With the U.S.-China tech war heating up as the U.S. election approaches, industry sources cited by the Economic Daily News report that Chinese IC design companies are rushing to place more orders with TSMC for chip production using advanced processes before the U.S. potentially imposes stricter control policies. At the same time, they are initiating a backup plan by shifting orders to Samsung for chips manufactured with advanced nodes to avoid potential future U.S. bans on Chinese companies using Taiwanese foundries.

As a result, Samsung is becoming a beneficiary of the escalating U.S.-China tech conflict, sparking a new round of competition for orders with TSMC. As of the deadline for this report, TSMC has not responded to these rumors.

Per TSMC’s second-quarter financial report, the revenue proportion from China increased significantly from 9% in the first quarter to 16% in the second quarter. This surpasses other Asia-Pacific regions, making China the second-largest source of revenue after North America, which accounts for 65%.

The same report cites sources indicating that the increase in TSMC’s revenue share from China last quarter is likely due to Chinese IC design companies sensing potential future U.S. pressure that could prevent them from placing orders with TSMC.

As a result, these companies have been placing larger orders in advance to stockpile chips, similar to the situation previously seen when Huawei’s HiSilicon placed massive orders with TSMC to stockpile chips just before being blacklisted by the U.S.

It is understood that although the related Chinese IC companies may not using the most advanced processes, they are employing relatively advanced processes, which have been developed over several years, and applied in areas such as ADAS, mobile phones, and high-speed computing. Recently, these customers have continued to place orders with TSMC and have also begun evaluating backup plan, which involves switching orders to Samsung.

Sources cited by the report also pointed out that while Chinese IC design houses would like to diversify risks regarding the relatively advanced nodes by placing orders with companies other than TSMC, they may not be allowed to collaborate with Intel. This is why Samsung may emerge as an option.

Read more

• [News] TSMC Reportedly Received Urgent Orders from Chinese Clients, as They Offered to Pay up to 40% Extra
• [News] TSMC Projects 7.5% Q3 Revenue Growth, Adjusts Full-Year CAPEX Range

(Photo credit: TSMC)

According to sources cited in a report from Reuters, it’s said that IC design giant MediaTek is developing an ARM-based PC chip that will run Microsoft’s Windows operating system.

Last month, Microsoft unveiled a new generation of laptops featuring ARM-based chips, which provide sufficient computing power to run AI applications. Its executives stated that this represents the future trend of consumer computing. MediaTek’s latest development of an ARM-based PC chip is said to be geared toward these types of laptops.

The same report indicates that Microsoft’s move plans to take aim at Apple, which has been using ARM-based chips in its Mac computers for about four years. Microsoft’s decision to optimize Windows using ARM-based chips could further pose a threat to Intel’s long-standing dominance in the PC market.

Regarding this matter, both MediaTek and Microsoft declined to comment.

Reportedly, according to industry sources, MediaTek’s PC chip is scheduled to launch by the end of next year, coinciding with the expiration of Qualcomm’s exclusive agreement to supply chips for laptops. MediaTek’s chip, based on ARM’s existing designs, will significantly accelerate the development process by less design work.

It is currently unclear whether Microsoft has approved MediaTek’s PC chip for supporting the Copilot+ feature in Windows programs.

ARM executives have stated that one of their clients used ready-made components to complete a chip design in about nine months, although this client was not MediaTek. For experienced chip designers, creating and testing advanced chips typically takes more than a year, depending on the complexity.

In the latest press release from TrendForce, MediaTek’s strategy in the PC domain is also highlighted. Reportedly, the Arm chip co-developed by MediaTek and NVIDIA, with adoption of Wi-Fi 7 and 5G, is also slated to occupy a spot in the AI NB market since 2Q25, and initiate a new wave of technical innovation after 2025. According to TrendForce’s forecast, Arm chips are likely to surpass 20% in market penetration at an accelerated velocity in 2025.

