2023 is a trough period for the semiconductor industry, affected by multiple factors such as declining terminal demand, inventory backlog, and friction, the orders of wafer foundries have decreased significantly, and they continue to occur. According to Sigmaintell, the average capacity utilization rate of the world's major pure-play foundries in the fourth quarter of 2023 is expected to be only 84%, a decrease of one percentage point from the previous quarter and a new low in the past decade. In the whole of 2023, the overall capacity utilization rate of global wafer foundries may be around 70%, which means that about 30% of the capacity is vacant.
Wafer factories generally do not shut down, because shutdown will lead to equipment damage, process failure, backward technology and other problems, so even if there is no order, the wafer factory must maintain a certain amount of operation, but this will cause a waste of resources, and no output. This is a huge cost pressure and an existential crisis for fabs. Is the cold winter of the fab temporary or long-term? How can fabs get out of this predicament?
The fab winter is expected to end in 2024
Although 2023 is a cold winter for fabs, it does not mean that the outlook for the semiconductor industry is bleak. With the steady recovery of downstream demand, the semiconductor market will grow slightly on the basis of 2023, and it is expected that the global pure wafer foundry shipments in 2024 will be about 32.11 million pieces, a year-on-year increase of about 95%。By the fourth quarter of 2024, the average capacity utilization rate of the world's major pure-play foundries could recover to around 87%.
There are several reasons why the fab winter is expected to end in 2024:
First, the development of emerging technologies such as 5G, Internet of Things, artificial intelligence, and cloud computing will drive the demand for high-performance, low-power, and high-integration chips, especially for wafers with advanced processes. According to Deloitte US**, 5G phone shipments will reach 1 billion units in 2024, accounting for 40% of total smartphone shipments, while 5G phones will sell for twice as much as 4G phones on average chips. In addition, data centers, edge computing, autonomous driving, and other fields will also drive the demand for advanced process wafers.
Second, 42 new wafer factories will be added in the world, half of which will be in China, which will increase the supply capacity of wafers, alleviate the contradiction between supply and demand of wafers, and improve the capacity utilization rate of wafers. These new fabs are mainly focused on discrete and analog and are expected to increase capacity by 10% in 2023 and 7% in 2024. Wafer demand in these areas mainly comes from automotive, industrial, consumer electronics and other market segments, and with the recovery of the global economy, the demand in these markets will gradually pick up.
Third, foundries can reduce costs, improve profits, and enhance competitiveness by improving energy efficiency, increasing the use of renewable energy, and implementing manufacturing transformation. According to Deloitte US, in 2024, fab energy intensity will fall to $206 Wh, down 14% from 2020, while the use of renewable energy will reach 28%, double that of 2020. These measures are not only conducive to the economic benefits of the fab, but also to the social responsibility and environmental protection of the fab.
To get out of the predicament, fabs need to strengthen innovation and cooperation
While the fab winter is expected to end in 2024, fabs need to innovate and collaborate to meet the challenges and opportunities of the future if they are to remain invincible in the semiconductor industry.
The first is to strengthen technological innovation, break through process bottlenecks, and improve the performance and reliability of chips. As semiconductor manufacturing processes continue to shrink, fabs are faced with more and more technical challenges, such as leakage, thermal effects, variability, cost, etc. Wafer fabs need to continuously invest in R&D to develop new materials, devices, processes, designs and other technologies to improve the performance and reliability of chips, meet customer needs, and stay ahead of the curve.
The second is to strengthen industrial cooperation, build a stable ** chain, and improve the security and availability of chips. The semiconductor industry is an industry with a high degree of division of labor and collaboration, and wafer fabs need to establish close cooperative relations with upstream equipment, materials, and design manufacturers, as well as downstream packaging and testing, distribution, and terminal manufacturers, to form a stable chain to cope with market fluctuations and risks, and improve the security and availability of chips.
The third is to strengthen market innovation, expand new application fields, and improve the value and influence of chips. The semiconductor industry is a constantly changing and innovative industry, and fabs need to explore new application fields with customers and partners, such as biomedical, smart home, smart city, etc., to improve the value and influence of chips, and contribute to the development of human life and society.
In short, the cold winter of the fab is temporary, and the spring of the fab is eternal. As long as the fab can persist in innovation and cooperation, it will be able to get out of the predicament, usher in new opportunities and challenges, and make greater contributions to the development of the semiconductor industry.
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