In recent years, as global demand for chips has continued to rise, the development momentum of semiconductors can be described as advancing by leaps and bounds. Whether it's the “fairy fight” of chip design companies or the “blossoming everywhere” of manufacturing fabs, the future of the global semiconductor industry is filled with the two words “hot.” According to the January semiconductor industry report published by IC Insights, since the outbreak of the Covid-19 virus crisis in 2020, global semiconductor revenue has increased 25% during the economic rebound in 2021. Total semiconductor sales are expected to continue to grow 11% in 2022 and reach a record high of 680.6 billion US dollars.
However, behind this landscape, a new crisis is quietly unfolding, and that is, the chip may collapse. Malcolm Penn, a leading industry analyst at Future Horizons, said that the chip market momentum is at a turning point. There may be a collapse in the fourth quarter of 2022, and the 17th [chip market] slump is imminent.
Based on the current situation, judging from the current state of the industry and the past, only those that sell tools, materials, equipment, and IP, or even OEM services, may be the ultimate winner.
Semiconductor equipment companies have always been honored
Driven by demand from OEM companies, DRAM, and NAND flash memory, semiconductor equipment, which is the cornerstone of the industry, has also won a “spring of development.” According to the SEMI “Global Semiconductor Equipment Industry Development Review and Prospect” report, total global semiconductor equipment sales exceeded 100 billion US dollars for the first time in 2021, reaching a new high of 103 billion US dollars, an increase of 44.7% over the 2020 historical record of 71 billion US dollars; it is expected that the total global semiconductor manufacturing equipment market will expand to 114 billion US dollars in 2022.
Obviously, with market capacity soaring, equipment giants have also ushered in a good harvest year.
ASML
January 19, Global Leader in Semiconductor Lithography Technology$ASML.US $Financial results for the full year 2021 have been released. Financial reports show that in 2021, ASML achieved net sales of 18.6 billion euros, gross margin of 52.7%, and net profit of 5.9 billion euros. Its CEO Peter Wennink said in a statement and outlook that 2021 is a dynamic year of growth, with market demand exceeding the company's production capacity.
In the current era where all the world's giants are battling advanced processes, EUV lithographers have clearly become their essential weapon for victory, and ASML, as the only company in the world that can manufacture EUV, has become their target of competition. Financial reports show that ASML shipped a total of 42 EUV lithographers in 2021 and 31 in 2020, achieving revenue of 6.3 billion US dollars.
An extremely deep technical moat allows ASML to monopolize the lithography machine market while also controlling the pricing power of equipment. According to information, the NA value of ASML's next-generation NA EUV lithography machine (High-NA EUV) increased from 0.33 to 0.55. It has higher exposure accuracy, but the price has also reached a new high. The price has already exceeded 300 million US dollars per unit. Currently, this lithography machine is still in the design stage. The first batch of prototypes will be shipped in 2023, and it is expected that it will not be used in mass production until 2025.
Although the prices are prohibitively expensive and the delivery cycle is unnerving, customers are still fond of it. According to ASML's official website on January 19, Intel has ordered one of the most advanced chip makers (lithographers) and has now received orders for 5 next-generation lithographers. It can be said that EUV lithographers are completely unconcerned about sales.
The unabated demand for chipmakers' products has naturally made ASML hopeful about this year's revenue. Even taking into account the impact of the Berlin factory fire at the beginning of the year, ASML still expects revenue growth to reach around 20% in 2022.
Applied materials
On November 18, 2021, Applied Materials, the world's largest semiconductor equipment supplier, announced its financial report for the fourth quarter and full year of FY2021 ending October 31, 2021. In fiscal year 2021, Applied Materials semiconductor equipment revenue increased by nearly 5 billion US dollars, an increase of 43% over the same period, exceeding the market growth rate during the same period. At the same time, new orders for semiconductor equipment in 2021 increased 78%, and the backlog of orders at the company level increased to 11.8 billion US dollars, an increase of 77% compared to the same period last year.
