In 2021, the world's top four pure-play foundries, including TSMC, UMC, GF, and SMIC, have announced a number of expansion projects. TSMC has successively launched plant construction and production expansion plans in Arizona, China, Nanjing, and Kaohsiung; UMC invested about US$3.6 billion to expand the production capacity of its Fab 12A P6 plant in Tainan; GF has a total of Invested more than 6 billion US dollars to expand production; SMIC launched the expansion plan of factories in Beijing, Shanghai, Shenzhen, etc.

After entering 2022, major wafer foundries have announced new capital expenditure plans to increase investment in capacity expansion. Among them, TSMC alone is expected to spend between $40 billion and $44 billion in capital expenditures this year, almost close to the total spending of global foundries last year.

SMIC revealed at the recent financial report briefing that the three new projects of "Beijing, Shanghai and Shenzhen" will double the production capacity of SMIC after full production.

However, contrary to the booming investment in fab expansion, the global semiconductor delivery period still shows no signs of shortening, and even continues to extend.

Delivery time up to 99 weeks! Panic hoarding continues

According to reports, as of February this year, the delivery period of semiconductors has been extended by about 5-15 weeks compared with October last year, and the delivery period of some products has even been as long as 90 weeks (nearly two years).

According to the latest data from Susquehanna Financial Group, the average lead time for global semiconductors has exceeded 25 weeks, well above the healthy range of 10 to 14 weeks. Among them, MCU and PMIC are the hardest hit areas, and the delivery time is the longest among semiconductor products.

At the same time, according to the public information of Source Engine, an American electronic component distributor, the chip order delivery period in February was extended by 5-15 weeks compared with October last year. Among them, the average delivery cycle of 16-bit general-purpose processor products was 44 weeks, an increase of 15 weeks compared with October last year; and the delivery cycle of power ICs was 37 weeks, an increase of 9 weeks compared with October last year. The longest lead time for some processor products is even as long as 99 weeks.

The increase in chip deliveries has been matched by a sharp drop in manufacturing-related inventories. In January, the U.S. Department of Commerce announced the results of a review of several semiconductor supply chain manufacturers in the United States and overseas, showing that in 2021, the median chip inventory has dropped from 40 days in 2019 to less than 5 days in 2021. industry, these inventories are even less.

This means that once an emergency occurs overseas and the supply of chips is interrupted, some companies will stop production for 2-3 weeks. If the factory has only 3-5 days of inventory, it may paralyze manufacturers in the United States.

In fact, this has caused substantial losses to many industries. According to the production statistics of the Ministry of Economy, Trade and Industry of Japan, from October to December 2021, the output of domestic air conditioners (outdoor units) in Japan decreased by 26% to 730,000 units from October to December 2019, and digital cameras decreased by 25% to 25%. 520,000 units, and passenger cars decreased by 16% to 1.67 million units.

Sony Group discontinued several mirrorless camera products three times in November and December last year and stopped taking orders. Sony said it was unable to produce due to shortages of chip products such as LCD driver ICs. In the three-month period from October to December, sales at Sony's camera division fell 4% year-on-year.

Ford also recently announced that due to the shortage of chip supply, its 8 factories in North America will temporarily suspend production for a week starting on February 7, while other factories may also reduce shifts, including Ford Bronco, Explorer SUV, F -150, Ranger, Mach-E and other models are affected. On February 14, Ford said some of those plants would remain closed for a week. Ford expects that its production capacity in the first half of the year will continue to be affected by the lack of cores, and it may not resume production plans until the second half of the year.

Along with the supply shortage, foundry prices are also rising. This round of core shortages has been close to two years, and since the second half of 2020, the production capacity of many fabs has begun to be fully loaded. The price of wafer foundry started to rise from 8 inches to 12 inches, and the price increase continued until the end of last year.

At the beginning of January last year, UMC, World Advanced, and NSMC successively increased the foundry prices of 8-inch and 12-inch wafers, of which the average increase of 12-inch wafers was as high as 15%. Due to the short supply, there are even rumors in the industry that in addition to the temporary notice of price increase in 2020, the foundry will also increase the price by 15% at the time of delivery. That is to say, customers have to experience two price increases from placing an order to picking up the goods. The market is tense, and it has reached the point of "capacity is the master", and customers have no room for bargaining.

In August last year, TSMC also announced that in the first quarter of 2022, the foundry price of processes below 16/12nm will be increased by 10%, and the price of mature processes will be increased by 15%-20%. In December last year, UMC announced that it would raise prices by 5%-10% in March this year.

Obviously, the confidence of the foundry's price increase comes from the continuous increase in the demand side. In order to reduce subsequent losses, terminal manufacturers have also begun to increase the inventory of related semiconductor products after experiencing core shortages and shutdowns, which means that panic hoarding is still common in the market.

Sony Group Vice President Hiroki Toshio said that the inventory of parts will be increased, and it is expected that there will still be a shortage of some products in the first half of fiscal 2022.

Entering the stage of structural shortage, will the crazy expansion of production cause oversupply?

While the average lead time for semiconductor products is increasing, it is not without good news. According to the survey, the lead time of some large semiconductor suppliers is shortening slightly. For example, the lead time of Broadcom in December last year fell to 29 weeks, while the lead time of Broadcom in March last year was about 50 weeks.

Zhao Haijun, the joint chief executive of SMIC, said at the recent performance briefing that this year's foundry capacity will gradually shift from a shortage across the board to a structural shortage, and the product platforms and production capacity that SMIC has accumulated over the years will also be concentrated in Structural gaps in the industry.

But at the same time, in the current market environment of panic hoarding, the crazy expansion of foundry capacity may cause the terminal inventory level to be too high at a certain point in the future, resulting in a cliff-like decline in demand and excess semiconductor supply. In this situation, it is likely that there will not be enough buffer time for the supply and demand sides to balance, just like the core shortage crisis that began in the second half of 2020.

At present, most general-purpose processors and other products are produced using the process of 40nm and above, but the increase in production capacity of 40nm and above is not as fast as that of the 28nm and below process for high-end applications. According to data from McKinsey Consulting, production lines for 40nm and above processes will only increase by 4% year-on-year in 2021, while production lines for 28nm and below processes will increase by 13%, which is actually one of the reasons for the structural shortage.

However, as to whether the 28nm and below process will cause serious oversupply in the future, from the perspective of SMIC, Zhao Haijun believes that in the past, there was not too much capacity built, and the company's expansion will not affect the overall market supply and demand relationship. . Another aspect is the concept of industrial transfer. Nowadays, many customers are bundled with the system and the whole machine for inspection, and many products are now required to be produced locally. In other words, most of the components are required to be produced in China. Therefore, it may appear in the future that there will indeed be oversupply in some regions, but there will be insufficient capacity in some regions.