How's the silicon wafer supply chain doing these days?

[jms_embedded]

We hear about production constraints in the wafer fab itself all the time... but what about the supply chain to make the wafers? How is the situation looking?

Someone pointed out to me that we are in a "silicon shortage" which I had some skepticism, but there are a number of articles from reputable sources pointing out at least that there is a *polysilicon* shortage due to issues in China:

- https://www.tomshardware.com/news/china-cuts-silicon-production
- https://www.bloomberg.com/news/arti...surge-throws-another-price-shock-at-the-world

But a lot of these articles aren't super-specific about the type of silicon being discussed... for semiconductors it's metallurgical-grade silicon, right? (The really super-pure quartz from Spruce Pine, North Carolina goes into SiO2 crucibles, but not the wafers themselves, from what I've been able to find.)

The one detailed article I found was this one: https://www.bernreuter.com/newsroom...the-end-of-the-polysilicon-high-price-tunnel/ which seems to indicate that things aren't so dire.

I'm going to assume that if the price is "only" spiking by a factor of 3, that it's really bad for the photovoltaic (solar) industry, but for the semiconductor industry it's not too bad since the cost of raw wafers is only a minor piece of the end IC cost.

 

[Daniel Nenni]

We hear about production constraints in the wafer fab itself all the time... but what about the supply chain to make the wafers? How is the situation looking?

Someone pointed out to me that we are in a "silicon shortage" which I had some skepticism, but there are a number of articles from reputable sources pointing out at least that there is a *polysilicon* shortage due to issues in China:

- https://www.tomshardware.com/news/china-cuts-silicon-production
- https://www.bloomberg.com/news/arti...surge-throws-another-price-shock-at-the-world

But a lot of these articles aren't super-specific about the type of silicon being discussed... for semiconductors it's metallurgical-grade silicon, right? (The really super-pure quartz from Spruce Pine, North Carolina goes into SiO2 crucibles, but not the wafers themselves, from what I've been able to find.)

The one detailed article I found was this one: https://www.bernreuter.com/newsroom...the-end-of-the-polysilicon-high-price-tunnel/ which seems to indicate that things aren't so dire.

I'm going to assume that if the price is "only" spiking by a factor of 3, that it's really bad for the photovoltaic (solar) industry, but for the semiconductor industry it's not too bad since the cost of raw wafers is only a minor piece of the end IC cost.

The best source of information is TSMC. They will report on Thursday so let's wait for that. Most of the media out there gets paid for clicks so it is a chicken little world.

 

[jms_embedded]

So.... it seems like it's time to bring this question up again.

https://www.bloomberg.com/news/arti...ers-for-chips-says-it-s-sold-out-through-2026

Key Supplier of Wafers for Chips Has Sold Out Through 2026​

• Sumco expects supply-demand imbalance to last five years
• Silicon wafer maker sees little room for factory expansion

Sumco Corp., a key supplier of silicon wafers for the semiconductor industry, said it has already sold out its production capacity through 2026, a sign shortages in the industry may not abate for years.

The Japanese company, one of a handful to provide the specialized silicon slabs that chipmakers use to create their designs, has orders to cover all output of its 300mm wafers for the next five years, it said after reporting earnings on Wednesday. It is not taking such long-term orders for 150mm and 200mm wafers, but demand is likely to keep surpassing supply for years to come, the company said. The price of wafers rose by 10% in 2021 over the previous year and Sumco expects to see increases continue until at least 2024.

Sumco shares surged as much as 11% in Tokyo on Thursday, their biggest intraday jump since March 2020, in the wake of the comments.

The company said it won’t be able to expand its production this year at all, despite strong demand from customers desperate for long-term supplies. It has already done what it can in terms of optimizing existing production lines, and its supply-demand imbalance is consistent across its full range of products.

Taiwan’s GlobalWafers Co. recently failed in its bid for regulatory approval of a $5 billion takeover of Germany’s Siltronic AG, a move that would have brought consolidation to this sector of the chip supply chain.

GlobalWafers to Reassess Strategy After Siltronic Deal Demise

Sumco made the comments Wednesday after reporting revenue and profit that beat analyst estimates. The company also forecast sales and operating income for the first quarter ahead of projections.

 

[Daniel Nenni]

Did you listen to the SUMCO call? Here are the materials:

https://ssl4.eir-parts.net/doc/3436/ir_material_for_fiscal_ym18/112682/00.pdf

And Doug covered it here:

Earnings Roundup: 2/11/2022

ON, ACLS, RMBS, AOSL, CAMT, ICHR, ONTO, SUMCO, and more!

www.fabricatedknowledge.com

SUMCO was the best call I read this quarter. There were many great bits of information but I want to start with the stat that really shocked me.

First of all, with regard to the LTAs out to 2026 and whether we did make progress in the last 3 months, that is correct. In the last 3 months, we were ultimately able to fully lock in LTAs for all of the capacity.

Additionally, both SUMCO and Global Wafers were extremely adamant that supply couldn’t be brought on immediately as they are missing key tools to add capacity and they believe that output won’t start ramping until 2023. They will continue to ramp their new factory until 2025, but that won’t be enough to satisfy wafer demand.

