Asia Semiconductor: H1 2022 Review

Secular Change – TSMC Stretching the Lead in Advanced Node

It is increasingly difficult to keep up with Moore’s Law. TSMC’s node migration cadence is extending beyond two years and is even longer for its competitors. TSMC continues to extend its lead in advanced node manufacturing with strong execution in yield improvement, the ramp-up of new nodes, and better node performance metrics.

While TSMC and Samsung ramp their respective 4nm node on a similar schedule, Samsung incurs yield issues and weaker performance metrics. As a result, the Qualcomm Snapdragon 8 Gen 1 made by Samsung suffers overheating and high power consumption problems. Qualcomm shifted orders for the new Snapdragon 8 Gen 1+ to TSMC’s 4nm node, which improved the GPU (graphics processing unit) clock speed by 10% and showed up to 30% more power efficiency on the same performance.¹

We see a steady market share gain trend for TSMC. NVIDIA allocated ~90% of its chip production to Samsung in the 7/8nm generation but, starting early this year, is moving more capacity to TSMC.² This includes most of its GPUs and Arm-based Grace CPUs (central processing units), which are moving to TSMC’s 5nm. Apple and AMD’s CPU market share gain leveraging TSMC’s 4/5nm process is an indirect share gain from Intel.

In terms of transistor density, TSMC is already ahead of Samsung and Intel on the current roadmap. More importantly, while Samsung and Intel’s roadmap timeline looks similar to TSMC’s, they continue to fall behind on actual progress. Intel is expected to see a delay in the launch of its new server chip, Sapphire Rapids, at the end of this year, which is based on Intel 7.³ Samsung has limited external customers on its 3nm GAA (gate-all-around) node (similar transistor density to TSMC’s N4) and still struggles with 4nm.⁴ On the other hand, TSMC is on track to mass-produce N3 later this year, and its yield on N4 has also been stable.⁵

Secular Change – Autonomous Driving EV Penetration Drives Auto Semiconductor Market Expansion

Electrification of automobiles is an unstoppable trend. The semiconductor industry is well-positioned to support this transition and benefit from a significant increase in its total addressable market (TAM). A typical electric vehicle (EV) has twice as much semiconductor content as an internal combustion engine car, at around USD$800 per vehicle.⁶ A large portion of the incremental content comes from power semiconductors. The BOM (bill of materials) for a fully self-driving car can be even higher when using silicon for self-driving computers. Rapid EV adoption is expected to drive the power semiconductor market to grow from USD$7 billion in 2020 to USD$24 billion by 2030.⁷ The automotive microcontroller (MCU) market is projected to reach over USD$12 billion by 2025, from USD$7.6 billion in 2021.⁸ Key suppliers include NXP, Renesas, Infineon, and Texas Instruments.

The development of higher-level self-driving vehicles has also driven the demand for high-performance systems-on-a-chip (SoC) to support new architectures and process input from an array of sensors. The SoC enables autonomous vehicles’ perception, planning, control, and more. Mobileye estimates that the TAM for ADAS (Advanced driver-assistance systems) related silicon will reach USD$4.5-6 billion in the next few years.⁹ The ADAS market will also be significantly larger once L4 and L5 vehicle¹⁰ penetration increases, given the ASP (average selling price) for a full self-driving SoC can be anywhere from USD$500 to over USD$1000.¹¹

Sector Update – Cyclical Concern Due to High Inventory

Across the industry, we see elevated inventory levels compared to history, except for analog, MCU, FPGA (field-programmable gate array), and auto-related power chips. In the near term, we see a higher risk of inventory correction for the sector, considering the challenging global macro environment and cyclicality of the industry. Semiconductor inventory increased 10 days quarter-on-quarter (QoQ), to 95 days in Q1 2022, above the 85-day Q1 average since 2019 and the 77-day median over the past decade.¹² Global fabless inventory was also up 10 days QoQ to 102 now, above the high end of its 67-99 day range, mainly due to still aggressive wafer procurement and slower consumer demand.¹³ IDM (integrated device manufacturer) inventory ex-Intel was also up 18 days QoQ, to 122 exiting Q1 2022, and now in the upper half of its 90-130 day 10-year range.¹⁴