As early as August 2021, Chief Financial Officer Dan Durn said that its backlog of orders was close to $10 billion, and growth in the chip manufacturing equipment business and all regions had reached record highs. Judging from November data, whether it was a 43% increase in revenue, a 78% increase in orders, or a 77% increase in backlog orders, the growth rate was astonishing.
It's important to note, however, that's not the biggest potential for applied materials revenue growth. Under the influence of the lack of cores, the shortage of components also affected equipment manufacturing using materials, which could not fully meet demand. According to reports, the total revenue impact of semiconductor supply shortages on applied materials is far higher than 300 million US dollars. Applied Materials expects supply to remain limited in FY2022.
The pandemic has accelerated digital transformation, boosted semiconductor consumption and demand for next-generation silicon technology. There is still a long way to go to balance supply and demand, especially as demand drivers continue to grow. As demand drivers continue to grow, Applied Materials expects fab equipment spending to rise again in 2022 and remain strong, especially for logic foundry at cutting-edge ICAPS nodes. According to applied materials, whether it's semiconductor equipment systems or AGS, the first half of 2022 will be higher than the second half of 2021.
LAM Research (LAM Research)
Although LAM Research Q4 results will only be announced next week, we can also peek one or two from previous performance reports. LAM Research has set a record of profit exceeding 1 billion US dollars for 3 consecutive quarters, and I'm sure revenue for the whole of 2021 will not be disappointing.
In October 2021, LAM Research announced financial results for the first quarter of fiscal year 2022 (ending September 26, 2021). R&D CEO Tim Archer said that, driven by strong demand and steady operation, the company has achieved record revenue and profit per share for six consecutive quarters. In a strong chip manufacturing equipment environment, the company is providing necessary innovation for customers' successful semiconductor manufacturing prospects.
Looking ahead to the next quarter at the time, LAM Research estimated that R&D revenue would fall between 4.15 billion and 4.65 billion US dollars, and the diluted EPS was estimated to be between 7.95 and 8.95 US dollars.
According to LAM Research R&D data, the estimated 2021 fab equipment (WFE) expenditure falls between 84-86 billion US dollars, and the overall strengthening of demand is estimated to drive another increase in spending in 2022.
Tokyo Electronics
In November 2021, semiconductor production equipment manufacturer Tokyo Electronics (Tokyo Electron) announced its results for the first half of the fiscal year ending September 30, 2021. Net sales for the period were 932,514 billion yen (about 8.15 billion US dollars), up 39.6% year on year, higher than the forecast announced on August 16 and the highest net sales in half a year; operating profit of 274.647 billion yen, up 86.3% year on year; net profit of 20.219 billion yen, up 78.7% year on year, all of which reached record highs.
Representative Director, President and CEO Toshiki Kawai said that at the August financial results meeting, we expect the 2021 WFE market to grow by about 40% year on year, but driven by semiconductor demand brought about by the digital transformation of society, we also raised our expectations that the 2021 WFE market will grow close to 50% year on year. Among them, for logic and contract manufacturing, Tokyo Electronics expects the growth rate to increase from 45% to 60%; dynamic random access memory is predicted to maintain a growth rate of around 60%; and non-volatile memory is expected to increase by about 20% year-on-year.
He also said that JD Electronics predicts that the SPE division's new equipment sales in fiscal year 2022 will increase 48% from last year to 1430 billion yen, and that new equipment sales growth in the calendar year will increase nearly 60% over the previous year, exceeding the growth rate of the WFE market.
Terrida
automatic testing equipment supplier$Terrida (TER.US) $The financial report for the 3rd quarter of 2021 (ending October 3, 2021) was also announced in October last year: annual revenue increased 16% to US$951 million, up 63% from the 3rd quarter of 2019. Terrida CEO Mark Jagiela once said that, thanks to testing in the third quarter and continued strong demand for industrial automation, Terreda paid a double-digit revenue and surplus growth record for the 8th consecutive quarter.
