Development Trend of global and domestic semiconductor industry in 2020

At the end of each year, we make some outlook and views on the future development of the global and domestic semiconductor industry without data support. This year, we will continue. 2019 will be a difficult year for most semiconductor companies in the world. The industry as a whole is hovering at a low level. Major application markets such as AI and automobile, which had enjoyed great popularity in the previous two years, are still weak. Forcing the "technological decoupling" between China and the US has become one of the important policy options, which also directly affects the business climate of the semiconductor industry, which is mainly characterized by "rational division of labor in the global value chain and giving full play to each other's comparative advantages". The situation of the global semiconductor industry in 2018 and 2019 is both hot and cold, and the regional market is also staging a very differentiated market, but from the current third and fourth quarter of a lot of data guidance, the overall development of the semiconductor industry in 2020 tends to be optimistic, here is also a outlook and forecast:

(1) The global economy is recovering, but the US semiconductor companies cannot avoid the decline in development.

After experiencing a severe recession in the first half of 2019, the whole industry began to move towards a steady recovery and growth trend from the third quarter. Memory prices stabilized, OEM and closed test capacity utilization increased significantly, and various data of major leading enterprises continued to rebound quarter-on-quarter, and from the downstream perspective, such a state has a certain continuity. Therefore, there is a clear signal that the global semiconductor industry will recover in 2020. However, from a regional perspective, the future development of the US market may not be very optimistic. According to the regional market data given by WSTS, in 2019, the semiconductor industry in the United States suffered a severe market decline of 26.7%, and in China's $158.4 billion semiconductor market, the share of American companies reached as high as 47.5%, and in the rest of the Asia-Pacific region of the $124.5 billion market, American companies also had a 48.7 percent share of the market. Given the uncertainties in the coming year in terms of trade frictions and restrictions on the export of high-tech products to China, US semiconductor companies may not be able to change the decline in 2019 and usher in the good news of an industry-wide recovery.

(2) 5G and automobiles are big drivers of global semiconductors and active application markets for innovation.

As promised, 5G has released a large number of orders to the global semiconductor market in 2019, contributing to the gradual recovery in the second half of the year to some extent. Since the scale has not yet started, the penetration rate of all kinds of 5G terminals is still at a low level, and all kinds of 5G applications have not been fully explored, so in 2020, or even in the next three to five years, we can continue to benefit from all kinds of innovation and expansion of the "5G" industrial chain. In addition to 5G and automotive semiconductor, which have maintained a large increase in various applications in recent years, this trend will continue in 2020. The development trend of safety, interconnection, intelligence and energy saving makes the automotive value chain gradually shift from mechanical power structure to electronic information system, and the value chain reconstruction makes the new players of automotive semiconductor constantly emerge. At present, autonomous driving and vehicle electrification are the two mainstream applications affecting the automotive semiconductor sector, while vehicle gauge sensors, automotive intelligent computing and communication, and power semiconductors will show a high degree of innovation in 2020.

(3) The window for large-scale semiconductor mergers and acquisitions has passed, and American companies "stay together" and "export to China" from Japan and Europe.

In 2019, international regulatory agencies, including the Committee on Foreign Investment in the United States (CFIUS), increased the examination of cross-border transactions. As a sensitive industry involving national security, semiconductor industry naturally received more special attention. Semiconductor acquisition became increasingly difficult and large-scale semiconductor merger and acquisition was unlikely to happen in the future. And more reflected in the subdivision of vertical integration. In 2020, US companies may still face export restrictions caused by trade frictions. Us semiconductor companies, which are highly dependent on the Chinese market, may adopt a "group" approach to integrate in individual business segments. Faced with obstacles in international mergers and acquisitions, mainland Chinese semiconductor companies have also turned to the domestic market. In the first eight months of 2019, there were 20 international deals (including agreements) in the semiconductor industry worth about $28 billion, none of which involved mainland China. However, in 2020, with the practical demand of Chinese mainland in automotive semiconductors, industrial control electronics, equipment parts and materials, the exchanges between Chinese mainland capital and enterprises, and the industries of Japan and Europe will gradually increase. Japan and Europe will replace the role of the United States in some fields to "export" the core elements of the industrial system to China.

