Semiconductor Industry News - December 2024 Update

Negotiations couldn’t come fast enough for the East and Gulf Coast ports in the United States after the International Longshoremen’s Association (ILA) went on strike. Worries over how immense the impact would be with the wide range of port closures after the devastating effects of Hurricane Helene helped prompt quick action, ending the strike after 3 days. This tentative negotiation has postponed further strikes until January 2025, but port workers and operators still disagree in regard to automation.  

Despite ending faster than expected, the 3-day port strike has contributed to delays that will take at least three weeks to resolve. The semiconductor industry may not feel the severity of these effects, however, as excess inventory continues to keep consumer demand flat.  

U.S. Backlogs from Strike and Milton

After three days of strikes, the U.S. East and Gulf Coast ports reopened after an agreement was reached, ending the industry’s most significant work stoppage in almost half a century. While the strike ended sooner than expected, 54 container ships still wound up queued outside of closed ports.

The strike risked massive shortages in everything from bananas to auto parts and cost the U.S. economy $5 billion a day. While the strike ended early, pricing platform Xeneta said, “It was likely to take two to three weeks for the normal flow of goods to be re-established.”

Chief Analyst Peter Sand from Xeneta told Reuters, “Remember that ships keep calling, so it's not just a matter of handling the ships already in line, but to work extra hard to run down the congestion before supply chains are re-running.”

Those banking on the strike’s continuance, mostly shipping stocks, saw drops after the deal was made. Shipping stocks in Asia and Europe fell after “previously rallying on expectations of price increases triggered by the strike by U.S. dock workers and the tense situation in the Middle East.”

The two sides will continue to hammer out issues in the coming months, but the resolution has let many breathe a sigh of relief. The current situation in Florida and other Gulf Coast states is especially dire after the damage incurred by hurricanes Helene and Milton.  

Roads, railways, and ports have been severely impacted by torrential rains, destructive winds, and extreme flooding from storm surges, limiting the flow of needed supplies to communities that need them. If the port strike had continued as long as some believed, it would have further hurt the towns and civilians needing medical supplies, food, and water.  

For the semiconductor industry, which is still grappling with the effects of excess inventory, the shortages that may spawn from the 3-day strike will likely be in the short term. Since customers are filling backlogs with remaining excess, there are unlikely to be far-reaching effects on the semiconductor industry. Likewise, the damage incurred by Helene at Spruce Pine were minimal, with only railways and roads seeing the most significant impacts from the storm.  

Organizations are doing what they can to resume operations after taking care of immediate needs, such as relief for work staff and locals. The port strike would have added further complexity to recovery, which this area didn’t need. Hopefully, recovery will arrive quickly as negotiations between the ILA and port operators continue.  

"The decision to end the current strike and allow the East and Gulf coast ports to reopen is good news for the nation’s economy," the National Retail Federation said in a statement. "The sooner they reach a (final) deal, the better for all American families."

DRAM Spot Market Won’t See a Rebound Until 2025

The memory market is in a strange place. Portions of memory have seen high levels of demand throughout the year, contributing to bottlenecks and even some shortages as suppliers race to increase production capacity where applicable. Simultaneously, the overall DRAM market has grappled with excess inventory, which has caused low average selling prices (ASPs) and flat consumer demand. High-bandwidth memory (HBM) has been one of the main components benefiting from the popularity of artificial intelligence, but general DRAM has not.

A recent report by TrendForce has confirmed that the spot price trend for DRAM is unlikely to rebound by the year’s end. The spot market continued to fall during China’s National Day Golden Week. Similarly, NAND flash witnessed reluctance among buyers toward procurement due to excess inventory.  

TrendForce research revealed that “some module houses are keen to lower their inventory levels, thus pushing spot prices to go down further. The supply-demand dynamics of the spot market remains unchanged, and a rebound is unlikely before the year’s end.”

TrendForce also reported that the spot market for NAND Flash “was sluggish in transactions as buyers had not raised their willingness to stock amidst the National Day holiday in China. Several suppliers are selling their products at lower unit prices this week as sales pressure continues to envelop their entire market, which has yet to alleviate the overall status.”

Another wave of inventory reduction is continuing amongst some module houses, with sales pressures continuing to impact the market’s pricing trends. The ongoing challenges within the memory market indicate that a greater trend is affecting the semiconductor industry.  

