for mmWave applications such as 5G Adoption of low-cost package solutions such as MIS and other routable-QFN technologies PPF QFN volumes are rising with automotive applications, driving a requirement for roughened plating to deliver needed reliability Expansion of photoresist plating capability for selective plating of leadframes Thermally enhanced and high-voltage mold compounds for power and automotive devices Thermally conductive die attach materials other than solder die attach for power applications Report highlights include: Laminate substrates represent the largest revenue segment of the materials market with more than $6 billion in sales for 2017. Overall leadframe shipments are forecast to grow at a 3.9 percent CAGR from 2017 through to 2021, with LFCSP (QFN type) experiencing the strongest unit growth, an 8 percent CAGR. Following five years of decline, gold wire shipments increased in both 2016 and 2017 though represent just 37 percent of the total bonding wire shipments in 2017. Liquid encapsulant revenues totaled $1.3 billion in 2017 with single-digit expected through 2021. LED packaging applications are driving the revenue growth over the forecast period though downward pricing pressures are a constant in the market. Die attach material revenues reached $741 million in 2017 with single digit growth to 2021. DAF materials will experience higher unit growth, though downward pricing trends continue. Solder ball revenues reached $231 million in 2017. The revenue outlook depends on fluctuations in metal pricing. The wafer-level plating chemical market was put at $263 million in 2017 with strong growth through 2021. RDL and Cu pillar will be the key growth segments. SEMI and TechSearch International, Inc. teamed up again to develop the 8th edition of the Global Semiconductor Packaging Materials Outlook, a comprehensive market research study on the semiconductor packaging materials market. Interviews were conducted with more than 130 semiconductor manufacturers, packaging subcontractors, fabless semiconductor companies, and packaging material suppliers to gather information for the report. The report covers the following semiconductor packaging materials segments: substrates, leadframes, bonding wire, mold compounds, underfill materials, liquid encapsulants, die attach materials, solder balls, wafer level package dielectrics, and wafer-level plating chemicals.For more information and to purchase the report, click here.

Global Manufacturing Growth has Slowed, but is Still Positive (Chart 1)Most key countries/regions saw a slowdown in growth in March based on their respective Purchasing Managers Indices. And in one case – South Korea – manufacturing moved into contraction. February 2018 March 2018 Japan 54.1 53.1 South Korea 50.3 49.1 Taiwan 56.0 55.3 China 51.6 51.0 Europe 58.6 56.6 USA 60.8 59.3 PMI Points to More Modest Expansion (Chart 2)The global Purchasing Managers Index is a timely and readily available leading indicator for both world semiconductor and semiconductor capital equipment shipments. PMI values greater than 50 indicate expanding manufacturing activity. See www.markiteconomics.com for PMI values for all major countries.Recent semiconductor equipment, semiconductor and PMI 3-month (3/12) world growth rates were: SEMI Equipment +29% February Semiconductors +21% February PMI (squared) +4% March The PMI leading indicator now points to more modest but still positive growth ahead. Semiconductor Industry Still has Legs (Chart 3)Another useful and timely leading indicator is a composite of monthly Taiwan Chip Foundry sales. Taiwan-listed companies publish their revenues about 10 days after the month closes. Chart 3 compares the composite monthly revenues of 14 Taiwan listed foundries vs. global semiconductor sales. Due to Lunar New year shutdowns, February 2018 was weak but foundry sales rebounded in March. Chip demand appears to be holding! Walt [email protected]