(4) The slowdown of Moore's Law, semiconductor into the "heterogeneous assembly" era.

While Moore's Law continues to advance towards 5nm-3nm-1nm, it seems that fewer and fewer players will be able to follow this path. The industry has also begun to pay more attention to heterogeneous assembly, including the recent extremely popular Chiplet (DARPA's CHIPS project, Marvell's MoChi, Intel's EMIB and Foveros), silicon photonics technology, Micro LED, etc., which are all application cases of semiconductor heterogeneous assembly and integration. The concept of heterogeneous assembly, which originated in the 1970s with multi-chip modules, is particularly applicable to today's fragmented needs, enabling rapid development and reducing chip implementation costs. At the same time, heterogeneity can be combined with new materials to break through the physical limitations of silicon, and silicon can be applied to a variety of different fields. It is expected that after 2020, there will be more heterogeneous ecology. New product forms, new design of data computing architecture, and new combination of materials are leading the industry to explore new possibilities of chip architecture, computing efficiency, and load function. The future will be an era of "heterogeneity" in full bloom.

(5) Domestic substitution caused by trade friction is still the main line of the development of domestic semiconductor industry.

The Huawei incident in 2019 accelerated the reshaping of the semiconductor supply chain system. It can be said that the whole domestic semiconductor industry chain encountered a rare historic opportunity. Affected by the Huawei incident, many domestic leading system-level manufacturers in various fields are also speeding up the introduction of domestic semiconductor products. In addition, Japan also began to impose sanctions on the semiconductor material field of South Korea within the year, which challenged the "efficiency priority" of the semiconductor industrial chain globalization for 30 years. At present, the global semiconductor supply chain is more focused on "safety and controllable". Therefore, even though the semiconductor industry in mainland China has emphasized openness and cooperation for many times, the industry itself has become a frightened bird. In 2020, domestic substitution will continue to be the main line of the development of domestic semiconductor industry, and the leading enterprise of domestic substitution may expand from Huawei to more domestic system manufacturers. The replacement products are also upgraded from the middle and low end to the storage, analog, radio frequency and other more strategic level general or large volume and wide range of high-end products. It is the general trend to accelerate the establishment of a complete and independent domestic semiconductor industrial system with core technologies. Domestic OEM, packaging, testing and supporting equipment and materials will also accelerate the replacement of domestic in 2020.

(VI) The semi-monopolistic industry market with Chinese characteristics will become the "touchstone" for the high-quality upgrading of domestic semiconductors.

Some industries in mainland China are monopolistic due to specific technical and economic characteristics, resource scarcity, or national security, such as high-speed rail, smart grid, Beidou navigation, ultra-high-definition video, security and so on. As we all know, the survival and success of the semiconductor industry must depend on the shipment volume, and these semi-monopolistic industry markets with Chinese characteristics have a certain basis of shipment volume, and have a multi-level industrial chain from system to software to chip, and have a certain discourse power in product definition, so it is a good touchstone market for domestic chips to replace imports and create an independent ecology. Affected by the Huawei incident, the system manufacturers in these semi-monopolistic industry markets are expected to comprehensively promote the breakthrough of the system mechanism in 2020, and expand further cooperation with domestic chip suppliers.

(7) The domestic continue to increase the investment in advanced technology and integration, characteristic areas will appear IDM.

At present, in terms of advanced technology OEM, it has become a two-strong competition between Samsung and Taiwan Semiconductor Manufacturing, and only SMIC is following up the second tier. United Power and cell chip basically give up the investment in advanced technology node, mainly to fill capacity utilization as the main goal. Therefore, it can be predicted that there will be no great change in the overall regional pattern of global OEM in 2020, and more attention should be paid to the integration of domestic OEM field. At present, the domestic manufacturing capacity gap of mature process above 28nm is 350,000 pieces/month (12 inches), which is higher than the 300,000 pieces/month gap below 28nm. However, there are as many as 16 production lines under construction or already built at mature nodes, and more than half of them will be put into production in 2019 and 2020, so the domestic mature process capacity will increase in the next two years. Fierce competition ensued. With the launch of the second phase of the large fund, the top-level planning and guiding role of the state on the manufacturing industry will certainly be enhanced, and around some characteristic product links such as analog (RF) and sensor, there will be IDM-oriented or virtual IDM-oriented integration.

