Is the chip industry approaching a turning point in 2024?

Source: Global Semiconductor Watch

On November 28th, the World Semiconductor Trade Statistics Organization (WSTS) released its latest forecast for the semiconductor market. Due to the widespread adoption of generative AI and the rapid increase in demand for related semiconductor products, as well as the expected significant recovery in storage demand, the estimated global semiconductor sales for 2024 have been revised upwards from the previous estimate of $575.997 billion on June 6 to $588.364 billion, an annual increase of 13.1%, surpassing the historical high of $574.084 billion in 2022.

The global semiconductor industry is expected to bottom out and rebound in 2024, but currently the semiconductor industry is still in a cyclical downturn and undergoing repeated cutting and grinding. Relevant indicators in the wafer foundry field are still weak, and the recovery still needs to wait. But the good news is that the memory market has experienced a comprehensive price increase, AI、 The demand for terminal markets such as data centers and automobiles is relatively strong, and the future prospects of the industry are still worth looking forward to.

Storage chip: Price has risen across the board, is early spring coming?

Recently, there have been endless discussions about the recovery of storage chips, especially the HBM used in Nvidia's latest H200GPU, which has pushed the demand for storage chips to a new height. From the latest market situation of the five major storage companies Samsung, SK Hynix, Micron, Armor, and Western Digital, although the revenue of these companies is still declining, the rate of decline has significantly slowed down. Multiple companies have stated that some downstream demand is slowly recovering and they are optimistic about the future market.

In terms of market prices, Wu Yating, Senior Vice President of Research at Jibang Consulting, recently stated that the global flash memory market in 2023 will finally see a comprehensive price increase in the fourth quarter due to the aggressive production reduction strategy adopted by suppliers. According to data from TrendForce, NAND Flash contract prices rose across the board in the fourth quarter, with an increase of approximately 8-13%.

TrendForce predicts that the annual supply growth rate in 2023 will be -2.8%, marking the first negative growth year in several years and driving the overall efficiency ratio to -3.7%, which will serve as the foundation for stabilizing flash memory prices in the second half of the year. However, Wu Yating believes that due to the lack of strong demand from substantial terminals, the continuity of the current upward trend is still unclear. If demand recovers as scheduled in the second half of 2024, especially with an increase in the purchasing momentum of server SSDs, and suppliers not rushing to restore production capacity utilization, the overall efficiency ratio is expected to be controlled at -9.4%, accelerating the supply-demand balance, and flash memory prices are expected to show a pattern of annual increase.

In terms of DRAM, TrendForce predicts a quarterly increase of approximately 3-8% in DRAM contract prices for the fourth quarter. And it is believed that whether this upward trend can continue depends on whether suppliers continue to adhere to their production reduction strategies and the degree of actual demand recovery, with the most critical being in the field of general-purpose servers.

Previously, Li Peiying, the General Manager of South Asia Technology, stated at a press conference in France that prices in the fourth quarter will be more stable than in the third quarter. Various suppliers are trying to lock in the decline of DDR4 and even raise prices. Whether they can succeed depends on the changes in the next few weeks. Currently, DDR5 prices have risen, and the pressure on two major DDR4 manufacturers has eased. The probability of continuous price decline is not high, and it is expected that DDR4 and DDR3 prices will rise again.

In addition, regarding the memory industry, Wu Yating pointed out at the MTS2024 Storage Industry Trend Seminar that looking ahead to 2024, the memory market will have the following three concerns: firstly, the original factory inventory level has begun to decline after the production reduction, but it is still necessary to observe whether the inventory can continue to transfer to buyers; 2、 It is expected that the original factory production capacity will slowly increase. If the operating rate is restored early due to the market warming up, it will cause another imbalance between supply and demand; 3、 Whether the demand of each terminal can meet the expected temperature recovery, with the continued focus on AI related orders.

Wafer foundry: Relevant indicators are still weak, and the temperature recovery still needs to wait

In the past two years, the wafer utilization rate and capital expenditure of related wafer foundries have continued to decline. Although there has been an improvement in the consumer electronics and storage markets, indicators in the manufacturing sector remain weak. From the Q3 performance of the seven major global wafer foundries, their revenue and net profit have both declined compared to the same period last year. In terms of capacity utilization and wafer foundry quotes, except for TSMC, which benefited from advanced processes and saw a rebound in capacity utilization and stable quotes, the other six companies have both experienced a decline in their data.

