In April, the price increase letters from a number of semiconductor manufacturers, including Italian Semiconductor, came into effect, and the market prices of chips such as MCU and PMIC were raised again. At the same time, smart phones and other terminal markets frequently hear the news of cutting orders, and there is also the sound of price reduction of mobile phone SoC chips.
After last year’s supply shortage and price increases, the current chip market has changed the previous “one-sided” situation. Of course, some products are still in short supply, while others have a high inventory base. Does this mean that the turning point of chip market price is coming?
The supply of MCU chips is still tight
A few days ago, Italian Semiconductor sent a price increase letter to dealers, announcing that the prices of all product lines, including MCU and power management chips, would be raised again in the second quarter of this year. As for the reasons for the price increase, St Semiconductor said that the continuing shortage of global semiconductor products shows no sign of improving in the short term. Although the company has been investing heavily in manufacturing, raw material costs as well as energy and logistics costs have reached indigestible levels.
In fact, Italian Semiconductor has already raised chip prices by one round in the fourth quarter of 2021. In an earnings call at the end of January this year, STMicroelectronics CEO Jean-Marc Chery said that the visibility of the current backlog of orders was about 18 months, much higher than the planned 2022 capacity.
Not only Italian semiconductors are facing the situation that MCU is in short supply, but the current market for MCU and power management chips is in a state of tight supply. Some channel merchants described the shortage of MCU chips, saying that it was difficult to purchase at the beginning of this year, and many small companies could not get the goods at all. According to a report by research firm Yole Developpement, MCU prices are expected to maintain an upward trend in 2022, and unit prices of products may remain high until 2026.
The reason for this situation, Teng ran, head of Sadie Consulting Integrated Circuit Center, believes that it is mainly limited by new production capacity. The global MCU market is about US $20 billion in 2021, and the MCU market is expected to maintain a growth rate of 10% to 15% in 2022. The shortage of MCU still exists in the first quarter of this year, mainly because the new production capacity of large overseas factories is limited, and it will take a long time to expand production. In addition, the supply and demand of power semiconductors, MPU and other products are tight, and product prices may continue to rise.
Elvis Hsu, general manager of CINNO Research Semiconductor Division, also believes that the continuous shortage of wafer foundry capacity and the transformation of the automotive industry to electrification and intelligence are the main reasons for the shortage of MCU. MCU is mostly mass-produced by 8-inch wafer ripening process. At present, the production capacity of 8-inch wafer foundry has hardly increased. Although the world’s major wafer foundry continues to expand new capacity, but most focus on less than 90 nm process, and mainly aimed at advanced MPU and GPU product lines, so that the future capacity increase of MCU is limited.
Demand for SoC chips for mobile phones drops
Unlike MCU, which is still in short supply, consumer chips such as mobile phone SoC are beginning to face the challenge of order reduction. Prior to this, there was news in the industry that Apple would cut orders for three major product lines, such as iPhone 13, iPhone SE 3 and AirPods, among which the annual order volume of AirPods would be reduced by 10 million groups. Recently, it has been reported that the major Android phone brands in China have cut about 170 million orders. Wang Zhihong, an analyst at market research firm Counterpoint, pointed out that the inventory level of the overall smartphone market is unreasonably high and will eventually be corrected. Counterpoint has lowered the growth rate of the smartphone market this year to about 5 per cent.
The cooling of the end market will naturally affect the upstream chip market, and recently there is news that MediaTek and Qualcomm are likely to reduce their quotations by 5% to 10% in the second quarter. According to CINNO Research data, sales in China’s smartphone SoC market fell in February after a month-on-month rise in January and a year-on-year rise, with overall market terminal sales down about 24 per cent month-on-month and 20.5 per cent lower than a year earlier. In response, ElvisHsu said that the mobile phone market due to the lack of killer applications for 5G smartphones, unable to stimulate consumers’ desire to change phones, and its price did not reach the “sweet spot”, which greatly reduced the terminal demand. It is expected that in the foreseeable future, with the increasing inventory level of 5G SoC chips, the price will be compromised to drive market demand.
