[News] First Quarter Market Outlook Affected by Off-Season Effects, Three Foundries Discuss Industry Conditions

2024-02-22 Semiconductors editor

Foundry is a crucial sector in the semiconductor industry and a focal point of attention for many professionals in the industry. Recently, three foundries have released their outlook for the first half of 2024, all indicating a cautious outlook for the first quarter.

According to Taiwanese News outlet Commercial Times, United Microelectronics Corporation (UMC), Powerchip Semiconductor Manufacturing Corporation (PSMC), and Vanguard International Semiconductor Corporation (VIS) anticipate a subdued first quarter due to factors such as off-season effects and holidays.

With conservative estimates on wafer shipments, average selling prices (ASP), and gross margins for the first quarter, there remains a high likelihood of a continued decline in performance compared to the previous quarter.

  • VIS: Visibility of the Market Conditions Limited to about Only 2 to 3 Months

VIS stated in a recent conference that semiconductor demand entered the traditional off-season at the beginning of the year.

It is expected that the supply chain will continue inventory adjustments and maintain a cautious approach to orders. Assuming an average exchange rate of NTD 30.9, shipments are expected to decrease by 6-8% quarterly, with average selling prices roughly remaining flat and gross margins falling between 21-23%.

VIS believes that the industry is still undergoing inventory adjustments, and the overall economic situation remains sluggish. Currently, the visibility of the market is limited to only two to three months. In the first quarter, due to continuous inventory adjustments in the supply chain and a cautious approach to ordering, capacity utilization will decrease to 50%.

In addition, regarding the investment in 12-inch fabs, VIS Chairman Leuh Fang stated that due to the significant investment required for 12-inch fabs, there must be definite demand and leading technological sources before deciding to proceed with construction.

Currently, the decision is still in the cautious evaluation stage, and no plants will be built hastily until the technology sources are confirmed.

  • PSMC: A Conservative Outlook

PSMC’s General Manager, Brian Shieh, stated during a mid-January earnings call that the company expects a seasonal decline of approximately 5-6% in revenue for the first quarter due to fewer working days.

Regarding inventory, PSMC noted that client inventory levels are currently at normal, with the semiconductor manufacturing segment performing relatively well. It is anticipated that capacity utilization rates for the first quarter of 2024 could rebound to 70% to 75%, offering promising prospects for operations in the latter half of the year.

Overall, PSMC aims for a capacity utilization rate of over 90% for the full year, with the goal of continuously filling the new capacity at the Tongluo plant in the second half of the year. The company estimates that the Tongluo plant can be fully operational in the latter half of the year, primarily focusing on 55nm and 40nm logic products.

  • UMC: Visibility of the Market Conditions for 2024 is Relatively Limited

UMC forecasts a modest increase of 2-3% in wafer shipments for the first quarter of 2024, with ASP quoted in USD expected to decrease by 5%, leading to a slight decline in gross margin to around 30%. This is primarily attributed to adjustments in pricing and changes in product mix. Capacity utilization is anticipated to remain at low 60%.

In terms of production lines, stable demand is projected for communication and consumer sectors, maintaining flat revenue trends, while automotive and industrial segments are expected to undergo inventory adjustments, resulting in a seasonal decline in revenue for the first quarter of 2024.

UMC estimates that the revenue contribution from special processes will reach 30% in the first quarter of this year, with sales from a predominant single customer making a significant contribution.

Regarding the medium to long-term outlook for the full year, UMC stated that the semiconductor market is expected to grow at a mid-single-digit rate annually, while the foundry industry is forecasted to grow at a high single-digit rate, approaching 10%.

UMC’s revenue is expected to align closely with the growth rate of the wafer foundry industry. UMC holds a cautiously optimistic outlook for demand in 2024, as smartphone and PC inventory levels returned to relatively normal levels in the fourth quarter of 2023.

Additionally, on January 25th of this year, Intel and UMC announced a collaboration to develop 12nm technology. Both parties will share the expenses, with Intel taking charge of operating the facility.

UMC stated that the capacity expansion will significantly impact the company’s operational performance once production starts. The technology is expected to enter the Process Design Kit (PDK) stage in 2025, begin trial production in 2026, and commence supply in 2027. The 12nm technology represents a potential market worth billions, and the collaboration does not include IP licensing.

Regarding this matter, TrendForce believes that this partnership, which leverages UMC’s diversified technological services and Intel’s existing factory facilities for joint operation, not only aids Intel in transitioning from an IDM to a foundry business model but also brings a wealth of operational experience and enhances manufacturing flexibility.

For UMC, this collaboration is a game-changer as it allows the company to agilely leverage FinFET capacity without the pressure of heavy capital investments.

This move positions UMC to carve out a unique niche in the fiercely competitive mature process market. Furthermore, by co-managing Intel’s US facility, UMC can expand its global footprint, smartly diversifying geopolitical risks. This partnership is shaping up to be a win-win for both.

Overall, TrendForce views this alliance as a significant step. UMC brings its plentiful experience in mature processes, while Intel contributes its advanced technological prowess.

This partnership is not just about mutual benefits at the 10nm process level; it’s a watchpoint for potentially deeper and more extensive collaboration in their respective fields of expertise. In the dynamic world of semiconductor manufacturing, this Intel-UMC alliance is a fascinating development to keep an eye on.

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(Photo credit: UMC)

Please note that this article cites information from Wechat account DRAMeXchange and Commercial Times.