The semiconductor industry is currently experiencing a significant transformation influenced primarily by strong demand for artificial intelligence (AI) technologies and an unexpected rebound in the Chinese market. Data indicates that leading-edge processes, such as TSMC’s advanced N3 and N5 nodes, have been instrumental in driving this growth, particularly due to high demand for AI semiconductor products, as well as seasonal strength in smartphone sales.
Conversely, the recovery within the non-AI semiconductor sector has not kept pace. The utilisation rate (UTR) for mature-node foundries globally, with the exception of those in China, has remained low, hovering between 65% to 70%. Within this segment, however, there has been a notable improvement in the demand for mature 12-inch nodes compared to 8-inch nodes, hinting at a potential shift in market needs.
China's foundry market, notably dominated by companies like SMIC and HuaHong, has been recovering at a faster rate than the global average. For example, during the third quarter of 2024, Chinese foundries reported UTRs exceeding 90%, significantly up from over 80% in the previous quarter, thus suggesting a resilience in local demand and effective semiconductor localisation initiatives. This rapid recovery raises concerns about increased competition among domestic foundries, especially as these companies have aggressively expanded their capacities in mature nodes over recent years. Analysts anticipate that as capacity ramps up, particularly leading into 2025, competition will intensify.
In a remarkable performance, TSMC reported robust Q3 2024 results, surpassing expectations with strong gross margins. As a result of high utilisation rates at its advanced nodes, especially N5 and N3, driven by the escalating demand for AI accelerators alongside a seasonal boost in smartphone sales, TSMC's industry revenue share rose to 64% from 62% in the preceding quarter. The company is projecting a substantial increase in AI-related revenues over the coming years, with AI servers currently constituting mid-teens of its revenue forecast for 2024. This trend is anticipated to continue growing as cloud service providers adopt more AI applications, despite TSMC’s plans to double its CoWoS capacity by 2025 still being insufficient to meet prevailing demand.
In the second position, Samsung Foundry recorded a slight sequential revenue increase, though the rise was tempered by weaker seasonal demand for Android smartphones. Nonetheless, Samsung is actively advancing its 2nm Gate-All-Around (GAA) process, with mass production aimed for 2025. This effort focuses on optimising performance for varied applications, spanning mobile to automotive sectors, amidst ongoing customer collaboration on advanced packaging solutions.
SMIC also posted strong Q3 results marked by significant revenue growth, notably from recovering demands in consumer electronics, smartphones, and IoT applications. The company reported an increase in its 12-inch wafer shipments, attributed to an improved product mix and higher average selling prices. While SMIC's guidance for Q4 looks conservative in anticipation of seasonal slowdowns, overall, the company maintains a positive outlook for annual growth driven by domestic demand.
UMC showcased steady revenue growth in Q3 2024, propelled by robust demand for its 22/28nm nodes. Despite sluggish non-AI semiconductor demand, particularly in automotive and industrial applications, UMC noted an improvement in its UTR which exceeded previous forecasts. The company aims to navigate heightened competition from Chinese foundries by honing in on specialised high-voltage technologies and power-efficient applications.
GlobalFoundries equally reported solid results for Q3 2024, benefiting from increased wafer shipments and stable pricing power. Demand in the smartphone segment received a boost due to customer inventory normalisation, while automotive demand remained steady. Key growth is expected in sectors such as communications infrastructure and IoT, even as preparations for a larger-than-usual seasonal decline in the smartphone sector are underway.
Adam Chang, a Research Analyst at Counterpoint, remarked on the prevailing marketplace dynamics, stating, “Strong demand for AI semiconductors is driving robust growth in TSMC’s leading-edge N5 nodes, which are crucial for powering next-generation AI accelerators and data centres. This surge in demand for advanced nodes is a key factor propelling the overall foundry industry’s growth, as AI applications continue to be a major catalyst for innovation. However, the oversupply in mature nodes, compounded by increased capacity at both Chinese and global mature node foundries, is creating challenges in that segment." This encapsulates the current landscape wherein AI remains a central player in redefining the semiconductor manufacturing sector, while increased competition within mature nodes poses ongoing challenges.
Source: Noah Wire Services