Smartphones have always been regarded as a bellwether of the consumer electronics market. The cooling trend of mobile phone SoC will certainly affect the market situation of other consumer chips. From the performance of the market end, after entering 2022, the prices of Nvidia GeForce RTX 30 series and AMD Radeon RX 6000 series graphics cards have declined significantly. As the mining tide recedes, the demand for GPU is returning to normal. GPU prices are expected to fall after a period of soaring prices. It is reported that due to the reduction in production costs, Nvidia supply prices will be reduced by 8% to 12%.
The price of memory varies
The memory market went up and down in the second quarter. According to the Jibang Consulting report, due to slightly high inventories of both buyers and sellers, and the impact of global inflation on demand, such as desktops, laptops and smartphones, consumers have weakened their purchases. At present, only the server-side is the main power source to support memory demand, and the overall demand is sluggish. Under such circumstances, it is expected that there will be an oversupply in the DRAM market in the second quarter, and the average transaction price of DRAM will fall by less than 5 per cent.
The market for NAND flash memory is relatively good, with an expected rise of 5% to 10%. But the reason for the rise is not terminal demand. In fact, purchasers’ reserve orders in the second quarter were relatively conservative, and the price rise was mainly due to the raw material pollution incident that broke out at the armor and Western Digital factories in February. Affected by this incident, the supply of NAND flash memory decreased.
Elvis Hsu analysis believes that from the fourth quarter of last year to the first quarter of this year, there has been an increase in inventory in some consumer terminal markets, such as personal computers and smartphones, which leads to differences in market supply, demand and price of chips for different applications. Zeng Guanwei, an analyst at Jibang Consulting, also said that at present, the inventories of various IC designers are relatively high, although the overall chip supply and demand is still the seller’s market.
From the perspective of different segments, in the server SSD market, OEM manufacturers adopt a conservative attitude towards orders in the second quarter and a conservative inventory strategy, which may continue to affect orders in the second half of the year, leading to a reduction in the annual shipping target. In the enterprise SSD market, purchases of servers and data centers are still increasing. Demand for consumer products such as televisions, personal computers and tablets remains weak. Demand for products such as flash drives and flash cards is still sluggish.
The turning point of chip price is coming?
Judging from the above-mentioned different market conditions, after the shortage and price increase in the past year, the current chip market has changed the previous “one-sided” situation. Of course, some products are still in short supply, while some other products have a high inventory base. Does this mean that the turning point of the market is coming?
Teng ran believes that, at least for now, the demand of the chip market has been divided. The scale of the global chip market grew by a record 26.2% in 2021, and the strong demand for chips superimposed price increases, doubling the revenues and profits of the major chip suppliers. The demand of the chip market will be divided in 2022.
Zeng Guanwei said that on the whole, some materials of consumer electronics chips do have the pressure of high inventory, small-scale IC designers have begun to seek more sales routes, and even a small number of models with higher inventory are bargaining by reducing prices or additional fees. However, server, automotive, industrial chip demand is still healthy, such as MCU, power management IC, the price is still stable, out-of-stock models continue to rise.
So, how will the chip market develop in the coming period of time? Teng ran believes that the structural differentiation between supply and demand in the chip market will further emerge, and the change in the growth rate of demand for consumer electronic products represented by mobile phones will lead to changes in the supply structure of chips downstream, and chip prices may be affected. The relationship between supply and demand in the field of automotive chips is still tight, but as the global supply chain for automotive chips gradually recovers, it will be lower than last year’s skyrocketing prices.
Elvis Hsu stressed that the end consumer market has always been the main driving force of the upstream industrial chain, such as the automobile market brings new demand for automotive chips due to the terminal new energy vehicles and the global zero carbon emission trend. The increase in 5G penetration drives the simultaneous improvement of communication chips and equipment in technology and supply. In the past two years, the low inventory level of the semiconductor market and the rapid development of the home economy have created an unprecedented demand for upstream chips. Today, the demand of the market has gone its separate ways. In addition to cars and some HPC and AIoT chips, the supply and demand of the rest of the consumer market has undergone qualitative changes, which is bound to bring tremendous price pressure on the upstream supply chain in the future.
The structural change of chip demand further tests the strategic positioning of chip design, manufacturing and closed testing links, the speed of technological innovation, the quality and integrity of product platform and the viscosity to customers. In the future, if small and medium-sized enterprises only make alternative products, but do not start innovative research and development, and can not transfer the cost of price increases, they will face operational pressure.