Preface

In the field of foundry, Taiwan, China is one of the most pivotal players.

According to DIGITIMES Research Center, in 2022, the combined revenue of Taiwan‘s four largest foundries (TSMC, UMC, LMC and World Advanced) will reach $89.4 billion, a 31% growth. According to their previous statistics, global foundry revenue in 2022 will reach $137.2 billion, which means that the four major foundries contribute more than 65% of the global foundry.

However, according to a recent report released by Tiburon Consulting in March, the top ten foundry output in the fourth quarter of 2022 experienced the first decline in fourteen quarters, down 4.7% from the previous quarter, about $33.53 billion (, and in the face of the traditional off-season and the general environment of uncertainty, is expected to fall even deeper in the first quarter of 2023.

A few days ago, Taiwan‘s foundry quartet released their latest financial reports, which also confirmed this statement.

01 

TSMC fell 15%, the first time in four years

Until last quarter, TSMC, the leading foundry, was still singing along, but now the chill that started in the second half of last year has finally reached TSMC.

They said on Monday that the company‘s revenue fell 15 percent in March to 145.41 billion Taiwan dollars from 171.97 billion a year earlier, the first decline in nearly four years. The data also showed that TSMC‘s revenue rose 3.6 percent year-on-year to 508.63 billion Taiwan dollars ($16.73 billion) in the first quarter of this year, which was at the low end of the previously expected range.

It is worth noting that this is the second consecutive quarter in which TSMC‘s sales have missed expectations, indicating that global demand for electronics continues to be weak, the downturn in the chip industry has not yet bottomed out, and rising interest rates, soaring inflation and the unresolved banking crisis continue to undermine consumer confidence. According to the latest IDC data, global PC shipments plunged 29% in the first quarter, with Apple‘s Mac series leading the decline.

According to the report, TSMC‘s performance decline, it is worth noting that Apple and MediaTek‘s cut orders, together with such related chips as Sony and Broadcom (Broadcom) have a great relationship with the shrinking orders in TSMC. However, TSMC responded that the exchange rate fluctuations are very large, the first quarter revenue if the actual dollar, but still reached the previously set financial targets.

 The unsatisfactory results have not only affected TSMC itself, but also a series of chain reactions that followed.

For example, according to Taiwanese media reports, a supply chain pointed out that TSMC‘s production expansion and plant construction has slowed down due to weak demand. Among them, the 3nm process was originally targeted to reach 60,000-70,000 wafers/month in the middle of this year, but the current monthly capacity is about 40,000 wafers, and may reach 50,000 wafers at most in the second half of the year.

In addition, TSMC‘s Kaohsiung plant plans are also subject to change.

According to the previous plan, TSMC originally planned to build two plants in Kaohsiung, including 7nm and 28nm plants, of which, 7nm plant in the middle of last year, the investor meeting has indicated that there is an adjustment due to the impact of weak demand in the smartphone and personal computer (PC) market; the market has also recently rumored that the 28nm plant will also be adjusted. Taiwan media reported that TSMC‘s Kaohsiung plant‘s related mechanical and electrical engineering bids were delayed by one year, and related clean room and installation operations were delayed, while the plant‘s planned procurement of 28nm equipment list was also cancelled in its entirety.

Related reports further point out that TSMC even has a delay in the 2nm plant. However, according to Nikkei‘s report at the end of March, TSMC‘s 2nm fab is still under construction in full swing. According to Nikkei‘s report, even though the market is so bad, TSMC has not slowed down its investment pace, but according to the supply chain, TSMC has revised its 2024 orders to equipment vendors, and the year-on-year decline in capital expenditure in 2024 is either a double-digit percentage.

For TSMC, also need to face a challenge is the U.S. chip bill subsidy issues.

At the end of last year, TSMC invested in a semiconductor foundry in Arizona, U.S. held a start-up ceremony. The company‘s Liu Deyin announced on the spot that the amount of investment in the U.S. fab was increased to $40 billion, a significant increase from the original $12 billion. However, TSMC was caught in a dilemma after the U.S. announced the details of the application related to the chip bill this year.

