Is there a turnaround in the chip industry?

For the global semiconductor industry, 2019 is a green and yellow year, when smartphone sales topped out and fell back, affected by weak downstream demand, cloud computing vendors' Capex (capital expenditure) growth declined significantly, and emerging application markets such as electric vehicles are still small in volume and have limited demand pull.
Entering 2020, the semiconductor upturn cycle opened under the influence of multiple factors, especially the rapid rise of home office demand, driving a rapid rise in demand for PCs, tablets and other consumer terminals, and the increase in online activities driving the expansion of data centre construction scale. At the same time, emerging applications represented by new energy vehicles ushered in technological and cost breakthroughs and rapid growth in market demand. Driven by strong demand, fab capacity utilisation has risen, while foundries/IDMs have increased their capital expenditure budgets.
As we enter 2021, although most semiconductor product prices remain at high levels, price growth has slowed significantly and some product prices are beginning to loosen. At the same time, the water level of some chip inventories in the hands of end customers and distributors is high. As expectations for future semiconductor product prices gradually change, the pace of pulling goods in some areas slows down, and the chip industry enters a downward cycle from the end of 2021.
After entering 2022, the pulling power of EMS companies downstream of the industry chain weakened, while the capacity utilisation rate of upstream fabs remained at a high level in the first three quarters of 2022, with higher inventory pressure in the chip design and distribution segments. According to GF Securities, in the second quarter of 2022, the inventory turnover days (DOI) of major global IDMs was 117.3 days, an increase of 0.1 days YoY, and the chip design companies had a DOI of 88.7 days, an increase of 4.6 days YoY, and a combined DOI of 105.7 days, an increase of 1.5 days YoY. Inventories at major global distributors also continued to rise, with DOI reaching 59 days during the same period, an increase of 7.1 days sequentially.
As we enter the fourth quarter of 2022, global chip demand continues to be sluggish and design houses are under increasing inventory pressure, while the global semiconductor industry has entered a full-blown recession since 2023, with foundries, whose capacity utilisation remained high in the second half of 2022, declining significantly in the first quarter of 2023, with various "discount and promotion "The typical representative is TSMC, the "gold-sucking beast" in the foundry sector, whose performance in that quarter was average and will decline significantly in the second quarter, which is of great concern to the industry.
In summary, from the past four years, the global semiconductor industry has fluctuated up and down in the industrial cycle, and has now come to a very difficult time, and, in the next six months, this difficult situation will continue, and even continue to "worsen", so, in the next year or so, the entire semiconductor industry will remain in the "dark period"? The answer is no, the industry has shown signs of recovery, the following from the chip demand side and supply side to introduce.
01, the demand side hit the bottom
In the first quarter of 2023, which has just passed, terminal demand showed signs of bottoming out and recovery. From the smartphone market, according to CINNO Research, in January 2023, smartphone sales in the mainland China (Mainland) market were about 27.66 million units, down 10.4% year-on-year, with a narrower year-on-year decline and a 44.6% rise in ringgit. RF front-end chip giant Qorvo expects the Chinese Android handset market to bottom out in the fourth quarter of 2022, with the upward inflection point occurring in the second quarter of 2023 and handset demand to improve significantly in the second half of 2023. Qualcomm expects customers to continue to reduce inventory in the first half of 2023, with market demand set to improve significantly in the second half of 2023.
On the PC side, industry majors expect a weak recovery in 2023. AMD said it continued to destock in the fourth quarter of 2022, channel inventories have shrunk, and continued to destock in the first quarter of 2023. AMD's PC business revenue bottomed out in the first quarter of 2023, and the PC industry is expected to recover in the second half of 2023.
In the display panel market, Omdia expects LCD TV panel orders to rebound with 19% year-on-year growth in the second quarter of 2023, with orders for 50-inch and larger panels reaching 161.4 billion units, up 8% year-on-year, and the overall market expected to recover to peak levels in 2020. Since the beginning of March this year, the mainstream market of HD picture quality TDDI chip offer has risen 10%, the situation of oversupply of such chips will continue until April, in May, the price will fall after the capacity returns to normal, which reflects that part of the market segment of the chip supply and demand began to shift from oversupply to supply and demand balance, which is a positive signal.
02, the supply side: fab capacity utilization is expected to recover
As mentioned earlier, since 2023, global foundries, especially foundries capacity utilization rate continued to decline and revenue weakened, to UMC, for example, the company is expected to further reduce capacity utilization rate to about 70% in the first quarter of 2023.
Sigmaintell expects that in 2023, 8-inch wafer and 12-inch 55nm+ process foundry prices are expected to decline by 15%-17% year-on-year, and 12-inch 40nm and below process foundry Prices are expected to fall by about 5%-12% year-on-year, and the overall price of the foundry industry is expected to fall by about 10%-15% year-on-year.
Overall, driven by wafer line price reductions and future demand recovery, from the second quarter of 2023 onwards, fab capacity utilisation is expected to gradually repair, and according to Sigmaintell forecasts, capacity utilisation of major global wafer lines is expected to recover moderately in the second half of 2023. However, taking into account the overall supply and demand for wafer manufacturing in 2023, even if customer orders recover in the second quarter of 2023, making fab capacity utilization rise, the price of manufacturing chips is still in the downward cycle in 2023, so the cost pressure on chip design companies, although improved, still have to live a hard life throughout 2023.
As can be seen, compared to the demand side of the chip introduced in the previous article, the supply side of the day in 2023 is more difficult, mainly because the industry chain supply and demand transmission takes time (3-6 months), as long as the market demand continues to improve, fab and chip design company's hard times will end at the end of 2023 or early 2024, by then, the whole industry will re-enter the upward cycle.