Jason Zee, global vice president of Teradyne, president of China, and general manager of the storage and system testing division, said in an interview with the media a few days ago that due to the influence of the mobile phone, computing, automotive and industrial markets, the chip shortage will continue in 2022. According to Jason Zee's forecast, the smartphone market will still be the largest SoC sub-market in 2022, while the computing market will grow at a faster rate, and the automotive market will maintain a high level of growth. The application of these low DPPM requirements (which continues to grow rapidly) continues to drive the corresponding test demand to rise.
The performance of EDA/IP manufacturers is steadily rising
As Moore's Law approaches its limits, more and more chip design companies need more powerful and efficient EDA tools to fully tap the potential of semiconductor processes and improve chip design performance. In a sense, EDA is even as important as a lithography machine. According to ESDA statistics, the EDA industry's revenue in the third quarter of 2021 increased 17.1% year-on-year to $3458.1 billion from $2,953.9 million last year.
Wally Rhines, executive sponsor of the SEMI electronic design market data report, believes that EDA is an industry close to $14 billion. As semiconductor revenue exceeds $5,500, the percentage of EDA also increased by more than 2%. Perhaps EDA has finally received the respect it deserves.
Judging from the financial reports of EDA/IP giants such as Cadence, Synopsys, and AlphaWave, revenue is expected to reach new highs in 2021.
Cadence
Cadence ($Kengteng Electronics (CDNS.US) $) is one of the world's leading EDA companies, and Cadence achieved revenue of US$2,683 million in 2020. Since entering 2021, Cadence's revenue and stock price have both risen. On October 25, 2021, Cadence released its third-quarter earnings report. Senior Vice President and Chief Financial Officer John Wall said all of the key metrics for the third quarter exceeded expectations.
After a perfect end to the third quarter, Cadence expects total revenue for 2021 to be between $2.96 billion and $29.8 billion. Using the non-GAAP measures defined below, the operating margin for 2021 is expected to be approximately 37%, and the estimated net income per diluted share in 2021 is between $3.24 and $3.28.
Under technological changes, Cadence is also at the center of a storm of transformation in the chip industry. Customers have gradually switched from traditional semiconductor companies to new generation “system” customers such as Tesla and Apple. Jayvleeschhouwer, head of software research at GriffInsecurities, said that these next-generation “system” customers conceive complete chip-centered products, which currently account for about 40% of Cadence's revenue. Cadence is already providing these customers with software that goes beyond chip design to help them incorporate custom chips into complete products.
With the addition of the “fresh blood” of these “deep-fried chicken”, Cadence's revenue is expected to rise to the next level.
Synopsys
On December 1, 2021, another EDA/IP leader, Synopsys ($Synopsys (SNPS.US) $) also announced the results for the fourth quarter and fiscal year of FY2021. Financial reports showed that revenue for FY2021 was US$4.204 billion, up 14.1% from US$3.685 billion in FY2020, which not only far exceeded Synopsys' original target, but also set another record.
With the advent of the intelligent everything era, there are more and more new entrants in fields such as automobiles, high-performance computing, and artificial intelligence. The combination of massive data and machine learning software requires highly complex semiconductor chips with extensive computational power, and these will all become Synopsys' future growth points. Synopsys Chairman and Co-CEO Aart de Geus said we are entering 2022 with strong technology and market momentum.
Alphawave
It is also at the top of the chip industry, and IP is no less important than EDA. On January 17, IP provider AlphaWave announced the transaction and business update for the fourth quarter of 2021. The financial report showed that the total number of new bookings for the fourth quarter of 2021 was 25.5 million US dollars, setting a record for 2021. The total number of bookings for FY2021 reached 244.7 million US dollars. Compared with FY2020, the total number of bookings increased by more than 225% year-on-year, exceeding the target set during the initial public offering and exceeding the company's guidance of increasing in September 2021.