According to reports, the United States requires subsidized manufacturers need to comply with the United States additional conditions, including: detailed financial measurements and a number of information about business secrets, must share a specific rate of profit sharing with the federal government, subsidized companies are not allowed to expand semiconductor manufacturing capacity in mainland China and other "countries of concern" within 10 years, can not participate in joint The subsidized companies are not allowed to expand their semiconductor manufacturing capacity in "suspect countries" such as China for 10 years, and cannot participate in joint research and technology licensing. In this regard, TSMC Chairman Liu Deyin bluntly said that some of the restrictions in the bill are too harsh, TSMC "can not accept"! We also need to discuss with the U.S. government so that Taiwan manufacturers‘ operations are not negatively affected.

According to Reuters‘ latest report, the European chip bill also allows TSMC to find a new way out.

02

UMC annual reduction of 20.09%, the challenges are numerous

As another representative of Taiwan‘s foundry, UMC has not had a good time recently.

According to their recently released data, foundry major UMC‘s March 2023 consolidated revenue of $17.688 billion, a monthly increase of 4.88%, an annual decline of 20.11%, from the low point of nearly 22 months to rebound, still the second highest in the same period. Cumulative first-quarter consolidated revenue was NT$54.209 billion, down 20.09% QoQ and 14.53% YoY, a low of nearly 7 quarters and slightly below expectations, but still the second highest in the same period.

Although the semiconductor industry is undergoing an inventory adjustment period, UMC should be able to weather the cyclical fluctuations through its differentiated product portfolio and global customer cooperation, and it is estimated that earnings per share will be around $4.92 in the second half of the year as operations warm up.

U.S. foreign investors previously issued a report on the foundry industry, that the semiconductor industry will continue to de-stocking in the first half of the year, but the magnitude of the cut has slowed down compared to the previous 2 quarters, with the downstream supply chain inventory de-stocking peak has passed, the expected foundry industry crop rate is expected to stabilize in the second half of the year.

U.S. foreign investors pointed out that the first half of the 12-inch foundry mature process demand is more stable than 8-inch, applied to the OLED panel driver IC of 28 nanometers, automotive microcontroller (MCU) of 40 nanometers eFlash process demand is still tight. UMC‘s 28nm process crop rate is currently stable, but we still need to observe the impact of Samsung‘s outsourcing orders on demand for this year and next.

When announcing 2022 revenue earlier this year, UMC said that, looking ahead to the first quarter of 2023, UMC estimates that wafer shipments will decrease by 17-19% QoQ (high teens) and the dollar average selling price (ASP) will remain stable; capacity utilization will drop to 70% from about 90% in Q4, and gross margin will drop to about 34-36% from 42.93% in Q4 (mid -(30%). According to the legal estimate, the first quarter revenue is likely to drop by 20% quarterly.

UMC general manager Wang Shih said that the first quarter is expected to be full of multiple challenges due to the weak global economy, higher than normal customer inventory days and low order visibility in 2023. In response to the current downturn, the company has implemented strict cost control measures and postponed some capital expenditures as much as possible.

In terms of capital expenditures, UMC will spend approximately $1.167 billion in the fourth quarter of 2022 and $2.7 billion for the year, a reduction of 10% from the previous estimate of $3 billion, and approximately $3 billion in 2023, of which 90% will be spent on 12-inch capacity and 10% on 8-inch capacity.

However, in the long run, UMC remains optimistic that its differentiated special process technology leadership, diversified origin capacity supply, and superior quality and operations will enable the company to grasp the demand for continued digital transformation across industries and become the preferred wafer manufacturing partner for leading customers.

UMC noted at the time that automotive ICs are expected to continue to be a key growth driver in 2023 and beyond, driven by the long-term trend toward automotive electronics and automation. Through the foundry‘s comprehensive automotive grade process technology and adoption of stringent quality standards for automotive use, as well as continued solid partnerships with world-class automotive leaders, the company is well positioned to serve the broad automotive electronics market.

And in February, reports indicated that the company intends to offer 10-15% price discounts to customers who increase their wafer feed volume in the second quarter. However, recent news indicated that this does not include the company‘s 28nm capacity, as the source said that UMC is nearing full capacity for this capacity and expects offers and long-term orders to remain stable through the end of 2023.

Translated with www.DeepL.com/Translator (free version)