Regarding the impact on the wafer foundry industry from the latest specifications publicly announced by the Bureau of Industry and Security on May 15th, the latest analysis of DRAMeXchange from TrendForce has pointed out that despite the extra interpretation room for the relevant regulations, the known specifications state that additional volume of wafer orders after May 15th will require approval. In addition, the US has not ruled out the possibility in enhancing the normative intensity on Huawei or overall Chinese brands, thus the subsequent impact on wafer foundries may not be optimistic.
According to the survey of TrendForce, HiSilicon occupies approximately 20% of wafer starts in TSMC, which are primarily advanced processes below (including) 16/12nm. Currently, HiSilicon’s chips used in 5G base stations and 4G smartphones are manufactured with TSMC’s 16/12nm node. However, it should be pointed out that HiSilicon has shifted a small volume of the wafer starts of Kirin 710 SoC for mid-end smartphones to the 14nm process of SMIC this year.
Looking at the production capacity of SMIC, the company’s 14nm process is currently producing the Kirin 710 processor of HiSilicon as the main product, with a monthly production of roughly 5K during 2Q20. Although Semiconductor Manufacturing South China Corporation, a subsidiary of SMIC, has been invested by 2nd phase of Big Fund and the 2nd phase of Shanghai Integrated Circuit Industry Fund with approximately US$2.25 billion, and announced that SMIC will increase the monthly production capacity to 35K, which is an additional 20K of production capacity compared to the initially planned 15K by the end of 2020, TrendForce believes that the yield rate for SMIC’s 14nm process has yet to be improved, thus it will be rigorous to replace TSMC for advanced processes below (including) 16nm with the current configuration of HiSilicon.
New rules constrain activities of the two major foundries and could start to impact Huawei’s production of end products after the 120-day grace period
If TSMC maintains its position of halting new orders from HiSilicon on account of not receiving approval from the US government, its wafer shipments to HiSilicon will terminate after the 120-day grace period. If such scenario does come to pass, TSMC could see a noticeable reduction in the capacity utilization rates of the advanced processes below (including) 16/12nm in 3Q20. Although the market anticipates that the strong demand related to the 5G and HPC applications from AMD, NVIDIA, and MediaTek will sustain TSMC’s 7nm production, TrendForce believes this is not enough to fully bridge the demand gap that TSMC could experience as a result of the new trade restrictions.
Taken altogether, the prohibition of using American-made hardware and software for the manufacturing of chips designed by HiSilicon (Huawei) without a special license will have a significant impact on TSMC’s operations in the short term. Moreover, the latest amendments to the Entity List prohibitions do not explicitly target TSMC but instead apply to all semiconductor manufacturers that use equipment and tools provided by American firms. Even China’s domestic foundry SMIC is now restricted from shipping products to HiSilicon (Huawei) under the new rules. As for Huawei, its inventory is sufficient to maintain production of whole devices in the short term. However, the inability to place chip orders at its two major partnering foundries TSMC and SMIC will eventually affect device production in the medium to long term.