Read more

• [News] MediaTek Reportedly Partners with Meta, Entering the Battleground of AI against Apple and Qualcomm
• [News] MediaTek Announces 4nm Dimensity 7300 Series Chips, Supporting Foldable Devices

(Photo credit: MediaTek)

Report to Liberty Times Net, In a joint statement on the comprehensive strategic partnership between the United States and Vietnam, the two countries highlighted Vietnam’s significant potential to become a key player in the semiconductor industry. The United States expressed its support for the rapid development of Vietnam’s semiconductor ecosystem. To foster the development of human resources in the semiconductor industry, the United States will provide a $2 million seed fund, with future investments coming from the Vietnamese government and the private sector. These initiatives are seen as a significant step forward for Vietnam in its journey to join the global semiconductor industry.

U.S. census data showed semiconductor imports from Vietnam surged by 75% to $562.5 million in August compared to the same period last year, capturing approximately 11.6% of the market share. However, experts point out that considering the entire supply chain, Vietnam’s contribution remains relatively small.

Semiconductor manufacturing involves three fundamental stages: design, fabrication, and packaging. Since Intel’s Ho Chi Minh City factory is its primary production facility, Vietnam is primarily involved in the final packaging stage of semiconductor production, which represents the lowest value-added segment of the supply chain. According to data from the Semiconductor Industry Association (SIA), packaging accounts for only 6% of the chip’s value. Additionally, Korean semiconductor design companies are following Samsung’s lead by establishing factories in Vietnam, including CoAsia in Hanoi and Amkor in Bac Ninh province.

Shortage of Engineers in Vietnam Poses a Major Challenge

A shortage of packaging and design engineers poses a significant challenge for Vietnam. The country lacks the capacity for domestic semiconductor manufacturing. Currently, Vietnam has over 5,500 semiconductor design engineers, while Intel’s Ho Chi Minh City factory has shipped over 3 billion chips to date. The supply chain ecosystem of American giants is gradually taking shape in Vietnam. However, with just over 5,000 engineers, Vietnam remains a distant bridge to this multi-billion-dollar industry.

Vietnam faces two choices for industry growth: expanding its manufacturing sector or enhancing skills and value in the design and packaging phases. Experts suggest that Vietnam has chosen the latter. However, the shortage of personnel poses a barrier to Vietnam’s ambitions to increase the value of its semiconductor supply chain.

According to estimates, the semiconductor industry needs to cultivate 10,000 engineers annually, but Vietnam’s current rate is less than 20%. In fact, according to a report by the Vietnam Microchip Association, the number of engineers only increases by about 500 people each year. Currently, most of Vietnam’s semiconductor engineers work for foreign companies.

(Source: https://ec.ltn.com.tw/article/breakingnews/4432014)

Major economies are investing heavily in semiconductor industries, with China leading at $143 billion, the U.S. at $52.7 billion, and the EU at $47 billion, according to “EE Times”. India plans to give $922 million amid U.S.-China tensions.

Despite China’s much larger subsidies compared to India’s, the Chinese semiconductor industry faces various challenges. But under mainly from the United States, to slow down its progress, some Chinese companies are struggling to survive, while others are shutting down. For instance, after OPPO’s unexpected announcement in May to close their IC design company ZEKU, active for less than 4 years, Holding Group, Geely, also declared on August 8th that it would halt its self-developed chip business through the Xingji Meizu group, only 5 months after its launch.

According to a recent report from ‘EE Times,’ governments from around the world are actively pursuing semiconductor self-sufficiency to meet their high-tech and communication needs. China, in particular, has taken the lead by planning a substantial $143 billion subsidy program to boost its industry and reduce dependence on the United States.

In the U.S., the ‘Chips ACT’ passed last year allocated $52.7 billion in subsidies. As per McKinsey, the cumulative commercial investments related to this endeavor have already exceeded $200 billion.

The European Union is also making its mark, aiming to increase its global semiconductor market share from 10% to 20% by 2030. The ‘European Chips Act’ is expected to see $47 billion in government investment. TSMC has confirmed plans to establish a factory in Germany and is expected to receive relevant subsidies.

