The semiconductor boom is far from over

The semiconductor industry is notorious for its ups and downs because of a boom and bust cycle every 4 or 5 years. At present, the expansion plans of large wafer manufacturers at every turn of 100 billion have exacerbated cycle concerns. However, the bottleneck of equipment capacity and the huge demand for cores for all things will greatly prolong this prosperity cycle. Perhaps we have ushered in an era of long-term core transportation.

The first is that the production capacity of semiconductor equipment is tight, not only for advanced process equipment, but also for mature process equipment, which has led to a slowdown in the construction of wafer manufacturers and a relatively moderate expansion of chip production capacity.

Recently, ASML CEO Peter Wenning said that the expansion plans of large wafer manufacturers will be limited by equipment shortages, and this shortage is long-term. ASML’s supply chain cannot resolve the shortage of equipment capacity by improving production efficiency. .

Although ASML’s production capacity will continue to increase this year and next year, the increased production capacity cannot keep up with the growth of chip expansion. If ASML is to meet the market, its production capacity must be increased by more than 50%, which is not an overnight event.

ASML has 700 product-related suppliers, of which 200 are key suppliers. If efficiency is to be improved, at least these 200 or more enterprises must be accelerated together. However, because many components are highly sophisticated equipment, it is difficult to rapidly expand production capacity in the short term. According to past experience, it is difficult for the production capacity of lithography equipment to explode in a short period of time, and its production capacity is tight.

ASML is currently evaluating with suppliers how to increase capacity. But another problem is also plaguing equipment manufacturers. ASML currently has no clear investment scale for wafer manufacturers. Recently, large-scale projects of tens of billions of dollars have been exposed at every turn. There is no clear answer as to which ones should be confirmed.

Not only are advanced process equipment in short supply, but also mature process equipment. Take, for example, an 8-inch lithography apparatus.

ASML, Canon and Nikon are the main suppliers of 8-inch lithography systems, and the market for such equipment is currently tight. At present, all lithography equipment manufacturers are manufacturing and refurbishing lithography equipment suitable for 8-inch process. Even the tools on the market for refurbishing 8-inch devices are in severe shortage.

Not just 8-inch equipment, demand for equipment with more mature processes has remained strong and growing over the past 10 years. Today’s shortages are not just a response to current needs, but also make up for shortages that arose a few years ago.

In response to the shortage of 8-inch equipment, equipment and raw material suppliers have significantly expanded their manufacturing capacity. But it is still not enough. At present, wafer manufacturing and design companies have tried to transfer processes and products to 12-inch production lines with higher automation and higher production capacity.

Second, the demand for chips is endless.

The chip industry used to be driven by only one or two key products, first personal computers and then smartphones. Now, the rise of artificial intelligence makes chips from factory manufacturing, car driving, to the intelligence of household appliances, which can be said to be the core of everything. The substantial increase in smart devices requires more computing power and data to support, and the storage and processing of data brings more chip requirements.

As a result, the semiconductor content per device has skyrocketed. If averaged, smartphones will contain $275 worth of chips by 2025, compared to $100 in 2015 smartphones. The increase in automotive chips is similar.

Chip usage has increased rapidly, but chip production capacity has not increased at the same rate. It can be seen from the production capacity principle of the lithography machine that it is difficult to achieve synchronous speed-up in an ultra-long supply chain with such a huge investment and such complex technology.

Chip demand has also diversified. In addition to personal consumer goods, chip demand is now expanding to other fields. In addition to the intelligence of the manufacturing industry that we are familiar with, demand from the service industry and government has also emerged significantly. The government is also a large demander of chips, such as airports, road administration, public security, and cloud government affairs. Therefore, at present, domestic Internet companies are eager to try and enter the chip field, not because they follow the trend, but because they have a large demand for chips as a new basic platform.

With such a sudden and strong demand, regardless of advanced processes, mature production capacity that has been left out for a while is in short supply.

The aforementioned 8-inch fabs have existed since the 1990s. At present, there are more than 200 8-inch fabs in the world using mature process technology to manufacture chips. Chips produced by processes at various technology nodes are used in all electronic products.

Originally, the 8-inch fab has been gradually left out by the market, but since 2015, the demand for chips with this mature process has surged, making the 8-inch fab utilization rate approaching 100%, and even a capacity shortage. Especially since 2021, car companies are frantically ordering chips, and many car chips are now made in 8-inch fabs.

The trend of chip demand explosion is so strong and persistent, coupled with the high gross profit of wafer manufacturing giants, how can such huge interests not cause melee? This is the main reason why major economies are scrambling to expand production.

To sum up, because there are too many links in the chip manufacturing supply chain, the investment of chip manufacturing plants is too huge, and the construction period is too long, the release of new wafer manufacturing capacity is a slow and long-term process. Just imagine that it takes 2 or 3 years for lithography equipment to meet the demand, and the construction cycle takes 2 or 3 years. Even if these two cycles are not completely superimposed, it will always delay the entire construction cycle. Although funds are swarming to build factories, the realization of production capacity is slow. In addition, the emergence of demand is always unexpected, such as mining machines, who would have thought that it would become a large customer of a giant like TSMC. No one expected that the epidemic would come with the huge demand for chips. Our world is constantly seeing new things, new needs, and perhaps new needs are emerging as people build capacity for existing needs. Therefore, today’s semiconductor industry has slow production expansion and long demand. It is no longer a cyclical industry that adjusts every 4 or 5 years.

The article comes from Xinmou Research

Cheersonic is the leading developer and manufacturer of ultrasonic coating systems for applying precise, thin film coatings to protect, strengthen or smooth surfaces on parts and components for the microelectronics/electronics, alternative energy, medical and industrial markets, including specialized glass applications in construction and automotive.