Alphawave CEO Lofton Holt once said that the shortage of production capacity in the semiconductor industry is not so much a headwind for Alphawave as an opportunity, because the IP sold by Alphawave targets technology that will not be put into production within a few years. The chip shortage is causing more and more countries and companies to invest in new foundries, and investing in new OEM production capacity is Alphawave's opportunity.
In addition, Alphawave is also strengthening cooperation with Chinese companies, has signed procurement agreements with VeriSilicon Corp., and has assisted the latter in deploying its SerDes IP to fabs in mainland China.
Foundry's Carnival
2021 can be said to be a carnival year for wafer foundries. From major giants smashing capital to building factories everywhere, companies have made a lot of money, and industrial development is in full swing.
TSMC
Recently,$TSMC (TSM.US) $The 2021 financial report was released. Total revenue for 2021 was NT$1587.42 billion (approximately RMB 365.83 billion), up 18.5% from NT$1340 billion last year. Monthly revenue, quarterly sales, and total annual revenue all reached record highs.
TSMC said that it is optimistic about the prosperity of the global semiconductor industry in 2022. It is expected that the global semiconductor market (excluding storage) will grow by 9%, the wafer foundry market will grow 20%, and the growth rate of the global wafer foundry industry will exceed the overall semiconductor market. In 2022, TSMC will drastically increase capital expenditure to 40 to 44 billion US dollars, but it also shows that its production capacity will remain tight in 2022.
Meanwhile, TSMC expects the semiconductor supply chain inventory level to remain high in 2022. TSMC believes that the wafer foundry industry is still in short supply of production capacity, but as the expansion of global fabs accelerates, the industry chain expects supply and demand to gradually balance from the second half of 2022, and the current shortage of production capacity will be alleviated. Therefore, it is judged that the global semiconductor industry chain in 2022 will shift from the original shortage of production capacity driven by high investment in semiconductor equipment to the release of production capacity, which will drive the boom in semiconductor materials.
UMC
The third largest wafer foundry in the world$UMC.US (UMC.US) $According to the announced results, revenue for the full year of 2021 reached NT$213,011 billion, an annual increase of 20.47%. Revenue in December reached NT$20.08 billion, up 3.14% per month and 32.65% per year, setting a record high in annual revenue.
Regarding the future momentum of the semiconductor industry, UMC stated in an earnings conference call for the second quarter of 2021 that it will not see the chip tension abated until 2023. Meanwhile, according to industry research, the growth rate of the global semiconductor market will actually accelerate from 2020 to 2025, driven by 5G digital transformation, HPC, electric vehicles, and the Internet of Things. Therefore, UMC believes this upward cycle will continue for some time.
UMC said it does expect the strength of structural demand — the momentum will continue beyond the fourth quarter of 2021.
Grid core
As of press time, Gexin ($GlobalFoundries (GFS.US) $)'s latest financial report is still the third quarter financial report, but according to its previous forecast, last year's Q4 achieved revenue of 1.8 billion to 1.83 billion US dollars, an increase of 5.9%-7.6% month-on-month, and a year-on-year increase of 69.5%-72.3%. Single-quarter revenue is also expected to set a new historical record.
Tom Caulfield, CEO of Gexin, said in an interview that for most of the next 5-10 years, the industry will likely face a tight supply situation, and the company's wafer production capacity by the end of 2023 will have been sold out.
SMIC
though$SMIC (00981.HK) $Revenue for the full year of 2021 has not yet been announced, but in response to investors' questions, it was revealed that production continuity is currently basically stable. Production expansion in 2021 was achieved as scheduled, and sales revenue is expected to increase 39% per year last year. In its 2021 semi-annual report, SMIC stated that in recent years, with the introduction of new applications, special processes other than logic processes are receiving attention from major wafer foundries around the world, becoming another important development opportunity in the semiconductor manufacturing field.
