Since the beginning of this year, the semiconductor industry has recovered overall, with strong signals of growth released due to the terminal demand growth widely reported in design companies, sustained performance improvement, and the acceleration of integrated circuit exports. However, due to the longer industry chain, the capacity utilization rate of wafer foundry was relatively weak in the first quarter of this year, and there were doubts about excess capacity and significant downward price pressures. When will it bottom out has become a concern for the industry and the market.

Yesterday (June 13th), according to a report by Morgan Stanley, the wafer fab utilization rate of Hua Hong Semiconductor has exceeded 100%, so it may raise wafer prices by 10% in the second half of the year.

If this news is true, it will undoubtedly inject a stimulant into the semiconductor industry.

However, when the reporter of the Star Daily called the office of the Board of Directors of Hua Hong Semiconductor, the staff said, 'The company's board of directors has not received real-time information on recent changes in capacity utilization and related pricing adjustments by the business departments. If information needs to be disclosed, it will be announced on the relevant platform.'

The Star Daily reporter has sought answers from multiple parties in the industry chain to find out the truth.

According to semiconductor industry practitioners, wafer production at major fabs such as SMIC and Hua Hong has been fully loaded for several months, and there is no longer any willingness to negotiate price cuts. Some insiders also say that although terminal demand has recovered this year, there hasn't been any significant fluctuations. However, since March, there has been a surge in demand for products that are large in volume and have wide coverage, driven by AI computing power and urgent orders from several major manufacturers, which has led to capacity constraints at head wafer fabs.

Mainstream wafer fabs refuse to negotiate price cuts, and capacity utilization rates remain high.

After seeing the content of Morgan Stanley's report that went viral yesterday, a secretary of an Innovative Technology board-listed company focused on analog and mixed-signal chips was quite surprised. It’s learned that the company's wafer foundry services are mainly purchased from Hua Hong Semiconductor, but the secretary said he did not learn of any price increases or capacity constraints from the supplier or the business department. He said, 'This article (referring to the above-mentioned Morgan Stanley report) is being circulated within the company, and we would also like to confirm it.'

Both Jingfeng Mingyuan and StarPower Semiconductor buy wafers from Hua Hong Semiconductor, but employees of their securities departments say they do not know of any changes in foundry prices or the effects they may have on the company.

However, a senior executive of a listed company that mainly produces MCU products told a reporter of the Star Daily that major wafer fabs such as SMIC and Hua Hong are unlikely to accept price cuts in the near future, 'We can only respect the foundry factory.' However, the executive said that because the company is a priority customer, supplier quotes should not fluctuate easily, and capacity scheduling should also be given priority.

In addition, a semiconductor industry insider told the Star Daily reporter that the wafer fab utilization rate has been high recently, especially head fabs like Hua Hong and SMIC have been under capacity strain, and the situation has been ongoing for nearly three months. The insider said that previously, many customers requested renegotiations for price cuts, but now such activities have subsided, and they have conveyed their intention to maintain prices for regular customers and not to raise them.

Pan Jian, an analyst from Tianfeng Securities, released a research report in May this year stating that this year, in the fourth quarter of 2023, the capacity utilization rate of most mature process wafer foundries would drop to approximately 60%, and with 32 wafer fabs being completed in the Chinese market in 2024, mainly focusing on mature processes above 40nm. Therefore, TSMC is expected to offer a 2% discount on mature process in the first quarter of 2024, and other manufacturers will have a large drop in prices, with some project clients dropping by 20%, which will benefit IC design manufacturers and lead to a rebound in profits.

However, since the first quarter of this year, many mainstream wafer foundries have raised or are preparing to raise prices.

Tang Junjun, president and executive director of Hua Hong Semiconductor, answered investors' questions in May this year, saying that the company's capacity utilization rate had seen a significant recovery in the first quarter, and whether it was 8-inch or 12-inch, it was almost fully loaded. As a result, the downward trend in prices has come to an end, and prices are expected to start rising in the next few quarters.

'The overall semiconductor market has not yet recovered from the downturn. Due to seasonal and annual maintenance factors, the first quarter is the traditional off-season for foundry enterprises, but Hua Hong Semiconductor's capacity utilization rate, sales revenue, and gross profit margin have all achieved month-on-month growth, which proves that the market demand for the company's characteristic technology is generally good.' Tang Junjun said.

