Electronics

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

In terms of specific months, since 1997, the domestic IC output has maintained a rapid growth trend, and even the epidemic at the beginning of 2020 has not affected its rapid growth. But since the beginning of this year, the monthly growth rate of China's integrated circuit output has shown a downward trend throughout the first half of the year, 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 volume of 5.5% and 16.4% respectively in the first half of the year. Among them, the high growth of the export volume of the integrated circuit market is particularly noticeable under the current decline in output.

The recent core shortage tide caused by many factors such as trade disputes, imbalance between supply and demand, and epidemic situation is gradually returning to rationality. Is it related to the current decline in domestic IC output and the surge in international trade exports?

Core reason: demand is the key

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

In the short term, the epidemic 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 foundry factories such as SMIC International, TSMC and Huahong. Since the expansion of the epidemic in Shanghai in April, it has had a great impact on the production and operation of integrated circuit manufacturing, sealing and testing, and the downstream automotive supply chain.

In the long run, the impact of the downturn in the demand for downstream home appliances, consumer products and other terminals is the root cause of the production reduction. The domestic wafer foundry is mainly concentrated in this field, with relatively large impact.

From the beginning of 2021, affected by the repeated epidemic, the poor economic situation and the sluggish demand, the demand for consumer products and household appliances represented by smart phones has declined significantly, causing a number of upstream chip suppliers including Qualcomm, MediaTek and Qorvo to cut orders.

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, including Liandian, Li Jidian and the world's advanced companies, there was "exposure" of order breach information. In general, domestic branches such as Liandian and TSMC, as well as SMIC International and Huahong, 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 goods. Q3 capacity utilization rate will decline by 5% to 10%.

In terms of the increase of import and export of international trade, there are also the following two reasons:

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

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

Second, it is better to resume work and production due to the domestic epidemic, and the competitiveness of integrated circuits is constantly strengthened.

Taking Shanghai as an example, the period from the expansion of the epidemic to the resumption of production is less than one month, which is more beneficial for restoring confidence in the industry. In addition, with the continuous strengthening of the competitiveness of a number of manufacturing and testing enterprises, such as SMIC International, Huahong and Changdian Technology, 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 import market, the average unit price of China's integrated circuit imports has fluctuated since 2015, and the price before the epidemic still has a certain downward trend. In 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 the low-end fields such as household appliances and consumer products. Due to the downturn in demand and the repeated impact of the epidemic situation, the short-term output is inevitable to 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 high development expectations, but still cannot ignore the turbulence caused by the downturn of the traditional market.

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

In general, as the new capacity of chip manufacturers opens, the surplus capacity of superimposed consumer/household appliances is transferred to the shortage fields such as automobiles and industrial control. The core shortage boom caused by supply and demand imbalance, trade disputes and repeated epidemic is returning to rationality, and the core shortage problem is gradually relieved.

In the short term, from the perspective of semiconductor segments, the trend of chip supply and demand differentiation is obvious. Specifically, "the differentiation of demand for automobiles/industrial control/new energy (expansion) and consumer electronics (mobile phones, PCs, tablets, etc.)/home appliances (reduction) - the slowdown of distribution growth/the structural shortage of original factories - the alleviation/decline of OEM capacity - the decline of seal testing", the change of terminal demand is gradually transmitted to the upstream chip original factories/distribution and manufacturing links (contract manufacturing/seal testing), 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, as smart cars, cloud computing and new energy enter the rapid development stage, the potential incremental demand will be the key to support the chip's high visibility in the next few years. At the same time, due to geopolitical disputes and repeated epidemics, the impact of 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. Cooperation and game will become the "theme" of the global semiconductor industry.