As the popularity of the semiconductor industry continues to rise, the global packaging and testing market is also developing rapidly, with full firepower and increasing production capacity. However, until the publication was completed, the financial reports of the four major testing companies, Sun Moon Light, Changdian Technology, Tongfu Microelectronics, and Huatian Technology, had not been released, but by taking stock of the financial data for the first three quarters, it can also be seen that the big players in the closed beta were also uncompromising winners.
Sun moonlight
According to the third-quarter earnings report of Taiwan-based testing manufacturer Sun Moon Light Investment Control, the company's consolidated revenue for the third quarter was NT$15.665 billion (same under the unit), up 19% quarterly and 22% per year.
December 2021,$Sun Moonlight Semiconductor (ASX.US) $The announcement stated that its four factories and operations in mainland China were sold to Zhilu Capital at a price of 1.46 billion US dollars. According to the announcement at the time, by completing this transaction, Sun Moon Light is expected to optimize the strategic layout and effective use of resources for its testing business in the mainland market, thereby strengthening Sun Moon Light's overall competitive strength in the mainland market. On the other hand, Sun Moon Light will also continue to strengthen its resource investment in advanced technology research and development and production capacity building in Taiwan, seeking to serve all customers with advanced technology under a global layout.
Nagaden Technology
According to Changdian Technology's financial report for the third quarter, Changdian Technology achieved operating revenue of RMB 8.10 billion in the third quarter, an increase of 19.3% over the previous year, and achieved net profit of RMB 790 million, a record high for the same period. The cumulative revenue achieved in the first three quarters was RMB 21.92 billion. The cumulative revenue for the first three quarters reached a record high for the same period in the same period of the year. Cumulative revenue for the third quarter and the first three quarters increased 19.3% and 16.8%, respectively.
Tongfu Microelectronics
Tongfu Microelectronics achieved operating revenue of about 4.114 billion yuan in the third quarter, an increase of 49.6% over the previous year. Net profit attributable to shareholders of listed companies reached about 302 million yuan, an increase of 101.03% over the previous year. Basic earnings per share were achieved of $0.23, an increase of 76.92% over the previous year.
In the 2021 semi-annual report, Tongfu Microelectronics stated that the high boom in the sealing and testing market continues, advanced sealing and testing technology continues to break through, fully benefiting from the domestic substitution process of advanced testing. With the transformation of early R&D results and the implementation of fixed increase projects, the company's technology and production capacity in the fields of 7nm high-performance processors, 5G, and automotive electronics are expected to break through further.
Huatian Technology
In October 2021, Huatian Technology expects net profit of 1,013 billion yuan to 1,049 million yuan to shareholders of listed companies for the first three quarters, an increase of 126.36% to 134.41% over the same period last year. Huatian Technology said that due to factors such as accelerated 5G construction and increased demand for consumer electronics and automotive electronics, demand in the integrated circuit market continues to be strong, company orders are full, and the scale of business continues to expand. It is expected that operating performance for the first three quarters of 2021 will increase significantly compared to the same period last year.
Write it at the end
Looking back at the development of semiconductors over the past few decades, as everyone is familiar with, one of the most important characteristics of the entire industry is its cyclicality. However, unlike upstream suppliers, the terminal of the semiconductor supply chain, chip suppliers, is relatively weak in control. For example, upstream fabs can obtain their investment protection through various methods such as advance payments, which will also be transmitted to equipment and materials.
However, when it comes to chip design companies, they often fall into placing orders, facing inventory risks. If they don't place an order, they are afraid they won't seize the opportunity. The changes in chip design companies over the past few decades have been influenced to a greater or lesser extent by this cyclical trend.
Seen from this point of view, maybe only those who “sell tools” are the eternal winners?
*Disclaimer: This article was originally written by the author. The content of the article is the author's personal opinion. Semiconductor Industry Watch is reprinted only to convey a different point of view. It does not mean that Semiconductor Industry Watch agrees or supports this view. If you have any objections, please contact Semiconductor Industry Watch.