Recently, ASML warned of a “slower recovery in the semiconductor market,” cutting its outlook for 2025 due to orders falling short of the previous forecast in Q3. Christopher Fouquet, ASML’s Chief Executive Officer, said customer cautiousness triggers a more gradual recovery in all areas outside AI. Challenges impacting Samsung and Intel have likely contributed to ASML’s results.  

ASML’s Finance Chief Roger Dassen said, “Very specific competitive issues in the foundry business had contributed to a slower recovery in those chip markets that were not benefiting from booming demand for AI computing infrastructure.”

Dassen also said, “ASML expected its sales to China to fall next year, from almost half of revenues in the third quarter to around 20%.” The ongoing trade war between the U.S. and China has restricted the sale of ASML’s advanced lithography equipment. Due to the remaining areas of excess inventory, price trends are expected to recover by 1Q25 as soon as possible.

The semiconductor industry is in a delicate state, with geopolitical strife and extreme weather threatening to derail operations as the globe prepares for its peak shopping season. The debut of artificial intelligence-enabled smartphones and laptops is here, fueling rising demand among consumers. This ongoing interest in AI products contributes to strains on the availability of chips needed to support these devices. Research now warns that a global shortage will likely occur if demand continues to follow current trends.

To increase semiconductor manufacturing capacity sooner rather than later, the Biden Administration passed a law allowing some semiconductor plants to bypass environmental reviews that could have postponed construction for years.  

Semiconductor Facilities Given Breaks from Environmental Reviews

President Biden recently signed legislation to exempt some U.S. semiconductor manufacturing facilities from federal environmental reviews if they receive government subsidies. Semiconductor manufacturing often requires specific processes and chemicals, which are under heightened scrutiny from sustainability efforts. This requires additional review by governing agencies to ensure compliance, which takes weeks or months.

Suppose the legislation was not signed into law. In that case, it is expected that “projects from the $52.7 billion CHIPS Act of 2022 could have been forced to undergo additional federal environmental reviews under the National Environmental Policy Act of 1969 to win federal permits.”

This could have added years of delays to these semiconductor projects amid heightened revitalization efforts. However, the bill has divided many as it weighs economic ambitions against necessary climate goals.  

Reuters wrote that proponents say these “projects have already complied with federal, state, and local environmental regulations and permitting requirements.”

Furthermore, proponents argue that this legislation would allow for the expedition of many chip manufacturing facilities that have already been delayed while waiting for CHIPS Act funding to be awarded. Speeding up this process would help strengthen the U.S. economy in a shorter time by decreasing the nation’s dependency on other countries for chip access.

On the other hand, dissidents state that the law could allow companies to “skirt important steps aimed at reducing potential harm to the environment and workers.” Many believe these taxpayer-funded projects should be subjected to a more significant review process to improve transparency and allow community input.  

Likewise, some are concerned about the semiconductor industry’s legacy of leaving behind long-lasting toxic damage to the environment. There are many of these “superfund sites” scattered across the U.S., especially in Silicon Valley, where the sordid history of using toxic chemicals has increased health issues amongst its staff, like a higher risk of miscarriages.  

Representative Zoe Lofgren of California and other Democrats state that “history does not indicate that semiconductor manufacturing should be completely absolved from any NEPA review.”

Representative Raúl M. Grijalva, who is on the Natural Resources Committee, said, “A piece of legislation that allows these facilities to completely bypass NEPA’s critical environmental review and public input processes while also stripping communities’ right to challenge these projects under NEPA legally, is unconscionable and never, under any circumstances, should have been pushed through the House.”

However, many believe that the importance of rapidly building up America’s semiconductor manufacturing ability is too critical to ignore. The growth of semiconductor production within the U.S. would bring back jobs that have been previously outsourced, with many proponents stating that semiconductor accessibility goes beyond economic prosperity and is an essential factor in maintaining heightened national security.  

Senator Mark Kelly of Arizona and co-author of the bill said: “The bill had been narrowly tailored…the bill was not a rollback of any environmental laws, and projects would still have to comply with bedrock environmental protection laws, such as the Clean Air Act and the Clean Water Act.”