(8) A critical year for Chinese storage, integration and variables still exist in the field of DRAM.

In 2019, memory prices remained low, and several manufacturers have cut production and postponed equipment investment. In 2020, driven by downstream demand, both DRAM and NAND will gradually return to normal development, and supply and demand will maintain a relatively stable relationship. What is more striking is the part of domestic memory. No matter the 3D NAND of Changjiang Storage or the DRAM of Hefei Changxin, the production capacity will be increased and scaled up in 2020. Although the planned production capacity will take up no more than 3% in the world, coupled with the optimistic price increase expectation next year, Domestic memory will not affect the global memory chip pattern in a short time. However, large-scale production means that it will face the view of market, price competition, ensuing patent disputes, and the ability to continuously invest capital. Therefore, the storage industry of our country only faces a key test in 2020. It is expected that the second phase of national large fund will continue to increase in the storage. As a result, the national layout of DRAM will be further clarified in 2020.

(9) Science and Innovation board boosted integrated circuit competition in various fields is fierce, leading enterprises take the lead in promoting subdivision circuit reshuffle.

The introduction of the Science and Innovation Board made the semiconductor industry become a favored industry in the domestic capital market in 2019, and also led the market value of semiconductor enterprises on the main board to hit new highs. The primary market benefited from the profit-making effect of the Science and Innovation Board, and many VCPE institutions realized a very considerable book investment surplus by relying on the rapid promotion of the Science and Innovation board listing. On the other hand, the launch of the science and technology innovation board will also help accelerate the formation of leaders in the semiconductor segmentation field. Currently, in the fields of Bluetooth /WIFI, RF PA, analog (power management IC), VCSEL, memory master chip, AI chip, which are boosted by capital, there has been a phenomenon of overcrowding of entrepreneurial projects and capital, but in the next two or three years, The Science and Innovation Board will accelerate the survival of the fittest of these crowded track stock enterprises, and the head force formed by the science and innovation board and the listed enterprises on the main board will be the first to promote the shuffle of these subdivided tracks.
(10) The second phase of the large fund compared with the first phase of shareholder expansion, will cooperate with various regions to help leading projects.

Big fund phase ii will be officially opened in 2020 "for" mode, on the proportion and size of it, maybe close to half of the money will be into the contract on the manufacturing and storage. In terms of design, we will pay more attention to the high-end general chip field that is really difficult, such as EDA, FPGA, processor and other links. At the same time, we will pay more attention to the ecology established at the downstream application end, hoping to drive the development of the design industry through the downstream application ecology. The second phase of the Fund will also strengthen investment in upstream areas such as semiconductor equipment and materials, as well as some IDM projects in the integrated circuit sector. In addition, it can be noted that the number of shareholders of the second phase of large fund has increased from 16 to 27 compared with that of the first phase, and compared with that of the first phase, which was mainly funded by central enterprises, to that of the second phase, which was mainly invested by local government investment platforms, the regions with more concentrated and mature development of integrated circuit industry in mainland China have all participated in the project. Therefore, it can be predicted that the second phase of the large fund will play a more important role in industry guidance and orderly integration, and cooperate with other regions to invest in leading projects with local benchmarking significance. Therefore, in the coming year, there will be continued competition among different regions in the competition for large projects.

In general, the global semiconductor industry in 2020 will be better than that in 2019. Although there are many "uncertainties" that the technological decoupling between China and the United States will evolve to normal, the characteristics of semiconductor globalization will not be completely changed even if it is impacted. For the domestic semiconductor industry, this situation is both a challenge and an opportunity. It is a constant battle to replace and export value to the global market. Only by constantly honing oneself can we seize opportunities and not lag behind these good and bumpy times.