As reported by Nikkei Asia on October 23rd, three inside sources have indicated that Vanguard International Semiconductor(VIS), a prominent semiconductor foundry, is gearing up to construct its first 12-inch wafer plant in Singapore, aiming to meet the surging demand for automotive chips.

It’s important to note that TSMC, the parent company of VIS, holds a significant 28.3% stake in the company. When approached for comments, VIS stated they remain open to various possibilities but are currently observing a quiet period preceding an earnings call, which restricts them to provide further details.

VIS’s Growth and Singapore Expansion

In 2019, VIS acquired a Singaporean 200mm wafer facility from GlobalFoundries for $236 million. Since then, they diversified into producing various sensors and gained a reputation in display driver ICs and power management chips. VIS operated only 200mm wafer plants in Taiwan and Singapore. Recent reports suggest their investment in a 12-inch wafer plant in Singapore is nearing approval, per Nikkei.

The new VIS plant in Tampines, Singapore, is strategically located, a 10-minute drive from their existing 200mm facility and near NXP and SSMC, TSMC’s joint venture. UMC is investing $5 billion in a nearby plant. Expansions by GlobalFoundries and Applied Materials in Singapore bolster the city-state’s semiconductor industry.

Chairman Leuh Fang cited increased demand from U.S., European, and Asian customers who aim to mitigate geopolitical risks tied to chips manufactured in China. His prior role as Deputy General Manager of SSMC in Singapore underscores the importance of this move.

Global Giants Expand Abroad to Meet Clients’ Demand

In line with its global expansion strategy, VIS is not the only player. TSMC is processing its global factory construction as well. Of particular note, the new facility in Arizona, US. The German plant is on schedule for production in 2027. In Japan, the Kumamoto plant is advancing rapidly, and production is anticipated to commence by the end of 2024. Besides, PSMC is planning to establish a 12-inch wafer plant in Japan, becomes the second Taiwanese semiconductor giant to set up shop in Japan after this move, expanding its global presence.

(Image: VIS)

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TrendForce reports that from 2023 to 2027, the global ratio of mature (>28nm) to advanced (<16nm) processes is projected to hover around 7:3. Propelled by policies and incentives promoting local production and domestic IC development, China’s mature process capacity is anticipated to grow from 29% this year to 33% by 2027. Leading the charge are giants like SMIC, HuaHong Group, and Nexchip, while Taiwan’s share is estimated to consolidate from 49% down to 42%.

Expansion predominantly targets specialty processes such as Driver ICs, CIS/ISPs, and Power Discretes, with second and third-tier Taiwanese manufacturers at the forefront

Within the Driver IC sector, the spotlight is on high voltage (HV) specialty processes. As companies aggressively pursue the 40/28nm HV process, UMC currently dominates, trailed by GlobalFoundries. Yet, SMIC’s 28HV and Nexchip’s 40HV are gearing up for mass production in 4Q23 and 1H24, respectively—narrowing their technological gap with other foundries. Notably, competitors with similar process capabilities and capacities, such as PSMC, and those without twelve-inch factories like Vanguard and DBHitek, are poised to face challenges head-on in the short term. This trend may also have long-term implications for UMC and GlobalFoundries.

In the realm of CIS/ISP, 3D CIS structure comprises a logic layer ISP and CIS pixel layer. The primary demarcation for mainstream processes is around 45/40nm range for the logic layer ISP, which continues to progress toward more advanced nodes. Meanwhile, the CIS pixel layer, along with FSI/BSI CIS, predominantly uses 65/55nm and above processes. Currently, TSMC, UMC, and Samsung are the frontrunners in this technology. Yet, Chinese players like SMIC and Nexchip are hot on their heels, swiftly closing the gap. Their ascent is further fueled by Chinese smartphone titans OPPO, Vivo, and Xiaomi. Additionally, domestic shifts prompted by governmental policies are positioning Chinese CIS companies like OmniVision, Galaxycore, and SmartSens to rally behind local production.

Power Discretes mainly encompass products like MOSFETs and IGBTs. Vanguard and HHGrace have been deeply involved in Power Discrete processes for some time, boasting a more comprehensive process platform and vehicle certification than many competitors. However, a wave of Chinese contenders, backed by national policies favoring EVs and solar initiatives, are ready to stake their claim, intensifying global competition in this sector. This includes mainstream foundries like HHGrace, SMIC, Nexchip, and CanSemi. Additionally, smaller Chinese IDMs and foundries, such as GTA and CRMicro, are also entering the competitive landscape. If China massively ramps up its production capacity, it will intensify global competition in Power Discrete manufacturing. The impact will not only spark price wars among local Chinese businesses but could also erode the order books and clientele of Taiwanese companies.