“The whole plan behind this legislation was to ensure that the CHIPS and Science Act had the maximum impact on our economy and national security.”

Bain & Company Report Warns of AI Shortage

Artificial intelligence has been the reigning king of technology for nearly two years. AI-enabled smartphones and laptops are now making their debut, with analysts predicting they will quickly become a little under half of all market orders in just a few years. Due to AI’s popularity, demand for semiconductors has been growing, putting the industry at risk of another shortage.  

Since generative AI emerged, big and small tech companies, including Microsoft, Google, and Amazon, have acquired graphics processing units (GPUs) whenever possible. Nvidia, the leading supplier of these chips, has seen heightened supply for its GPUs after it was announced they were used to power OpenAI’s ChatGPT, the catalyst for the explosion in AI interest. Over the past year, competitors, including Qualcomm and AMD, have increased the availability of chips with their new products, but new AI-enabled devices have quickly consumed capacity.

Anne Hoecker, Head of Bain’s Americas technology practice, warns that the ongoing high demand for GPUs and other components due to AI-enabled devices could lead to a shortage in semiconductor supply.  

“The increasing demand for GPUs has caused shortages in some segments of the semiconductor supply chain.” Hoecker points out that if demand continues to grow, “the onslaught of AI-enabled devices may accelerate PC refresh cycles and pose extreme widespread supply constraints for semiconductors.”

Bain & Company’s report notes that while it is difficult to forecast consumer reaction, a demand rise exceeding 20% could threaten the complexity of the supply chain. If the AI explosion exceeds the threshold, it could easily create many vulnerable chokepoints throughout the supply chain.  

Furthermore, the report finds that the increased geopolitical tension can further complicate these supply chain vulnerabilities, raising the possibility of material shortages and factory construction delays.  

They noted that the “supply and demand of semiconductors is a delicate balance, as the industry and its customers know all too well after the past few years. Although the pandemic-induced chip shortage has passed, executives are starting to prepare for the next potential crunch caused by (you guessed it) artificial intelligence.”

According to Scott Bickley, research practice lead at Info-Tech Research Group, “the advanced semiconductor supply chain is the most fragile on the planet. Over 5,000 vendors must work in perfect harmony to produce the most advanced chips.”

Many of these vendors, he said, “supply a single component to a single company, without which the whole system comes screeching to a halt. The technical obstacles alone are mind-boggling, notwithstanding the geopolitical risks facing TSMC and the normal headwinds of logistics management.”

The Bain & Company report notes that spending on data centers and the chips that power them will only increase year-on-year by 36% in 2024 due to AI and accelerated computing. Should data center demand for current-generation GPUs double by 2026, suppliers must increase output by 30% or more.

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Fall is in full swing, but some industry experts are warning others that a “DRAM Winter” might hit the semiconductor supply chain early. Over the last year, DRAM has seen its fair share of ups and downs as artificial intelligence (AI) demand pushed orders into the stratosphere. New developments within DRAM may have set the market up for a fall from which it might never recover.

AI is expected to be a top performer during Q4 thanks to new AI-enabled product debuts with promising AI integrations. However, recent missteps by key AI players have left many dissatisfied. Some are starting to worry that AI may have finally reached the height of its popularity.

Could Aggressive Production of DRAM Lead to a Devastating Plummet?

Over the last year, AI has been the primary driver of high-bandwidth memory (HBM) demand. Several major memory suppliers have prioritized increasing production capacity for this specific DRAM component over the last year. They plan to further increase capacity within 4Q24 and 1Q25 as AI-enabled devices begin trickling into the market.  

However, in a recent BusinessKorea article, Morgan Stanley published a report that contains a “bearish view on Korean memory chipmakers, citing weak demand for general DRAM and an oversupply of AI-specific HBM.”

Morgan Stanley has projected that in 2024 the “global HBM supply will hit 250 billion gigabits (Gb), far exceeding demand, estimated at 150 billion Gb—a surplus of 66.7%.”  

Morgan Stanley went on to predict that general DRAM will peak in Q4 2024 before beginning a multi-year decline through 2026 as weak demand for semiconductor-reliant IT products and aggressive expansion by Samsung Electronics and Changxin Memory Technologies (CXMT) will contribute to a massive oversupply.

