Silicon Wafers: Tight Supply, High Prices

For years, the silicon wafer industry suffered from oversupply and depressed prices, causing considerable consolidation in the industry.

Then, two or so years ago, the IC industry entered into a boom cycle. Silicon wafer vendors began to experience tight supply amid strong demand from IC makers. Some silicon wafer makers even raised their prices.

Today, the silicon wafer market remains strong and supply is tight. In 2018, total wafer shipments are expected to eclipse the all-time market high set in 2017, according to SEMI. Polished and epitaxial silicon shipments are expected to reach 12,445 million square inches in 2018, up 7.1% over 2017, according to SEMI.

“As new greenfield fab projects continue to emerge for memory and foundry, silicon shipments are expected to remain strong for 2019 and through 2021,” said Clark Tseng, an analyst at SEMI.

And as before, the supply of silicon wafers remains tight. “At the moment, it would be best to describe it as a constrained supply,” said Dean Freeman, an analyst at Techcet. “Companies on allocation, such as SUMCO and GlobalWafers, have made such announcements, but others have not. There is the possibility that fabs are double buying to insure they have enough wafers to support capacity. If this is the case, Q3 will be softer for wafer manufacturers as the fabs will burn off inventory.”

Prices continue to rise for all wafer sizes. “The silicon prices have been increasing since 2016. It is likely to continue to increase as the silicon market is constrained and demand is stronger than supply,” Freeman said. “Pricing has been increasing for all wafer sizes, such as 150mm, 200mm and 300mm. In 2017, 150mm and 200mm grew at a stronger rate than 300mm.”

In response, most, if not all, vendors are adding capacity. “The top 3–Siltronic, SUMCO and SEH–are adding very strategically as not to create a glut of wafers and go back into a period where profitability is low to negative. GlobalWafers is adding capacity a bit more aggressively. The Chinese are being very aggressive, but no Chinese wafer manufacturer is qualified at 300mm yet.”

Taiwan’s GlobalWafers plans to increase its capacity by 7% in 2018, according to the analyst. China’s vendors include Chongqing Advanced Silicon Technology (AST) and Zing.

What’s next? “While the wafer manufacturers have had extremely poor profitability since 2009, they now are seeing gross margins in the 30% range and higher,” Freeman said. “First-half revenues are up 30% over the first half of 2017. The question here is how much higher can it go.”

Here’s a telling sign: “The interesting thing is that wafer contracts are being written through 2021, with some being written through 2023, so the fabs must think we will be constrained for a while,” he said. “Techcet expects wafer prices to rise through 2020 and then flatten out. This is contingent upon demand staying strong, and the Chinese silicon manufacturers successfully passing qualification and gaining some market share.”