It is obvious that mature processes in the wafer foundry market have been greatly affected. In the third and fourth quarters of the second half of this year, the wafer manufacturing side frequently fell into a "price war". According to TrendForce Consulting, the proportion of mature (28nm and above) and advanced (16nm and below) wafer foundry production capacity worldwide will remain at approximately 7:3 from 2023 to 2027. As Chinese Mainland is committed to promoting policies and subsidies such as localized production, the expansion progress is the most positive. It is estimated that the proportion of mature process capacity in Chinese Mainland will grow from 29% this year to 33% in 2027, with SMIC, HuaHong Group and Nexchip being the most positive.

For future expectations, with the gradual recovery of the market next year and the price reduction strategy of wafer foundries for mature processes, Jibang Consulting predicts that the capacity utilization rate of 8-inch wafer foundries will continue to rise in 2024. By the end of 2024, the capacity utilization rate of most wafer foundries will reach over 60% (an increase of 5 to 10 percentage points), TSMC and SMIC will reach over 70%, and Huahong will reach 90%.

Application market: AI, data center, and automotive businesses are relatively strong

In addition, according to the latest financial reports of companies such as NVIDIA, Intel, Qualcomm, and MediaTek, AI、 The data center and automotive businesses are relatively strong, and the market trend is more evident.

Nvidia's Q3 revenue for fiscal year 2023 was $18.12 billion, a year-on-year increase of 206%, about 13% higher than expected, far exceeding Nvidia's own guidance of $15.68 billion to $16.32 billion; Data center revenue was $14.514 billion, a year-on-year increase of 279% and a month on month increase of 38%, accounting for 80% of total revenue.

Intel's latest quarterly revenue was $14.158 billion, a year-on-year decrease of 8% and a month on month increase of 9%, marking the seventh consecutive quarter of year-on-year decline. However, it is worth noting that the revenue of all major business lines of Intel Q3 exceeded expectations, with Intel Foundry Services (IFS) revenue of $311 million, a year-on-year increase of 299%; The data center revenue was $3.8 billion, exceeding Intel's internal forecast.

In terms of Qualcomm and MediaTek, Qualcomm's revenue for the fourth quarter of fiscal year 2023 was $8.67 billion, slightly higher than the expected $8.51 billion. Compared to the same period last year, it decreased by 24% to $11.39 billion. Qualcomm's adjusted total revenue for this fiscal year decreased by 19% compared to last year, to $35.83 billion, with a net profit of $1.49 billion for the quarter. Among them, the chip business revenue was 7.37 billion US dollars, up 3% month on month, and the GAAP operating profit margin rebounded to 26% compared to the previous quarter. QCT, Qualcomm's largest processor sales division, saw a 26% decrease in sales to $7.37 billion this quarter. Among them, the sales of mobile phone chips decreased by 27% to 5.46 billion US dollars, while the sales of the automotive business increased by 15% year-on-year in this quarter, reaching 535 million US dollars, exceeding expectations. From a revenue perspective, Qualcomm has ended three consecutive quarters of decline and begun an upward cycle.

MediaTek's net operating revenue for the third quarter was NT $110.98 billion (approximately RMB 24.817 billion), an increase of 12.2% compared to the previous quarter, while net revenue decreased by 22.6% year-on-year. The gross profit for the third quarter was NT $52.192 billion (approximately RMB 11.764 billion), an increase of 11.9% compared to the previous quarter and a decrease of 25.5% compared to the same period last year; The gross profit margin was 47.4%, a decrease of 0.1 percentage points from the previous quarter and a decrease of 1.9 percentage points from the same period last year. It is worth noting that MediaTek's inventory has declined for five consecutive quarters, with a turnover of 90 days remaining, significantly lower than the 115 days in the second quarter and the 111 days in the same period last year. At its performance briefing, MediaTek CEO Cai Lixing stated that in the fourth quarter, the new generation Dimensity 9300 series began shipping, driving a 9-15% quarterly increase in revenue, reaching a new high in five quarters. He also believes that smartphones with AI computing capabilities will shorten the phone replacement cycle.

Conclusion

Overall, for the upcoming fourth quarter, most manufacturers still hold a conservative view. Based on industry opinions, inventory adjustments in consumer electronics such as PCs and mobile phones have gradually come to an end, and some manufacturers have already benefited from the upward trend; However, the inventory adjustment of automotive electronics and industrial applications was relatively late, and it is expected that this downward trend will continue for a period of time. At present, there are many optimistic predictions for 2024, including SEMI, WSTS, and many semiconductor industry companies, all of which hold a good outlook for 2024. The downward trend of the cycle has gradually reached its bottom, and a new round of upward trend is approaching. The market needs to be more prepared for it.