Many industry players have become concerned with CXMT’s aggressive DRAM production capacity expansion, which aims to potentially challenge the big three memory suppliers: Samsung Electronics, SK Hynix, and Micron Technology.  

In a report by DigiTimes, “The company's output grew from 120,000 wafers per month at the end of 2023 to 160,000 in the first quarter of 2024 and is projected to reach 200,000 by year-end, representing 11% of global DRAM production.”

Nomura Securities predicts that “if CXMT expands its DRAM production capacity as planned, it will account for 15% of the global DRAM market. In terms of production volume alone, it would become the world's fourth-largest DRAM manufacturer after Micron.” This significantly contributes to the market’s oversupply and further drives down the average selling price (ASP).

Morgan Stanley also cited recent reports that pre-orders for Apple’s iPhone 16-series were down 13% compared to its predecessor, highlighting the sluggish performance of PC and smartphone markets over the last year.

However, other industry experts disagree with Morgan Stanley’s report, saying it is “exceedingly pessimistic.”

BusinessKorea states that industry insiders argue that the HBM market is driven by “customized, client-approved products, making oversupply less likely. SK Hynix and Samsung Electronics have publicly stated that HBM supply is fully booked through 2025.”

Similarly, Morgan Stanley’s article mentions that while smartphone and PC markets are sluggish, Samsung Electronics and SK Hynix have reported stable demand for memory in either sector.

TrendForce’s Senior Vice President Avril Wu contends that while DRAM prices have been weak, the overall ASP is expected to rise in 2025–as the market begins to recover. Wu added that pricing across different products may vary, but the increasing penetration of HBM should help stabilize the DRAM market over 2025.

Trouble in AI Paradise for Samsung and AMD

AI has been the hot ticket item of the year, but the rush to meet demand or snag a piece of the profitable pie has led to some chipmakers missing the mark. Samsung’s foundry business has encountered issues with some advanced processes, especially with its 3-nanometer (nm) technology.

In a report by the Korea Times, “the yield for Samsung’s 3nm process has remained in the single digits until Q1 of this year, causing delays in supplying engineering samples for its Exynos 2500 chips.”

Over Q2, Samsung’s yield for 3nm improved by 20%, which is impressive, but it is still far below the 60% threshold needed for mass production. To rectify this issue, Samsung is shifting its strategy to its latest P4 facility in Pyeongtaek in the Gyeonggi Province. Samsung will prioritize advanced DRAM memory production for HBM chips rather than installing equipment for NAND. Weak demand for its foundry services has contributed to this shift in strategy, with the prediction that Samsung might even dedicate the entire P4 fab to memory chip production instead.

Low yields have been a critical factor in Samsung’s ongoing struggles within the foundry business. Samsung has only recently stabilized yields for its 4nm process, while more advanced nodes remain problematic. However, Samsung’s heightened moves in DRAM have led to concerns about an oversupply in the coming year.  

Meanwhile, AMD is experiencing issues with its original laptop equipment manufacturers (OEMs), resulting in poor execution. According to a report by Tom’s Hardware, analysts have remarked that a “Cold War ice age” exists between the two parties, hurting mutual trust.  

The report cited AC Analysis as saying, “The main contradiction arises from AMD’s current strategy of prioritizing enterprise chips over consumer products,” fueling concerns over unfulfilled promises. The response to AMD’s Strix Point chips among OEMs has been tepid.

This is in contrast to Qualcomm, which, despite being a latecomer to the laptop market, has seen significant excitement for the release of its Snapdragon X processor by the public and laptop manufacturers. AMD is also trailing behind Intel, which dominates the laptop market despite its recent poor performance.  

While ongoing trouble across DRAM and missteps in AI have contributed to concerns, there is an overall feeling of optimism in the market’s recovery. Organizations should carefully monitor the market in the coming months, but it should be noted that a bullwhip to harsh oversupply may not occur.  

Severe weather continues to rock the semiconductor supply chain. In the last few months, the world has seen some of the strongest storms in years, with typhoon Gaemi and super typhoon Yagi wreaking havoc upon numerous Southeast Asian countries. Gaemi was the strongest typhoon to impact Taiwan in the last eight years, with only TSMC’s stringent efforts keeping its facilities free from major damage. On the other hand, Yagi has left most of North Vietnam submerged.

