Pandemics And Panic Chip Buying

U.S.-China trade tensions are creating uncertainty in the semiconductor market, but it is also causing another event right now—panic chip buying.

At present, some but not all foundry vendors are seeing “rush orders” for select products and are running their fabs at full capacity. It’s not just leading-edge devices, but also mature technologies.

A surge of chip orders started in May, when the United States stepped up its efforts to restrict China-based Huawei’s ability to obtain U.S. technologies, such as chips and software. “Under the new rule, any semiconductor designs and chipsets produced by and for Huawei and its affiliates, using U.S. Commerce Control List (CCL) technologies, software, and equipment, are subject to the Export Administration Regulations. Foreign-produced items manufactured by foreign foundries utilizing U.S. semiconductor manufacturing equipment that have started production for Huawei as of May 15, 2020, are not subject to these new licensing requirements for 120 days from the effective date,” explained John Vinh, an analyst at KeyBanc, in a research note.

So, to do business within the Huawei supply chain, companies will require licenses from the U.S. government after Sept. 14. At that point, TSMC may stop taking new orders from Huawei, which is one of TSMC’s biggest foundry customers. It’s still unclear just how all of this will play out.

In the meantime, the events have led to panic buying at Huawei and other foundry customers who are worried about the fall out. Both mature and leading-edge foundry processes are in high demand. “Asia foundries continue to experience strong demand for these non-leading nodes. After a short dip of demand, rush orders have come back from Huawei and from those who wish to gain in replacement market share from Huawei,” said Samuel Wang, an analyst at Gartner.

Not all foundries are seeing this demand. The fabs at some vendors are only running half full. Demand is strong at other foundries, but it’s unclear if it will last. “Asia foundries in first half of 2020 have been doing well, while the real test will be in the second half,” Wang said.

For mature nodes, demand is the strongest for 180nm processes, followed by 40nm and 65nm, according to Wang. Drilling down into each process, power management ICs (PMICs) and display driver ICs (DDIs) are in big demand at 180nm.

CMOS image sensors (CIS) appear to be the drivers at 65nm and 40nm. CMOS image sensors enable the cameras in smartphones. “CIS use 65nm/55nm. Some CIS devices will start to use 40nm, but this is not a significant part of the current CIS volume yet. 40nm will expand for some high-end pixel designs, but it is not expected to be a widely accepted node due to costs,” said David Uriu, technical director of product management at UMC.

Upbeat forecasts
All of this leads to another question—What’s does this mean for the semiconductor and equipment industries?

Recently, VLSI Research raised its IC growth forecast from -4.3% to plus 0.7% in 2020. One way to explain the new forecast is to look at the three bellwethers in the industry—Intel, Samsung and TSMC.

“Nine months ago, they were all saying: ‘We believe our key drivers for our business are going to 5G, data center and automotive.’ And, then, they said automotive is a longer-term opportunity, not 2020,” said Risto Puhakka, president of VLSI Research.

Then, earlier this year, Covid-19 struck China. The virus spread throughout the world. In response, a large percentage of countries implemented various measures to mitigate the outbreak, such as stay-at-home orders, store closures, among others. As a result, consumer spending fell, which has impacted many industries.

Still, semiconductor demand has been relatively buoyant for some but not all sectors. “Automotive fell off the wagon. That was a longer-term opportunity anyway,” Puhakka said. “Vendors, however, still look at 5G and the data center and say: ‘If we don’t have the capacity when it ramps, we will lose market share.’ So they are building to the expected ramp, whether that ramp happens or not. And to a certain degree, the ramp is taking place. And then, of course, the second-tier memory guys have to follow. The second-tier foundries have to follow. So, they can’t really let up.”

This in turn impacts the equipment market. VLSI Research also raised its forecast for the semiconductor equipment industry. Previously, the firm predicted that the equipment business would fall by 6% in 2020. Now, it projects that the semiconductor equipment industry would see a positive 7% growth rate in 2020.

“(Equipment) companies haven’t seen any push outs or cancellations. The biggest hassles have been in logistics and the supply chain,” Puhakka said. “When you talk to people, you see that equipment orders are in through the third quarter. It leaves you with only the fourth quarter, which is an unknown. Even if we have minus 10% in the fourth quarter, we come up with 7% equipment sales.”