With electronics manufacturers around the world scrambling to secure components in the midst of a global shortage of semiconductors, chip factories are working at full speed – and seeing the benefits of such a sudden boom in demand.
The combined revenue of the top ten foundries, which produce the silicon wafers that constitute the basis of finished semiconductors, has reached a record high of $22.75 billion in the first quarter of 2021, according to market research firm TrendForce.
Since the start of the COVID-19 pandemic last year, the demand for semiconductors has sky-rocketed. Companies deployed laptops and smartphones to their newly-remote employees, schools and universities brought learning programs online, and users stuck at home turned to tablets, games consoles and TVs to busy themselves during months of lockdown.
As a result, product manufacturers ramped up their demand for the semiconductors that power most modern-day electronic devices. The sales of semiconductors used in PCs, for example, jumped by more than 17% compared to 2019.
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In other words, foundries have been operating at their maximum capacity; yet they are still unable to fully meet the demand for chips, which has led to a global shortage of semiconductors that is now trickling down to industries ranging from automotive to home appliances.
TrendForce's investigation found that, to ensure profitability, various foundries had raised their wafer prices – which, together with unprecedented demand, has led to huge spikes in revenue.
Leading the market with a 55% share is Taiwan-based giant TSMC, which posted a quarterly revenue of almost $13 billion, driven by sales of 7nm and 16/12nm nodes. This is only a steady increase (2%) compared to the previous quarter; but given that 2020 marked a record year for semiconductor sales, the fact that the market is still growing is remarkable.
Also worthy of note, said TrendForce, is that the overall revenue reported by foundries at the start of 2021 increased despite some serious setbacks for some.
Samsung – the second largest player in the industry – saw its foundry revenue drop by 2% in the first quarter of the year compared to previous months. The company's semiconductor plant in Austin, Texas, was effectively forced to shut down for more than a month due to a freak winter storm in the region, which led to the suspension of wafer production.
GlobalFoundries also posted a 16% revenue drop, as the company handed over its Fab 3E foundry to Singapore-based semiconductor manufacturer VIS. With Fab 3E managing a monthly capacity of about 35,000 8-inch wafers, it comes as no surprise that the transaction's impact was strongly reflected in the company's financial results.
Despite that, said TrendForce, foundries overall seem to have largely benefited from the high demand. PSMC raised its revenue by 14% compared to the previous quarter, while SMIC posted 12% higher results; UMC, VIS, Tower and HHGrace also all saw their revenue grow.
There is no sign of demand for semiconductors wavering in the next few months. Recent research carried out by tech analyst IDC forecasts that the market will grow by 12.5% this year, largely driven by consumers' appetite for 5G-enabled smartphones.
With foundry capacity shortages expected to continue through the second quarter of 2021, the rise in wafer prices will in turn further contribute to revenue growth. TrendForce, in fact, anticipates that the second quarter of 2021 will see foundry revenue increase by up to another 3% to hit a "historical high".
Although the boost is partly linked to higher wafer prices, and therefore costlier production expenses for electronics manufacturers, this is not expected to significantly impact consumers. "Although chips are fundamental to how many things work, they're not always the highest-value piece," Alan Priestley, semiconductor analyst at Gartner, tells ZDNet. "They don't represent a significant percentage of the cost of the product."
"If the cost goes up a few cents, you might have to absorb that cost rather than pass it onto the end-product. So, an increase in the chip cost might not have a material impact on the consumer in terms of prices increasing."
With product manufacturers evolving in a competitive market, it is much more likely that businesses will try to navigate their way around the problem to retain a certain price point – especially as it becomes harder to secure stocks of semiconductors that are most in demand.
For example, says Priestley, some electronics might start showing new configurations, with products like phones and PCs coming with unfamiliar specs when it comes to memory or storage.
As the shortage continues and wafer prices spike, businesses are also likely to prioritize certain products. "They may well focus on high-margin products," says Priestley. "If you've got a limited amount of capacity, you'll focus on making sure you get the most revenue from the product you've got available."
The trend is likely to last for as long as additional capacity is needed to produce semiconductors – which isn't expected to happen until at least the end of the year. TSMC, for one, has pledged $100 billion to boost capacity, but due to the complex nature of chip manufacturing, foundries will take some time to come online. According to analyst firm Gartner, semiconductor supply will only reach normal levels again from the second quarter of 2022 onwards.