Silicon Wafers: M&A, Price Hikes

Chipmakers need to keep a close eye on the silicon wafer industry, as the business continues to undergo a number of changes.

On one front, the silicon wafer industry continues to consolidate. Then, after years of suffering from an oversupply and falling prices, many silicon wafer vendors are experiencing tight supply and have begun to raise prices.

Silicon wafers are a fundamental part of the semiconductor business. Every chipmaker needs to buy them in one size or another. Silicon wafer makers produce and sell raw silicon wafers to chipmakers, who process them into chips.

It’s also a tough business that requires a ton of capital and large volumes. Over the past 20 years, the silicon wafer industry has consolidated from more than 20 suppliers in the 1990s to only five large players today.

Last year, for example, Taiwan’s GlobalWafers acquired U.S.-based SunEdison Semiconductor, formerly known as MEMC.

Then, earlier this year, South Korea’s SK Holdings signed a deal to buy a 51% stake in LG Siltron from another Korean vendor, LG Corp., according to several reports. LG Siltron is the world’s fifth largest silicon wafer maker, behind Shin-Etsu, Sumco, GlobalWafers and Siltronic.

“The LG Siltron sale was more of a rescue. Previously, the SK Group rescued Hynix (a merger between Hyundai and LG Semiconductor), and now they are rescuing LG Siltron, a wafer supplier to Hynix,” said Richard Winegarner, president of Sage Concepts, a market research firm. “The only other wafer manufacturing in Korea is the former Samsung-MEMC joint venture. That operation is now part of GlobalWafers and has signed a supply agreement with Samsung.”

There are other events taking place in the industry. In August, for example, Japan’s Sumco reported strong demand for 200mm and 300mm silicon wafers. Even Sumco’s 150mm wafer supply is tight.

In fact, the company said it put all wafer sizes on allocation. So in response, customers are signing long-term contracts to secure wafer capacity and are willing to pay a premium to obtain supply. Generally, Sumco said that wafer prices are expected to be 20% higher in the fourth quarter of 2017, compared to the same period a year ago.

Seeking to meet anticipated demand, Sumco plans to invest in new capacity, which is targeted for 2019.

Other silicon wafer suppliers are also seeing strong demand. Worldwide silicon wafer area shipments increased during the second quarter of 2017, when compared to the first quarter of 2017, according to the SEMI Silicon Manufacturers Group (SMG).

“In 2017, we are in an exceedingly tight situation, not a shortage,” said Michel Walden, a senior technology analyst with TECHCET, an advisory service firm focused on process materials and other technologies for a range of industries. “In 2018, assuming that demand continues along the path we expect it to, we are in a shortage. Not a severe shortage, but a shortage and a deficit of installed capacity versus projected demand. That’s predominately in 300mm, but it also impacts 200mm.”

In fact, the firm said that silicon wafer supply for semiconductor device fabrication is forecasted to lag demand starting next year, and could remain in short supply through the year 2021. In total, silicon wafer area demand is forecasted to increase at an annual rate of about 3.1% over the 2016-2021 period to reach over 13,000 million square inches (MSI), according to TECHCET.

Silicon wafer suppliers have stated that average selling prices have remained too low to allow for investment in 300mm expansions. “Over the last five years, the average selling price per square inch of semiconductor-grade silicon wafers has declined by about a third and more than a half from the 2007 level,” Walden said. “However, current tightness in the supply-chain has led to greater stability and even price increases in some cases, all of which is likely needed for the long-term health of the wafer suppliers.”

There is another way to look at the supply/demand picture. Silicon wafer makers have built up enough manufacturing capacity over the years. Some of those facilities might be idle or equipped.

So even though suppliers are seeing strong demand, they still have a way to go before they become fully utilized. “It would be 2020 before the 6,000 kilo wafer-per-month demand level is reached at today’s industry growth rates,” Sage’s Winegarner said. “The reality may be that some of the early capacity (circa 2005) is unable to produce wafers that meet today’s specs and would have to be upgraded or replaced to achieve a supply level of over 6,000 kilo wafers per month.”

Silicon wafer supply and demand (Source: Sage)

SEH and Sumco have the most share. “GlobalWafers accounts for most of the other category. The GW-SSL is the name for the ex-MEMC operations which were operating as SunEdison Silicon, before being bought by SAS (Sino American Silicon) and included in their GlobalWafers subsidiary. So the new capacity of GlobalWafers would be the others plus GW-SSL, a capacity slightly bigger than Siltronic, and bigger than LG Siltron,” he added.

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