In a nutshell, while China actively courts both global and domestic IC designers to bolster its local manufacturing presence, the ensuing massive expansion could flood the global market with mature processes, potentially igniting a price war. TrendForce notes that as China’s mature process capacities continue to emerge, the localization trends for Driver IC, CIS/ISP, and Power Discretes will become more pronounced. Second and third-tier foundries with similar process platforms and capacities might face risks of client attrition and pricing pressures. Taiwan’s industry leaders, renowned for their specialty processes—UMC, PSMC, Vanguard to name a few—will find themselves in the eye of the storm. The battle ahead will hinge on technological prowess and efficient production yields.

According to UDN News, Taiwan’s semiconductor foundry, Powerchip Semiconductor Manufacturing Corporation (PSMC), is planning to establish a 12-inch wafer plant in Japan, with Mie Prefecture emerging as a probable location. This facility will be part of a burgeoning semiconductor hub that links up with the thriving industrial city of Nagoya and UMC’s Japanese plant, pending the approval of Japanese government subsidies. PSMC would be the second Taiwanese semiconductor giant to set up shop in Japan after this move, expanding its global presence.

PSMC has yet to officially comment on its investment in Japan or the specific site for the plant. Market observers note that PSMC’s Chairman, Frank Huang, has a track record of close collaboration with Japanese firms. From early partnerships with Elpida in producing DRAM to later contract manufacturing of ICs for Renesas, PSMC’s order books are expected to be promising in Japan.

In July of this year, PSMC announced a partnership with the Japanese financial group SBI Holdings to establish a 12-inch wafer foundry within Japan and seek official Japanese subsidies.

PSMC envisions that the Japanese foundry will utilize 22/28-nanometer manufacturing processes and incorporate advanced Wafer on Wafer stacking technology to meet the demands of the AI market. Recent reports suggest that the Japanese government has granted substantial subsidies, around 140 billion yen, for the PSMC-SBI collaboration in Japan, although PSMC refrains from commenting on this matter.

Recent reports indicate that the location of PSMC’s new facility in collaboration with SBI is likely to be in Mie Prefecture. This choice is supported by two key factors. Firstly, it’s in close proximity to the bustling industrial hub of Nagoya, offering logistical advantages for both raw materials and wafer exports. Additionally, UMC acquired Fujitsu’s 12-inch wafer plant in Kuwana City, Mie Prefecture, showcasing regional wafer expertise. This choice benefits from the industrial cluster, streamlining recruitment and material logistics for construction and production.

It is understood that PSMC’s collaboration with SBI to establish a plant in Japan will follow a similar joint-venture mode like Nexchip Semiconductor Corporation in China several years ago. PSMC will provide its expertise in constructing the plants and managing the production lines. Once everything is up and running smoothly, they will gradually reduce their involvement and may adopt a shareholding model for the Japanese wafer plant.

(Image: PSMC)

TrendForce research indicates that in 1H23, the utilization rate of 8-inch production capacity primarily benefited from sporadic inventory restocking orders for Driver ICs in the second quarter. Additionally, wafer foundries initiated pricing strategies to encourage clients into early orders, offering solid backup. However, in 2H23, persistent macroeconomic and inventory challenges led to the evaporation of an anticipated demand surge.

Meanwhile, stockpiles in automotive and industrial control segments grew after meeting initial shortages, tempering demand. Under fierce price competition from PMIC leader Texas Instruments (TI), inventory reductions for Fabless and other IDMs were drastically inhibited. With IDMs ushering in output from their new plants and pulling back outsourced orders, this compounded reductions to wafer foundries. This dynamic saw 8-inch production capacity utilization dipping to 50–60% in the second half of the year. Both Tier 1 and Tier 2/3 8-inch wafer foundries saw a more lackluster capacity utilization performance compared to the first half of the year.

Heading into 2024, with the prevailing economic turbulence, the overall semiconductor foundry capacity utilization rate will face challenges in recovery. The 8-inch capacity utilization for 1Q24 is poised to mirror—or potentially dip below—4Q23 figures, revealing a glaring lack of recovery indicators.

However, starting from 2Q24, TrendForce posits that while clarity on end sales remains murky due to overarching economic risks, inventory levels are expected to wane, returning to a healthier equilibrium. The ensuing periodic restocking and the added momentum from orders shifted to Taiwanese foundries (owing to decoupling from China), should keep the 8-inch utilization rate from diving further. The average annual utilization rate for 8-inch wafers in 2024 is pegged around 60–70%. A swift return to yesteryear’s peak capacity seems difficult for now.