At the Q1 earnings conference this year, SMIC stated that the overall capacity of SMIC's 12-inch production line has been fully loaded since February, and this part of the price will be relatively stable; however, in the face of industry competition, in order to avoid losing orders, SMIC will also choose to follow the market and prioritize customer market share, and does not rule out the possibility of subsequent price reductions, typically for standard products such as display drivers and CMOS image sensors.

Recently, TSMC has been rumored to increase the price of its wafer products. In response, TSMC stated that its pricing strategy is based on strategic considerations rather than opportunism, and TSMC will continue to maintain close cooperation with its customers.

According to a semiconductor fab employee on the mainland, the company's capacity utilization rate has been close to full since the beginning of this year, and new orders 'cannot be placed and a price increase is brewing'.

Guo Junli, director of consulting and research for IDC Asia-Pacific, said in an interview with Science and Technology Daily that the adjustment of wafer fab prices is related to the specific situation of various companies in the subdivided market and their strategic considerations. 'SMIC hopes to attract more customers and expand its market share by stabilizing prices, and consolidate its position in the mid-to-low-end market. Hua Hong Semiconductor may face high demand from consumer electronics, new energy vehicles and other fields, so there is room and motivation for a price increase, hoping to balance cost pressures and obtain more profits from high demand markets.'

AI computing power and rush orders from large factories have led to a shortage of foundry capacity.

Many listed semiconductor companies have reported in their earnings briefings or through institutional surveys that terminal demand has clearly grown and the market has turned positive this year.

However, it is not as satisfactory as it seems in terms of how much demand has actually increased and whether it can quickly push the market to clear skies, as judged by some industry insiders.

Zhang Jinwei, founding partner of Fenghua Investment, said in an interview with Science and Technology Daily that the overall market demand has not fluctuated significantly so far this year, and the main consumer market remains relatively sluggish. In conjunction with the upstream and downstream supply and demand transmission, (weak demand) is likely to continue for some time.

Display chip categories can be said to be a barometer of the semiconductor industry cycle. An executive from a medium-sized display chip company told Science and Technology Daily that this year, demand for products represented by TV/NB/MNT has even decreased slightly, but due to the consumption of excessive inventory since 2021, it seems that the company's shipments have rebounded slightly.

"In addition, geo-political disputes this year have had some impact on shipping, with companies in the industry stocking up more aggressively. Therefore, from the company's perspective, the situation seen is a small rebound in demand overall. But in reality, demand has not increased significantly, but there is a trend of consumption downgrading." said the aforementioned chip company executive.

However, how can we understand the contradiction that there is a tight supply of foundry capacity?

Zhang Jinwei said that this year there has been a wave of new demand for AI applications. 'Algorithms driving computing chip demand is relatively prominent. A number of leading AI computing chip and CPU manufacturers in China have placed many orders this year, followed by small chips around the computing chip also rising exponentially.'

Industry insiders further revealed to Science and Technology Daily that this market is quite special, and many upstream and downstream companies in the industry did not anticipate it before.

"Now, the core reason for the current tight supply is that since March, several leading private large-scale enterprises and SOEs in China have placed many rush orders, and these orders are large in volume, have continued to this day, and have a very wide range of products, covering advanced logic chips, mature process and feature process chips, and power devices." said the source, adding that it is not just SMIC, Hua Hong, China Resources Microelectronics and other leading FABs that have placed orders, and orders have overflowed to many medium-sized wafer fabs."We can see from the upstream mask factory that their orders are also full now, and the capacity shortage is expected to continue for some time."

Regarding prices, Guo Junli said that there is a short-term pressure for wafer prices to rise. Due to the rising costs of raw materials, energy, and logistics, wafer foundry costs are facing upward pressure, and some manufacturers may continue to choose to raise prices to cope with the rising costs. 'In particular, for new energy vehicles, 5G and AI applications, the demand for wafer foundry will continue to rise, supporting the trend of rising prices.'

Guo Junli said that price fluctuations in foundries will indeed have a more significant impact on small and medium-sized chip design companies. First of all, compared with large enterprises, small and medium-sized design companies have smaller order sizes and weaker bargaining power, are lower in the priority of wafer fabs, and often cannot obtain preferential or locked-in price terms when prices rise. Secondly, the operating cost pressure of small and medium-sized companies themselves is relatively high, and their profit margins are usually lower. The increase in foundry costs directly squeezes their profit space and increases their financial pressure.