Electronics

In recent years, the output of the domestic integrated circuit industry has maintained a rapid growth, especially in 2021, China's integrated circuit output will be 359.4 billion pieces, with a year-on-year growth of 33.3%, which is the highest year-on-year growth in the last 10 years. However, what was unexpected was that in the first half of 2022, the domestic output of integrated circuits was only 166.1 billion, down 6.3% year on year, which also recorded the first negative growth since 2009.

In terms of specific months, since 1997, domestic IC output has maintained a rapid growth trend, even the epidemic in early 2020 has not affected its rapid growth. However, since the beginning of this year, the monthly growth rate of China's IC output in the first half of the year has shown a downward trend, with an average decline of more than 10%.

On the contrary, the import and export market of domestic integrated circuits showed a "thriving" trend, with the growth rate of import and export in the first half of the year being 5.5% and 16.4% respectively. Among them, the high export growth of integrated circuit market is particularly noticeable under the current decline in output.

Recently, the lack of core caused by many factors such as trade disputes, imbalance between supply and demand, and epidemic situation is gradually returning to rationality. Is this related to the current decline in domestic IC production and the surge in international trade exports?

Core reason: demand is the key

To analyze the root cause of this problem, we need to separate the output of integrated circuits and international trade exports. In terms of the reduction of domestic IC output, the following two reasons cannot be ignored:

In the short term, the outbreak in Shanghai at the beginning of the year affected the operation of the supply chain to some extent.

As we all know, Shanghai, as the core production base of the domestic integrated circuit industry, has a batch of wafer foundries such as SMIC International, TSMC and Huahong. Since the epidemic situation in Shanghai expanded in April, it has had a great impact on the production and operation of integrated circuit manufacturing, sealing and testing, downstream automobile supply chain and other links.

In the long run, the impact of the downturn in terminal demand for downstream household appliances, consumer products and other products is the root cause of the production reduction. Domestic wafer foundry is mainly concentrated in this field, which has a relatively large impact.

Since the beginning of 2021, affected by repeated epidemics, poor economic situation and sluggish demand, the demand for consumer products and household appliances represented by smartphones has declined significantly, which has triggered the cut off of a number of upstream chip suppliers, including Qualcomm, MediaTek and Qorvo.

It is reported that the current trend of consumer order cutting has further spread to the OEM end. In the first half of the year, there was "exposure" of order default information, including Unicom, Lijiadian and World Advanced. On the whole, domestic branches such as Liandian, TSMC, SMIC International, Huahong, etc. account for a relatively large proportion of consumer products and are subject to large fluctuations.

Long term customers of consumer products are facing the pressure of inventory adjustment. They have defaulted and given up taking the goods. Q3 capacity utilization will decline by 5% to 10%.

In terms of the increase in international trade imports and exports, there are also two reasons:

First, from the overall background of the semiconductor industry, the chip market has remained good in the past two years.

Different from the sluggish demand for household appliances and consumer goods, the incremental demand for automobiles, industrial control and new energy (energy storage, photovoltaic, etc.) remains high. According to WSTS forecast, the global semiconductor market size will reach 646 billion US dollars in 2022, an increase of 16.3%.

Second, the resumption of work and production of domestic epidemic situation was good, and the competitiveness of integrated circuits was constantly strengthened.

Taking Shanghai as an example, the period from the extended shutdown to the resumption of work is less than a month, which is favorable for restoring confidence in the industry. In addition, with the continuous strengthening of the competitiveness of a number of manufacturing and testing enterprises represented by SMIC International, Huahong and Changdian Technology, and relying on a stable supply chain, the competitiveness in the international trade export market has been continuously strengthened.

From the data, the average unit price of China's integrated circuit exports has shown a steady upward trend since 2015. The average price of 2022H1 is about 0.55 US dollars/piece, an increase of 46% over 2015; From the perspective of the import market, the average unit price of China's IC imports has fluctuated since 2015, and the price before the epidemic has a certain downward trend. By contrast, the competitiveness of the domestic integrated circuit industry has been making progress.

To sum up, the domestic integrated circuit industry is mainly concentrated in low-end areas such as household appliances and consumer products. Due to the sluggish demand and repeated epidemic, short-term output will inevitably decline. In the long run, driven by the new incremental demand for automobiles, industrial control and new energy, the domestic and foreign semiconductor markets still maintain a high development expectation, but the turbulence caused by the downturn of traditional markets cannot be ignored.

Some views on the future development of semiconductor industry: increment is the core

On the whole, with the new capacity of chip manufacturers coming out, the surplus capacity of superimposed consumer/household appliances has shifted to the shortage fields such as automobile and industrial control. The previous core shortage boom caused by imbalance between supply and demand, trade disputes and repeated epidemics is returning to reason, and the problem of core shortage has gradually been alleviated.

In the short term, from the perspective of each segment of semiconductor, there is an obvious trend of chip supply and demand differentiation. Specifically, "automobile/industrial control/new energy (expansion) and consumer electronics (mobile phones, PCs, tablets, etc.)/household appliances (reduction) demand differentiation - slowing distribution growth/structural shortage of original manufacturers - easing/declining OEM capacity - decline in sealed test", terminal demand changes are gradually transmitted to upstream chip manufacturers/distribution and manufacturing links (OEM/sealed test), and the second half of the year will be the turning point of this round of chip market "from prosperity to stability".

In the long run, with the rapid development of smart cars, cloud computing and new energy, the potential incremental demand will be the key to supporting the high landscape of chips in the next few years. At the same time, due to geopolitical disputes and repeated epidemics, the future trend of the semiconductor industry is still unknown. Overlapping the support policies of various countries for the local chip industry will also be an uncertain factor affecting the semiconductor industry in the next few years of international trade, and cooperation and game play will become the "theme" of the global semiconductor industry.