At the company’s six-monthly market-update meeting, held last week in London, Future Horizons’ president Malcolm Penn said the growth in semiconductor unit shipments has lagged behind the long-term average for the past couple of years. Historically, unit shipments have grown by more than 10% a year and, although monthly fluctuations can be large, this figure has remained consistent for several decades. Since 2014, however, the average growth in units has been closer to 7%.
“That’s dangerous,” Penn says, “and there are two possible conclusions. One is the trend is no longer 10%. That’s always possible, but it’s pretty risky to bank on that. The other is because the general economic situation has been dampened and some major markets have slowed, such as PCs and phones. We’ve seen that before when markets have run their course and saturated.
“My money says that it’s below the long-term trend line,” Penn argues, pointing to a decline in investment in capital expenditure for semiconductor production across the board. “Current capex levels are well below the long-term trend and no-one is building speculative capacity. Is there a shortage waiting to happen? Yes, it’s already starting and the impact of that, in terms of prices increasing, is already starting to be seen.”
Penn points to the few remaining major suppliers of raw wafers to the foundries and integrated device manufacturers (IDMs). “There are shortages of 300mm and even 200mm wafers, so they’ve put the prices up. They’ve done it in Q1, the weakest quarter of the year, and the price increases have stuck. Why? Because they’ve maxed out. No-one has made an investment in 200mm wafer capacity. Why? Because the price has been too low.”
Quietly, semiconductor manufacturers have been turning back to 200mm wafers to supplement the 300mm capacity that is, in principle, more cost-efficient. In October 2016, the fab-equipment manufacturers’ group SEMI pointed to a reversal in the fortunes of 200mm fabs. At their peak in 2007, 200mm fabs shipped more than 5.6million finished wafers per month. The financial crisis and the associated slump in chip sales saw that number fall to just more than 4.6m in 2009, with 10 fabs closing out of almost 200. Since then, 200mm production has risen, despite expectations that production would shift permanently to 300mm plants.
By 2020, SEMI expects 200mm plants to produce 5.5m wafers per month, just shy of the 2007 peak, with IoT, power, analogue and MEMS devices accounting for the resurgence in production.
This growth will happen with just one new 200mm fab and capacity expansions in the remaining 190 plants, many implemented by foundries.
According to market researcher IC Insights, TSMC is now the single largest manufacturer of devices on 200mm wafers, accounting for 11% of the worldwide installed capacity. UMC is number four, just behind Texas Instruments and STMicroelectronics, with 6% of global capacity.
The problem, Penn says, is the long-term price pressure from fab operators has discouraged raw wafer manufacturers from investing in more capacity. A looming shortage therefore provides wafer manufacturers with the ability to finally reverse this downward trend in pricing. Fab operators have forced price cuts despite the raw wafer price accounting for a small fraction of the cost of finished devices.
“We haven’t seen a capacity squeeze for a very long time,” Penn says. “The wafer supply shortage has taken the industry by surprise and I don’t think they really believe it’s happening. The 200mm wafer shortage was a surprise, even to the wafer suppliers. They hadn’t figured out that those fabs would get fuller and fuller because of increases in production of things like LCD drivers.”
A further indication of a possible shortage and a consequent rise in device prices is the running down of inventories over the year. “In absolute terms, inventories have gone up, but as a percentage of revenues, they have been going down,” Penn says.
Although signs point to a tightening of supply that will cause problems and price rises if unit demand returns to its long-term average, Penn says the industry may yet avoid the consequences of an overheating market.
“Since the economic crash, every time capacity has got tight, something has come along to take the pressure off,” Penn says, pointing to global events that dampened consumer demand, ranging from the Fukushima tsunami to the Brexit vote.