Co-author: Sungho Yoon, Senior Market Research Analyst at SEMIChip makers continue to struggle to secure more silicon wafers to meet market demand as production capacity has reportedly fallen short of their needs, particularly in the 300mm wafer segment – a trend that has led to record-low DOI(1) (Days of Inventory) levels since the second half of 2017.The DOI level has shown no significant improvement since August 2017, as depicted in figure 1(2). Unlike the inventory rebound in 2007, the current inventory trough shows no signs of significant recovery soon.Figure 1 - Silicon Wafers Days of InventorySource: Processed data extracted from data reported by METI (Ministry of Economy, Trade, and Industry) Japan.The boom-and-bust cycles typical of the semiconductor industry are driven by large capital spending increases, followed by cutbacks. The industry has seen a number of these cycles since 2000. However, before 2017, the particularly low level of wafer inventory we now see had never lasted longer than six months.There are three major reasons for the persistently low levels.First, on the silicon wafer demand side, fab equipment investments reached a record high in 2017, driven by large-scale memory fab investments by Samsung and SK Hynix in Korea that accounted for 32 percent of global total investments. Additionally, Korea’s year-over-year (YoY) equipment billing growth rate saw a sharp increase of 135 percent in 2017, as shown in figure 2.Figure 2 - Equipment Billings in KoreaSource: SEMI/SEAJ WWSEMSWhat’s more, the 12-month moving average of equipment billings in China has trended upward since the Made in China 2025 plan was released in 2015, a marked difference from past equipment investment trends in China that followed typical up-and-down industry cycles, as represented in figure 3.Figure 3 - Equipment Billings in ChinaSource: SEMI/SEAJ WWSEMSKorea’s soaring investments in memory and China’s massive, ongoing government investments to beef up fab production are key drivers of the stubbornly low wafer inventory levels throughout 2017 and, now, into 2018.The second reason is the time lag between investments by silicon wafer manufacturers and chip makers. Spikes in wafer processing equipment spending have preceded tops in wafer manufacturing equipment investments since the 2008 financial crisis, as shown in figure 4. Prior to 2008, silicon wafer manufacturing investments preceded or tracked chip manufacturing investments, minimizing periods of tight wafer suppler.Silicon wafer inventory surged during the financial crisis, triggering a steep drop in silicon wafer pricing. The fallout is that wafer manufactures have been hesitant to expand manufacturing facilities without first securing chip makers’ commitments to new fab investments or capacity expansions of their existing fabs. Finally, wafer supply failed to keep pace with demand in 2017, and inventory levels continue to lag chip makers’ expectations.Figure 4 - YoY growth rate of wafer manufacturing and wafer processing equipment Source: SEMI/SEAJ WWSEMSThe third reason is technical: Memory demand is growing across all end applications, but rising technical challenges that reduce yield and output tend to restrict memory bit supply growth. The upshot is that, in the absence of technology breakthroughs, memory makers need more cleanroom space in order to fulfill market demand for memory bits. The investments needed to build additional cleanroom space further accelerates wafer demand.When will the industry wafer inventory conundrum improve? That depends on how fast memory device makers expand capacity despite tenaciously low wafer inventories and how, in turn, wafer manufacturers cope with the current acceleration of fab investments by device makers through expanding wafer manufacturing capacity.Low wafer inventory levels could potentially hamper growth for semiconductor equipment market as it would be difficult for device makers to expand fab capacity without securing stable wafer supply chain in advance.(1) Days in inventory is calculated as the number of days in the period divided by the inventory turnover(2) Value of estimated relative DOI was removed in the left axis and DOI data was calculated based on 3MMA (3-month moving average). Dan Tracy is senior director and Sungho Yoon is senior research analyst in Industry Research and Statistics at SEMI.

Fueled by heavy government investment, IC packaging and testing in China generated $29 billion in revenue in 2017, making China the world’s largest consumer of packaging equipment and materials, according to SEMI’s recent China Semiconductor Packaging Industry Outlook report. The report, based on research conducted between July 2017 through the end of January 2018, also revealed that China’s IC packaging and testing industry is more mature than its IC manufacturing and design sectors, though IC packaging and testing revenue growth has slowed in recent years. SEMI surveyed 87 semiconductor packaging- and assembly-related companies for the research report, including key semiconductor packaging manufacturers in China. More than 100 companies compete in China’s packaging and assembly market, including leading multinational companies and emerging domestic players. More than half of China’s packaging companies are located in the Yangzi delta region, while midwestern China has emerged as a hotbed for packaging plants.Additional report highlights: Compared to other world regions, China’s investments in IC packaging and testing saw the fastest growth over the past decade, with domestic manufacturers securing strong support from both national and local governments to ramp capacity and technical capabilities. The top three domestic packaging companies – JCET, Huatian, and TFME – all entered the top 10 global OSAT rankings following expansions and acquisitions from 2012 to early 2016. Packaging companies such as SPIL, TFME, NCAP continue to build new plants. As a major manufacturing region for LED products, China has become more prominent within the semiconductor packaging industry. China’s LED product sector grew to $13.4 billion (half of IC packaging) in 2017. In 2017, China accounted for about 26 percent of the global packaging materials market, with China’s packaging materials revenue forecast to exceed $5.2 billion in 2018. In 2017, the China assembly equipment market reached $1.4 billion in revenue, remaining the world’s largest with 37 percent share. In 2017, assembly equipment manufactured in China (including assembly equipment made by foreign-owned companies and JVs) accounted for 17 percent of China’s assembly equipment market. With the fast growth in the semiconductor packaging market, domestic packaging materials suppliers are expanding with the industry and now starting to serve leading international packaging houses. The SEMI report also elucidates the importance of both central and local government support, guidelines and policies on China’s semiconductor industry. The National Fund and local IC funds, created in 2014, and the Made in China 2025 policy provided a second boost to China’s IC industry growth. For packaging and testing enterprises, maintaining strong communications and relations with relevant government bodies and industry associations is essential to securing both political and financial support, in part because China’s semiconductor manufacturers and IC assembly and packaging companies are expected to purchase equipment and materials made in China.To learn more about this new report, click here.