Now the U.S. is picking up the pieces after Hurricane Helene. Nestled within Helene’s path was the unassuming town of Spruce Pine, where the world’s leading supply of highly pure quality quartz is mined. This quartz is essential in producing semiconductors and, if damaged, could significantly disrupt the world’s chip supply.  

Spruce Pine Assesses Damage in the Wake of Hurricane Devastation

Category 4 hurricane, Helene, made landfall at midnight on Friday, September 26th. A few days before the storm hit, the weather service issued a dire warning: “This has the potential to be an extremely rare event with catastrophic flash flooding that hasn’t been seen in the modern era.”

Over the next 48 hours, the weather service and emergency responders warned of unprecedented floods that would strike the areas in Helene's path. In an alarming Facebook post, the Taylor County Sheriff’s Office wrote, “If you or someone you know chose not to evacuate, PLEASE write your name, birthday, and important information on your arm or leg in A PERMANENT MARKER so that you can be identified and family notified.”

Falling within the expected path of Helene stood the small town of Spruce Pine, the home of the purest quartz on Earth. In a 2018 Wired report, Spruce Pine’s high-quality quartz was found to be the only naturally occurring source of the ultrapure mineral. Spruce Pine’s quartz is “crucible to melt polysilicon, which is then used to produce silicon wafers–the base of a semiconductor.”

Wired’s 2018 article notes, "While it's possible to produce pure silicon from the quartz found in abundance elsewhere in the world, it takes a considerable amount of time and resources to do so.”

Belgian mining giant Sibelco’s Spruce Pine operation has a global monopoly on high-quality quartz, despite other producers existing, such as Canada, Norway, Brazil, Russia, and India.

Forbes reported, “Operations at a quartz mine in western North Carolina have been shut down for more than five days after Hurricane Helene dumped 2 feet of rain on the town of Spruce Pine, washing out roads and cutting power to an area with an industry critical to semiconductor manufacturing across the world.”  

The mining district has been inaccessible due to extreme damage and flooding, making regional communication difficult. It’s been hard to determine how damaged the two mining companies operating within the town, Sibelco and The Quartz Corp, are.  

May Kristin Haugen, a spokesperson for The Quartz Corp, told The Verge, “We are in the phase of assessing the situation, and it is far too early to comment on the impact on high-purity quartz production. Our priority now is people and the families being affected by this terrible storm.”

Helene’s impact was devastating. Over 110 people have been reported dead, with communities “wiped off the map” by floodwaters and extreme winds. Damage across six states is still being assessed but could be within the billions. Should Spruce Pine’s mining facilities be extremely impacted by Helene, the global supply chain might experience significant disruptions.

Wired reported that the 2008 Spruce Pine fire “all but shut off the supply of high-purity quartz to the world market, sending shivers through the industry.”  

The Verge notes, "If the two mines sustained damage this time around, the impact could be even greater, given the world’s increased reliance on chips to make phones, processors, solar panels, and other technology.”

The semiconductor industry is still grappling with low consumer demand in the years after the COVID-19 pandemic. Should damage be minimal, there is a chance that the overall industry may only feel a little delay, if anything at all. If the damage is widespread, 2025 will mark a return to a normal growth cycle, meaning that the semiconductor industry could be crippled for some time.  

It’s still too early to tell how Helene may impact the global semiconductor industry. However, with the rising severity of storms, such as the typhoons in Asia and the hurricanes in the U.S., the next storm may be even deadlier.  

China Struggles with Chip Ambitions without Proper Tools

In the days since the semiconductor shortage, countries worldwide have been working hard to revitalize and invest in domestic semiconductor manufacturing efforts. China has ramped up investments in its semiconductor manufacturing capabilities, but the ongoing trade war between it and the United States has thrown a wrench into these ambitions.  

The U.S. restricted advanced semiconductors and chipmaking equipment exports to China last year. These rules have increased over the last several months as U.S. allies joined these efforts. When these tighter export controls were first announced in October 2022, Chinese companies quickly increased spending on semiconductor equipment while they still could.  

Since ASML is the leading provider of cutting-edge lithography scanners and the only one in the world to make these machines, China stocked up on equipment before the Dutch government banned their sale. Without this advanced machinery, China’s chipmakers have been struggling to catch up with the rest of the world.

