After 18 months of rampant semiconductor price increases, the market is beginning to “cool down.” The recent order cuts by smartphone manufacturers such as Xiaomi, OPPO, and vivo indicate this trend, and it is reported that Samsung may also reduce its smartphone production by 30 million units to 280 million units this year.
Recently, laptop manufacturers have also joined this trend. Almost all major PC brands have started to lower their annual shipment targets, including Lenovo, HP, Acer, and ASUS, with an average reduction of over 20%.
Which segments of the semiconductor supply chain will be affected? Which segments will experience growth despite the downturn? Jianzhi Research will provide a detailed analysis of the downstream, midstream, and upstream segments of the semiconductor industry.
01Declining Smartphone Demand, iPhone High-End and Foldable Models Show Growth
Currently, the order cut news is coming from the smartphone sector, with low-end Android and Apple models being the main types affected. The total sales target for iPhone in 2022 remains unchanged, and production of the high-end iPhone 13 Pro series will be increased.
Specifically:
Samsung Electronics is expected to cut smartphone production by 30 million units, revising its original plan from 310 million units down to 280 million units;Major Chinese Android smartphone brands have cut approximately 170 million units from their orders this year, accounting for 20% of the original 2022 shipment plan;Apple has reduced the production of the iPhone SE by 20%, but is expected to significantly increase production of the iPhone 13 Pro series by 10 million units in the second quarter, with the iPhone 13 Pro increasing by about 7 million units and the iPhone 13 Pro Max by about 3 million units.Smartphone chip manufacturers MediaTek and Qualcomm have also reduced their 5G chip orders for the second half of 2022. MediaTek has mainly cut mid-range products, lowering fourth-quarter orders by 30%-35%; Qualcomm has reduced orders for the high-end Snapdragon 8 series by about 10%-15%.
Jianzhi Research believes that the demand for smartphones will show a significant downward trend starting this year. On one hand, global inflation is affecting consumer willingness to purchase non-essential goods; on the other hand, the new models of Android phones (excluding foldable models) have not changed much, and as of January this year, the global penetration rate of 5G smartphones has reached 51%, surpassing that of 4G smartphones for the first time. This indicates that the appeal of new smartphone models to users has reached a bottleneck, making it difficult to sustain high growth.
According to the global smartphone shipment data for the first quarter of this year, the total market shipment volume was 314.1 million units, a year-on-year decrease of 8.9% and a quarter-on-quarter decrease of 13.33%, which is about 3.5% lower than IDC’s forecast in February. Based on the performance of various manufacturers, apart from Apple and Samsung, which saw year-on-year growth of 5% and 4% respectively, all others experienced varying degrees of decline.
In fact, as early as March, Jianzhi Research had repeatedly mentioned that the smartphone market would show a declining trend in the coming years. In April, we also commented that although the total volume of Apple phones is not expected to grow this year, the demand for high-end models remains very strong.
It is worth mentioning that in the smartphone sector, foldable models will maintain high growth against the trend, with IDC predicting a CAGR of about 70% from 2021 to 2025. However, the total volume of foldable phones is relatively low compared to traditional models, with global shipments of about 9 million units in 2021. Additionally, due to the high costs associated with flexible screens and hinge designs, prices are unlikely to drop significantly in the short term to increase market share, thus remaining in a niche market, making it difficult to change the overall volume trend.
02Two Factors Disrupting Demand for Traditional PCs
Weak demand is not only coming from smartphones but also from traditional PCs, including desktops, laptops, and workstations. In the first quarter of 2022, global traditional PC shipments totaled 80.5 million units, a year-on-year decrease of 5.1%. Lenovo saw a decline of 9.2%, while HP experienced a decline of 17.8%.
Jianzhi Research believes that the factors affecting the demand for traditional PCs are, on one hand, the longer replacement cycle, which is lower compared to smartphones. Due to the impact of the pandemic in 2020, there was a short-term surge in demand for laptops and other traditional PCs, and in the fourth quarter of 2021, the global traditional PC market experienced its first decline after six consecutive quarters of growth. Lenovo, the market leader, saw a nearly 12% decline in shipments during that quarter, marking the first year-on-year decline for the company since 2020.
On the other hand, the turmoil in the international situation has led to a discrepancy in expectations.Some PC manufacturers originally believed that demand for laptops would continue to grow due to remote work, and thus increased their shipment plans, leading component manufacturers to stock up in advance. However, changes in the international situation have severely impacted the supply chain for components, resulting in high inventory levels for component manufacturers while facing declining demand, making conditions very difficult for upstream segments, as evidenced by the financial reports of related companies in the first quarter.
03Component Segments Severely Affected, Demand for Panels/Cameras Declines
Demand for traditional PCs, smartphones, and televisions has shown a trend of weakness, and from the component segment perspective, panel prices have dropped significantly. According to WitsView data, the shipment volume of laptop panels in April decreased significantly, with a month-on-month decline of -24.9%, and prices for other panels, including those for televisions, monitoring displays, and tablets, have also seen varying degrees of significant declines.