Until then the thing that will continue for wafer companies is price raises. These price rises are yet another part of why semiconductor costs are rising everywhere. SUMCO’s price raises are 10% annually until 2024, mostly to offset the increasing rise of deprecation for their capacity ramp.

The thing that was so confusing is if they are raising prices 10% a year, adding capacity, and most of their operating profit growth was primarily from price raises, why aren’t they pushing more capacity ASAP? Part of it seems to be an oligopoly decision from Shin-Etsu, Global Wafers, and SUMCO, but another part is it truly seems like they cannot. They are having the same lead time problem as the rest of the fabs.

Sadly, there are many individual processes to fabricating a wafer at SUMCO. So regardless of the price of the equipment, the absence of even a single piece of equipment will prevent us from completing the wafer fabrication process.

The next part that gave me pause was they believe that their demand model is booked out to 2026, inclusive of industry capacity additions. Given there really are only 3 wafer suppliers, I candidly have to ask what the hell is going on? Will we be talking about wafer shortages 2 years from now?

 

[jms_embedded]

Yeah, I've been watching Doug's posts, and the implications of this one are somewhat scary.

Just wondering if this is isolated to SUMCO, or are other wafer supplies also spoken for into the future? I've heard of Shin-Etsu and Siltronic. Siltronic doesn't seem to add much for commentary,

Shin-Etsu seems to be saying the same kind of thing as Sumco: (my emphasis in bold)

Q: Please describe the status of the wafer market by diameter.
A: [300 mm] Increases both on YoY and QoQ basis
・We believe that most of the wafer manufacturers are operating at full capacity.
・Demand for semiconductor devices is strong in all fields. We believe this includes inventory accumulation in each supply chain caused by semiconductor shortages.
[200 mm] Increases both on YoY and QoQ basis
・The 200 mm wafer has a wide range of applications, and demand remains
strong, especially for automotive applications. We are seeing strong demand toward 2022 and are considering how to respond, but the price level is not high enough to enable reinvestment.

Q: What about capacity expansion for wafers?
A:
・Negotiations on contracts for logic are currently the main focus, but some memory manufacturers seem to be starting to worry about a wafer shortage in the medium term.
・Our policy is not to expand capacity ahead of expectations, but to expand capacity as necessary based on contracts.
・We have concluded contracts that include new capacity expansion with some customers and are in the middle of discussions with other customers. Since the content of investment changes depending on the quantity and specifications, the price increase range is not uniform. In addition, even for the same customer, the size and content of investment change due to various factors such as the difficulty level of specifications, productivity, inspection man-hours, and the presence or absence of special processes. For this reason, we continue to have discussions with each customer for each product line.
・In particular, we have received strong requests from logic-related customers, and the magnitude of volume increase has become greater than that of three months ago. Due in part to the fact that the delivery date for production equipment has been extended, new capital investment takes time. Hence a certain level of time is required in responding to volume increase. We have not been able to meet all of the requests for a volume increase for 2022 and 2023.
・Unlike the incremental production increase made to date on an as needed basis, an investment requiring buildings makes the amount of investment large. We continue to have careful discussions with each customer, and they fully understand the costs involved.

 

[Daniel Nenni]

So many weak spots in the semiconductor supply chain. The more we talk about it the more likely it will get fixed, absolutely.

 

[M. Y. Zuo]

The thing I don’t get is why can’t the equipment manufacturers, and their equipment manufacturers, and their equipment manufacturers, etc., all coordinate to increase throughput simultaneously? Assuming price levels are high enough to justify moving from one shift to two shifts, or two shifts to three shifts, or 24/7 operation at the factory. Presumably with very high salaries to draw back retired folks as an interim measure, or double or triple pay for night shifts, etc.

If the price levels aren’t high enough to justify such drastic changes then the market will naturally equilibrate.

I understand for some specialty items like large diameter optics there is a technical limit to how fast they can be produced, regardless of money, so a one year lag in ramp up is understandable, but for the vast majority of products, they ultimately are assembled from bulk steel, aluminum, copper, silicon, etc., bulk chemicals, water, plastics, and electricity. Even if any one of these are supply constrained the semi industry can outbid, through their intermediaries, other industries as the end product is so much more valuable compared to most other products.

Perhaps there are other technical constraints somewhere along the supply chains, similar to the lead time required to grind high precision optics, that are unreported upon.

 

[Daniel Nenni]

Semiconductor Earnings Roundup - Semiwiki

ON, ACLS, RMBS, AOSL, CAMT, ICHR, ONTO, SUMCO, and more! SUMCO was the best call I read this quarter. There were many great bits of information but I want to start with the stat that really shocked me. First of all, with regard to the LTAs out to 2026 and whether we did make progress…

semiwiki.com

 

[hist78]

“ GlobalWafers foresees total capital expenditures of New Taiwan dollar (NTD) 100 billion (approx. USD 3.6 billion) from 2022 to 2024, including substantial greenfield investments.”

GlobalWafers announces capacity expansion plans following the non-fulfilment of Siltronic takeover | AIOSEO GlobalWafers Co., Ltd. All rights reserved.

www.sas-globalwafers.com