“It’s much harder to break the technological ceiling,” said Camille Boullenois, Associate Director at Rhodium Group, adding that “the traditional levers of Chinese industrial policies seem to be less effective.”  

China’s government has funneled investments into its domestic semiconductor efforts and made cutting-edge lithography equipment its focal point. CNBC wrote in its latest report, “China announced its latest lithography scanner could support a resolution of 65 nanometers or better, a significant improvement from the 90-nanometer machine it developed in 2022. But still way behind ASML’s machines with resolutions below 10 nanometers. Smaller resolutions enable the production of more powerful chips.”

“It would take a massive technology breakthrough,” states Leping Huang, Managing Director and Chief Technology Analyst at Huatai Securities, “to go from the current 65nm model to the latest immersive deep ultraviolet (DUV) lithography machines.”

ASML has been selling to China in ways that it can. The Dutch company’s sales within China doubled to 49% in 2Q24 compared to 17% in 4Q22. However, China is at a plateau.  

China’s investments can only go so far. It is nigh impossible to produce a similar, but not exact, copy of what AMSL took decades to develop. However, accomplishing Herculean tasks is nothing China hasn’t done before.

“In EVs, subsidies incentivized demand and created a huge, protected market for Chinese companies to quickly build up scale,” said Boullenois. However, in the chip industry, “it is much harder to break the technological ceiling.”

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The North American semiconductor supply chain has seen great success over the last year, from new domestic semiconductor manufacturing endeavors to developments within artificial intelligence. However, the market is still grappling with the effects of excess inventory that arose after the bullwhip from shortage to glut last year.

Now, ongoing financial trouble at one of the leading chip manufacturers and the threat of port strikes could add another hurdle for the semiconductor industry on its road toward recovery. These developments signal potential turbulence for industries reliant on global trade and semiconductor production, raising questions about future economic stability.

Strikes Across North America Could Affect Supply Chain

Over the last year, labor disputes have been on the rise. According to Resilinc, “labor-related incidents increased 42% between the first half of 2023 and 1H of 2024.”  

This summer, South Korean memory giant Samsung Electronics saw its first strike in its long history. While the main strike ended on August 5th, staggered strikes continued throughout the month, with the union demanding “a 5.6% wage increase, holiday on union anniversary, and compensation for lost wages during the strikes.”

The global logistics industry has been dealing with a similar situation. However, the ramifications of such a strike could be far more disruptive to the global semiconductor supply chain. To prevent such a problem, shipping companies are trying to help organizations circumvent the coming strikes.  

“Ocean freight rates remain lower than a year ago,” EPSNews reports, citing data gathered by freight marketplace Freightos. “Some carriers offer discounts to move containers from Asia to the U.S. East Coast before the strikes. This deadline may add some buoyancy to West Coast rates as more volumes shift there from the East and Gulf.”

“Negotiations are currently suspended,” reports Freightos, “which has contributed to the increased likelihood of a strike occurring in October.”  

The International Longshoremen’s Association (ILA) and port operators are still far from closing the gap between their views on topics like wages and automation. Unfortunately, automation is one of the most significant tools that can help improve supply chain efficiency.  

Should the ILA move forward with their planned strike, it would take place during a peak shipping season for end-of-year holidays. It would greatly exacerbate preexisting problems, such as the ongoing Red Sea crisis, which have already increased rate pressure and available capacity. The strike would lead to backlogs that may persist long after the strike concludes.  

EPSNews states, “Reduced capacity and diversions to West Coast alternatives could lead to spiking rates and congestion at these ports too. Maersk estimates that a one-week shutdown could take four to six weeks to recover from fully, with significant backlogs and delays compounding the longer the strike lasts.”

Furthermore, West Coast port workers may refuse to process vessels diverted from the East Coast in solidarity, like the ILA strikes in 1977.  

Global logistics and the supply chain are already in a tough spot due to severe weather impacting operations just a few weeks prior. Typhoons Gaemi and Yagi unleashed torrential rain and severe winds over the last few weeks causing massive damage across northern Vietnam and southern China.

Air shipping is not fairing any better. Air Canada saw pilot strikes during mid-September, exacerbating air hub congestion in Korea, Taiwan, Japan, and the Philippines. This was right before e-commerce volumes were expected to increase in anticipation for the year-end holiday season.  