Singapore is projecting a $19 billion subsidy for its semiconductor industry, while Japan’s exact subsidy scale remains unknown, with reports suggesting a minimum of $6.5 billion. South Korea is focusing on tax reductions for semiconductor-related companies, offering 15% tax credits for corporate groups and up to 25% for small and medium-sized enterprises.

Recently, the UK and India have joined the battle. The UK has set aside a $1.5 billion subsidy, and India’s ‘Semicon India’ initiative offers at least $922 million to bolster its influence in the global electronics supply chain. While Malaysia hasn’t disclosed the amount of support for its chip industry, the country is providing approved priority industries, especially high-tech firms, with a full 10-year tax exemption. The government also offers investment subsidies and various incentives within specific investment zones.

Amidst U.S. restrictions, China initially aimed to boost its chip industry and create its own ‘China chips.’ However, setbacks have occurred. OPPO’s IC design company, ZEKU, formed in 2019, spent a staggering $44 billion over three years only to shut down on May 12th, leaving 3,000 employees jobless. Geely Holding Group’s subsidiary, Xingji Meizu, also announced on August 8th their decision to halt self-developed chip operations due to global economic uncertainties. Their focus will now turn to product innovation and software user experiences.

(Source: https://ec.ltn.com.tw/article/breakingnews/4392195)

Market conditions in 2022 are chaotic and demand for chips fluctuate according to application. However, the IC design industry is driven by major manufacturers and the sales performance of high-end product portfolios such as data center, server, networking, industrial computing, automotive, and high performance computing will remain stable The overall market will grow to $182.9 billion, an annual increase of 14.4%.

At present, the overall industry is being negatively affected by weak demand for consumer electronics. In addition, the tightening of financing and the expectation of a wider economic recession further strengthen pessimistic attitudes. There is no opportunity for chip demand to reinvigorate in the short term, not to mention that the supply chain is already dealing with full inventories. A return of the traditional industry peak season in 2H23 will stabilize purchasing power while flat to single-digit growth in the IC design industry would be a relatively good scenario.

R&D expenses positively correlated with manufacturer revenue, AMD posts best performance in 1H22

In 1H22, R&D expenses at major IC design houses were positively related to revenue in general. The use of advanced manufacturing processes requires strong R&D capabilities, accounting for 15-35% of revenue. AMD is the most active among U.S. companies. After acquiring Xilinx and Pensando, AMD has aggressively invested in the research and development of data center-related product portfolios. In 2Q22, R&D expenditures increased by 97.2% YoY. In terms of Asian manufacturers, the impact of the poor consumer electronics market is severe and revenue growth momentum has all but disappeared. Therefore, the synchronization of R&D expenditure with revenue is also more conservative. Novatek, Willsemi, and LX Semicon product portfolios are dominated by mature processes such as DDIC and CIS with R&D/ revenue ratios below 15%.

IC design industry inventory on red alert, inventory adjustment to become a challenge by 2Q23

The IC design industry has accumulated inventory since 3Q21 and the annual growth rate of inventory has climbed to more than 50% in 1H22. Compared with the annual growth rate of revenue, the difference among American manufacturers is 20% and the difference among Asian manufacturers is 46%, indicating that inventory issues among Asian manufacturers is more serious.

The inventory levels of consumer electronics-related industries such as Smartphone, TV, Tablet, PC/notebook, and Panel, are at a 6 month level. The supply chains of IC design houses and distributors/agents are also holding substantial inventory. The inventory-to-revenue ratio of IC design houses has reached a red alert threshold of over 50%. With no improvement in demand, expectations that inventory destocking will be completed by the end of 2022 may be dashed. At present, IC design houses are desperately reducing booked foundry production capacity for high-inventory mid-level AP, DDIC, and Consumer PMIC/GPU products. If the consumer electronics market outlook remains poor in 4Q22, IC design houses could also claim a greater amount of inventory depreciation as losses. In general by 2Q23, IC design houses will continue to test their strategies for new product development, production planning, and product sales during the process of destocking the overall supply chain.

（ Image credit: shutterstock）