In May, panel prices across various sizes also experienced declines. The price of a 65-inch TV panel dropped from $155 in late April to $150; the average price of a 55-inch panel decreased by $2 to $102; and the prices of 17.3-inch, 15.6-inch, and 14-inch laptop panels all fell by $1 compared to April. The following chart shows some data and the semi-annual price increase situation:
Prices for mobile LCD panels also saw a slight decline in April.
The decline in panel prices, which are important raw materials for traditional consumer electronics such as laptops and smartphones, also indicates that the market is currently experiencing a trend of oversupply. Global panel production capacity is expected to grow by about 7% in 2022, and the growth trend is expected to remain flat at an average of 5% in the following three years. Additionally, global panel production is almost entirely based in China, and as downstream product demand slows, manufacturers will face high inventory levels and low sales prices, significantly impacting the profitability of related companies.
In addition to panels, camera and touch chip demand is also crucial for smartphones, but in previous financial reports from Weir Shares, Jianzhi Research also found that manufacturers are experiencing high inventory levels.According to the latest data from Qunzhi Consulting in May, the global demand for smartphone camera chips is expected to be about 4.95 billion units in 2022, a year-on-year decrease of about 2.7%, down 3.4% from earlier predictions.
04Changes in Wafer Foundry Demand Structure, HPC and New Energy Drive High Growth
With the decline in demand for traditional consumer electronics downstream, midstream component manufacturers are also facing high inventory pressures. So how is the upstream wafer foundry sector faring?
Jianzhi Research believes that wafer foundry demand will show a contrasting trend to the difficulties faced by midstream and downstream sectors. On one hand, wafer demand is diversifying, not limited to smartphones and traditional PCs. For example, automotive and HPC (high-performance computing) are seen as new growth drivers that will replace traditional consumer electronics in the next five years.
According to the financial report of the world’s largest wafer foundry, Taiwan Semiconductor Manufacturing Company (TSMC), HPC has already surpassed smartphone growth to become the company’s largest revenue source, accounting for 41% of revenue, with a year-on-year growth of 6%, while smartphone growth was only 1%. The company also stated that HPC will be the strongest driver of long-term growth. In terms of application, 50% of HPC demand comes from commercial use, 25% from defense and government sectors, and 15% from research. The demand for HPC will continue to grow due to the needs of the digital economy, smart cities, and intelligent manufacturing.
According to TrendForce’s forecast, the HPC market size will continue to grow before 2027, with a growth rate of 7.3% in 2022, the highest level in recent years. Additionally, both NVIDIA and AMD believe that HPC chips will enter a high prosperity trend and are increasing orders to supply chain partners by over 30%.
On the other hand, the demand for wafers from electric smart vehicles will also maintain high growth. From TSMC‘s revenue structure, the proportion of automotive wafers has increased by 1 percentage point to 5%. Although the impact on revenue structure is still relatively low, this is because smart vehicles are still in a very early stage, with technologies such as automotive computing and autonomous driving not yet fully mature. As technology advances and new products are released, the demand for wafers from smart vehicles will also grow rapidly; it is only a matter of time.
In summary, the demand structure for wafer foundries is undergoing a structural change, with HPC and automotive sectors replacing smartphones and traditional PCs as the main drivers of high growth in wafer demand. Furthermore, TSMC’s price increases of 5%-8% across various nodes starting in January 2023 also indicate that wafer demand remains strong. Additionally, wafer manufacturers’ capital expenditures are continuously increasing to expand new production capacity, as detailed below.
It is noteworthy that the revenue structure of wafer foundries will become a key factor in future performance differentiation. Because HPC requires higher technical standards, it will drive demand for advanced processes, while automotive applications will primarily require mature processes such as IGBT in the short term. The future penetration of smart driving will still drive demand for advanced processes.
Additionally, IGBT has become a focal point in the wafer market over the past two years, and this year it continues to show a situation where supply is less than demand. Compared to traditional consumer electronics, the demand for this type of wafer is still very small, but under the global trend of energy conservation and emission reduction, the new energy transformation has also become an important trend, especially with China’s global leadership in the photovoltaic industry, domestic manufacturers are very proactive in expanding wafer production for this segment.
In terms of downstream industries using IGBT, the new energy vehicle sector holds the highest market share at about 31%, while new energy generation (photovoltaic, wind power, etc.) accounts for 11%. Against the backdrop of high growth in these two sectors, the supply-demand balance for IGBT, which was already in short supply last year, has been repeatedly postponed.In 2022, it is estimated that the equivalent of 680,000 8-inch wafers will be needed monthly for IGBT, while the supply side is about 580,000 wafers. It is expected that in 2023, the demand and supply for this segment will reach a balance.Previously, Jianzhi Research conducted a detailed analysis of the supply-demand impact of IGBT and the expansion of wafer manufacturers, which can be referenced in related articles: Will domestic manufacturers benefit from early expansion of IGBT? Market structure and expansion situation of power semiconductors.
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