Taiwanese and Korean semiconductor foundries face the brunt of order curtailments

A closer look reveals Chinese foundries, such as SMIC and HuaHong Group (primarily HHGrace for 8-inch), exhibiting marginally superior 8-inch utilization rates than their Taiwanese and Korean peers. The proactive pricing approaches of Chinese foundries and China’s push for domestic IC substitution and production are key drivers. However, despite price reduction across foundries in 2H23, a predominantly conservative market outlook from clients, combined with the absence of urgent orders, meant these reductions rendered limited assistance to the 8-inch wafer utilization rate in the latter half of the year.

Panning to 2024, SMIC and HHGrace are forecast to outpace their Taiwanese and Korean counterparts in an 8-inch utilization rate resurgence. HHGrance could even see a stellar rebound, reaching 80–90%. On the Taiwanese front, TSMC grapples with PMIC order pullbacks, predicting an expected drop in 8-inch utilization to below 60% from 4Q23 to 1Q24. UMC and PSMC, in the same span, are gearing up to maintain levels above 50%.

Furthermore, even traditionally resilient Japanese and European IDMs commenced their inventory recalibration in 3Q23, potentially further stalling the recovery timeline for the 8-inch capacity utilization rate. TrendForce insights suggest that, with mounting inventory pressures, Infineon is curtailing orders to external foundries such as UMC and Vanguard. This strategy will likely suppress Vanguard’s 8-inch utilization rate into 1Q24, casting a gloomier shadow than earlier projections.

Korean heavyweight, Samsung, has prioritized its 8-inch production for large-sized Driver ICs, CIS, and smartphone PMICs. However, the persistent softness in consumer demand has prompted their clientele toward a more guarded-order strategy. Furthermore, Chinese CIS patrons, aligning with local manufacturing inclinations, are transitioning toward native foundries. Consequently, Samsung’s 8-inch utilization rate has languished in 2H23, with expectations set at approximately 50% throughout 2024.

According to the news from ChinaTimes, the semiconductor market is experiencing a slowdown, with Taiwan’s three major mature process wafer foundries UMC, VIS, and PSMC all reporting reduced revenues in August. VIS and UMC both posted lower revenues compared to the previous month, while PSMC managed a slight 1.2% monthly increase in August. However, this increase still falls within this year’s relatively low range. Industry experts anticipate that the semiconductor industry will maintain a subdued market outlook in the latter half of this year, with a potential recovery likely delayed until the first half of the next year.

The semiconductor industry began its correction in the second half of last year. Initially, there was optimism for inventory adjustments to conclude within four quarters by the end of this year’s second quarter, anticipating a demand rebound in the latter half of the year. However, since the second quarter, semiconductor manufacturers have grown pessimistic due to slower downstream inventory depletion and weak end-user demand. This is reflected in third-quarter revenues for mature process wafer foundries, which are expected to remain flat or slightly decline based on August revenues. A robust recovery in the fourth quarter is unlikely, suggesting that industry-wide recovery is likely postponed until the first half of next year.

UMC saw consecutive monthly revenue growth from February to July. However, following five consecutive increases, the company experienced a slight decrease in revenue in August. TSMC previously stated in a conference that the current market recovery falls short of expectations, with an unclear outlook for wafer demand. It anticipates a 3~4% quarter-on-quarter decrease in wafer shipments in the third quarter, which aligns with the market’s expectations for a slight decline in August revenue.

UMC forecasts a 3~4% quarter-on-quarter decrease in wafer shipments in the third quarter, a 2% quarter-on-quarter increase in the average wafer price in USD, a low single-digit percentage decrease in the average gross margin, and an approximate 65% capacity utilization rate. Overall, industry insiders expect TSMC to face slight downward pressure on third-quarter revenue.

VIS reported July revenue reaching NT$3.596 billion, marking a new high for the first seven months of the year. However, its August revenue showed a decline, with a 2.23% month-on-month decrease to NT$3.516 billion. This is significantly different from the typical revenue growth momentum observed during the third-quarter peak season in previous years. Cumulative revenue for the first eight months of this year also decreased by 34.54% compared to the same period last year.

VIS anticipates a 4~6% quarter-on-quarter increase in wafer shipments in the third quarter, with a capacity utilization rate similar to that of the second quarter, around 60%. The average selling price (ASP) is expected to remain stable. However, due to increased production costs and depreciation expenses, the gross margin is estimated to decline to 25~27% in the third quarter, putting more pressure on profitability compared to revenue.

As for PSMC, although its August revenue saw a slight 1.2% month-on-month increase, the company has maintained around NTD 3.4 billion in monthly revenue from June to August, which is considered a low level compared to the second quarter when monthly revenue was approximately NTD 3.8 billion. The third quarter is expected to continue to exert downward pressure on revenue compared to the previous quarter. The company has also previously stated that it does not rule out the possibility of a quarterly loss in its core business during the third quarter.

(Source: https://www.chinatimes.com/newspapers/20230911000124-260202?chdtv)