After a record January, Taiwan-listed electronics companies, many of which manufacture in China, reported significant drops in February sales. A number of events likely contributed: Far fewer working days in February due to Lunar New Year factory shutdowns Inflated January production and shipments in anticipation of the February holiday shutdowns Downward adjustment in Apple iPhone X forecasted demand Normal seasonality and traditionally lower post-Christmas consumer products demand – including PCs and mobile phones Results (based upon composite revenues of large groups of Taiwan-listed companies): OEM sales dropped 28 percent from December to January (normal seasonality) and then an additional 24 percent from January to February. This 101-company OEM group saw record high sales in December 2017 followed by a two-year low in February 2018 (Chart 1). ODM sales dropped in sync with OEM sales, with Foxconn/Hon Hai sales declining from 675 billion NT$ (US$22.9 billion) in December to 401 billion NT$ in January and to 278 billion NT$ in February. Chip foundry sales (historically a leading indicator for global semiconductor shipments) also registered a large January to February decline (Chart 2). Other electronics firms (package and test, passive components, printed circuit boards) saw the same type of February declines. We await March results as the sharp February decline is very likely due to multiple causes. Historically, the annual recovery begins in spring.Walt Custer, Custer Consulting Group

Following through on his 2016 campaign promise, President Trump is implementing trade policies that buck conventional wisdom in Washington, D.C. and among U.S. businesses. Stiff tariffs and the dismantling of longstanding trade agreements – cornerstones of these new actions – will ripple through the semiconductor industry with particularly damaging effect. China, a chief target of criticism from President Trump, has again found itself in the crosshairs of the administration, with trade tensions rising to a fever pitch.The Trump Administration has long criticized China for what it considers unfair trade practices, often homing in on intellectual property. In August 2017, the Office of the U.S. Trade Representative (USTR), charged with developing and recommending U.S trade policy to the president, launched a Section 301 investigation into whether China’s practice of forced technology transfer has discriminated against U.S. firms. As the probe continues, it is becoming increasingly clear that the United States will impose tariffs on China based on its current findings. Reports suggest that the tariffs could come soon, hitting a range of products from consumer electronics to toys. Other measures could include tightening restrictions on the trade of dual-use goods – those with both commercial and military applications – curbing Chinese investment in the United States, and imposing strict limits on the number of visas issued to Chinese citizens. With China a major and intensifying force in the semiconductor supply chain, raising tariffs hangs like the Sword of Damocles over the U.S. and global economies. A tariff-ignited trade war with China could stifle innovation, undermine the long-term health of the semiconductor industry, and lead to unintended consequences such as higher consumer prices, lower productivity, job losses and, on a global scale, a brake on economic growth. Other recently announced U.S. trade actions could also cloud the future for semiconductor companies. The Trump administration, based on two separate Section 232 investigations claiming that overproduction of both steel and aluminum are a threat to U.S. national security, recently levied a series of tariffs and quotas on every country except Canada and Mexico. While these tariffs have yet to take effect, the mere prospect has angered U.S. trading partners – most notably Korea, the European Union and China. Several countries have threatened retaliatory action and others have taken their case to the World Trade Organization. Trade is oxygen to the semiconductor industry, which grew by nearly 30 percent last year and is expected to be valued at an estimated $1 trillion by 2030. Make no mistake: SEMI fully supports efforts to buttress intellectual property protections. However, the Trump administration’s unfolding trade policy could antagonize U.S. trade partners. For its part, SEMI is weighing in with USTR on these issues, underscoring the critical importance of trade to the semiconductor industry as we educate policymakers on trade barriers to industry growth and encourage unobstructed cross-border commerce to advance semiconductors and the emerging technologies they enable. On behalf of our members, we continue our work to increase global market access and lessen the regulatory burden on global trade. If you are interested in more information on trade, or how to be involved in SEMI’s public policy program, please contact Jay Chittooran, Public Policy Manager, at [email protected].