03. Growth drivers
Above, mainly from the macro level of the industry. The chip industry to resume growth, there must be a real source of power, from the current and foreseeable future, the chip industry growth engine is mainly driven by the following types of chips.
High-performance computing chips
The development of AIGC is driving exponential growth in the demand for related chips. The training and reasoning of AIGC's large models require a large amount of high performance computing (HPC) arithmetic support, and in addition to arithmetic chips (GPU, CPU, etc.), storage chips (DRAM, NAND, HBM, etc.), NVLink + NVSwitch, optical chips, high-speed interface chips inside AI servers, and Supporting industry chains such as multi-phase power supply solutions will all fully benefit from the expansion in demand for AI servers.
Considering that the number of AI models being trained by major Internet giants is still increasing, the number of model training parameters may reach trillions in the future. CAGR reaches 10.8%.
The core of an AI server is the GPGPU/ASIC, and the unit price is significantly higher than that of an ordinary server. AI servers are different from general-purpose servers in that, in addition to two CPUs, they are generally equipped with 4-8 GPGPUs, as well as a series of supporting chips. The NVIDIA DGX A100, for example, contains 8 A100 GPUs, 2 64-core AMD Rome CPUs, 2 TB RAM, 30 TB Gen4 NVME SSDs, 6 NVSwitches, and 10 Connext-7 200Gb/s NICs. A general purpose server typically costs a few thousand dollars, while a mainstream AI server reaches $100,000-$150,000. Against the backdrop of a rapidly growing AI industry, such demand, as well as unit prices, will play a key role in driving the recovery and development of the entire chip industry.

Storage Chips
At present, DRAM and NAND spot and contract prices are near the bottom of the cycle position and the memory chip inventory situation has reached a record high, while vendors such as Micron expect the company's DOI to have peaked and downstream customer inventory levels are expected to gradually return to normal in the second half of 2023.
In addition to traditional DRAM and NAND, emerging storage chips are entering the mainstream market and are new drivers for future industry development, typically represented by DDR5 DRAM and HBM.
Information from AMD shows that CPU Genoa with DDR5 was introduced to more than 140 platforms, an increase of more than 40% year-on-year, and the company plans to launch its second generation CPU Bergamo with DDR5 in the first half of 2023. Intel's next generation server CPU Sapphire Rapids, released in January 2023, supports DDR5, and the company said customer demand for Sapphire Rapids is strong and expects to ship one million units by mid-year. In addition, Intel expects to release a second sub-generation of DDR5-enabled CPUs, the DDR5-5600 CPU Emerald Rapids, in the second half of 2023.
Micron expects DDR5 penetration on the PC and server side to reach 50% by mid-2024, and the company is delivering DDR5 in large quantities to data centre customers. DDR5 is expected to officially ramp up in the second half of 2023 as demand for DDR5 rises for Intel and AMD's latest generation server processors, Sapphire Rapids and Genoa.
Currently, HBM is the mainstream solution for high-end GPUs to achieve high bandwidth, and the AIGC boom is driving increased demand for HBM. the mainstream storage solutions for GPUs are GDDR and HBM. compared to GDDR, HBM consists of multiple dies stacked vertically, with multiple memory channels on each die, allowing for high capacity and high bandwidth in a small physical space, with more bandwidth and fewer physical interfaces, and the fewer the physical interfaces, the lower the power consumption. HBM is expected to increase significantly in 2023 and prices will rise as well.
Analogue chips
Compared to digital chips, the analogue chip market is more stable and less affected by market fluctuations. Moreover, benefiting from the strong demand for new energy vehicles, industrial and other applications, global analogue chip sales will grow by 20.8% year-on-year in 2022, significantly higher than other chip categories. In addition, in the down cycle, compared to other types of chips, analog chips will have a certain lag, it is expected that in 2023 the analog chip market supply and demand inflection point will lag behind the entire chip industry a quarter to appear.
As an important branch of analogue chips, RF chips will also resume growth in the second half of 2023. From the perspective of inventory levels, Skyworks and Qorvo's inventory levels and DOI reached record highs quarter by quarter in 2022, but inventory growth gradually slowed down, and in the fourth quarter of 2022, the total inventory of the Android mobile phone industry chain channels and terminals decreased by more than 20%, and the industry de-inventorying was stronger, which was transmitted to the upstream of the industry chain, and PA foundries significantly reduced capacity utilization. 2023 In the first quarter, the RF chip industry continued to de-stock, but the rate of inventory water level growth has slowed for two consecutive quarters. According to Skyworks' forecast, the company's DOI will fall back to normal levels in the second half of 2023, and Qorvo also expects channel inventory to return to normal in the second half of this year.
04. Conclusion
After the industry's "boom period" in 2020 and 2021, the global semiconductor industry went through an "illusionary boom" in the first half of 2022, guided by inertia, before the market took a sharp turn for the worse in the second half of the year, with a large oversupply in the global chip industry.
Since 2023, the situation is getting worse and worse, end demand is sluggish, the original is the seller's market of the foundry also had to lower the original high head, in order to enhance capacity utilization, launched a variety of promotional measures. The embarrassment is that many chip design companies in 2022, a large backlog of inventory, even if the foundry cut prices or disguised price cuts, but also difficult to improve capacity utilization, this time, the foundry to look at the customer's "face".
However, with the chip design company inventory reduction, as well as a variety of global terminals to enhance the demand for chips, chip supply and demand and buyer-seller relationship to "harmonious", the entire semiconductor industry is expected to return to positive growth, however, before the arrival of the day 6-12 months, chip design, manufacturing and other aspects of the industry chain or to live A period of hard times.