Air rates have increased by 14% when looking at air shipping from China to N. America. Everywhere else has been falling steadily. Research notes that Asia import volumes peaked in June-July, with late September marking Europe’s peak if they want to move goods in time for the holiday season while avoiding strikes. If most companies have already gotten their shipments scheduled, the global supply chain could mitigate most of the problems a significant disruption to logistics could cause.

If not, we can hope that the ILA and port operators resolve their issues quickly.  

Intel Financial Trouble Derailing CHIPS Goals

In the weeks before the CHIPS and Science Act gained approval from the United States House and Senate, the Biden-Harris Administration had touted Intel as one of the leading proponents of the Act and a key player in revitalizing U.S. semiconductor ambitions. Intel is one of the largest and most well-recognized names in the semiconductor industry and has motivated government and industry players alike to push for the success of the CHIPS Act’s passage.  

However, President Biden's “field of dreams” regarding Intel’s $20 billion Ohio facility is becoming a field of nightmares.  

Bloomberg reports that “Five months after President Biden traveled to Arizona to unveil “a potential $20 billion package of incentives alongside Chief Executive Officer Pat Gelsinger, there are growing questions around when–or if–Intel will get its hands on that money.”

Intel has been struggling to fulfill its plans for Ohio due to poor market conditions and the long delay in doling out CHIPS funding by the government. Intel has been experiencing an ongoing sales slump that was more significant than anticipated, so much so that its board is considering splitting off its manufacturing division or scaling back global factory plans.

A significant change in Intel’s strategy could complicate its quest for government funding, which the company desperately needs.

Intel can only receive CHIPS funding if it meets critical milestones and significant due diligence, which applies to all CHIPS recipients. According to people familiar with the matter, Bloomberg states that Intel “has grown frustrated with what it sees as the government dragging its feet and has urged officials to release funding faster.”  

“We’ve been working hard to address the issues,” Gelsinger told investors at a conference last week, wrote Bloomberg. “Like everybody in the industry, we realize we have to operate efficiently with nimbleness, with urgency.”

Intel will be reevaluating its next steps in mid-September, and should it decide to scale back operations at its Ohio plant, the government will likely do the same with its CHIPS funding as well. There has been some criticism from Capitol Hill in response to some of Intel’s latest actions, such as a drastic cut of 15,000 workers to combat market challenges. However, some policymakers know that the extreme downturn affecting most semiconductor organizations is unlikely to last forever.

“We recognize that we are operating in one of the most cyclical, intensely competitive industries in the world and that dynamics are going to shift,” Mike Schmidt, who runs the Commerce Department’s chips office, said in an early August interview. “We’ll have to be nimble in responding to that.”

When explicitly asked about Intel, Schmidt said the company “feels really comfortable with their US expansion plans and with the milestones we’ve aligned along with them.”  

Intel has had more difficulty convincing officials of its capabilities than other giants like TSMC. U.S. Secretary of Commerce Gina Raimondo has been encouraging other executives, like those at Nvidia and AMD, to consider manufacturing at Intel’s Ohio site when it becomes operational. Neither has current plans to do so.

Intel is still being given a chance to make good on its efforts to receive funding. The Pentagon recently awarded Intel $3.5 billion to make chips for defense and intelligence. Its future success currently hangs on the recovery of the semiconductor market, like many other chipmakers.

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The semiconductor market continues to shake as turbulence affects the DRAM and NAND flash sectors. Weakened consumer electronics sales, cautious enterprise spending, and lingering excess inventory continue to plague stabilization efforts in obtaining reasonable spot prices. Demand sluggishness persists across the memory sector, and new product lines only contribute to lingering surplus troubles.

Meanwhile, artificial intelligence (AI) continues to fuel rapid growth in the component markets that power its applications. As companies compete to build more powerful AI platforms, the need for high-performance computing capabilities and memory solutions is poised to help push the meteoric boom in generative AI.  

In the next few years, generative AI is set to explode in value, eclipsing other AI solutions with a tremendous annual growth rate from which Taiwan is poised to benefit the most.  

Memory Market Troubles Could Persist into 2025

Artificial intelligence has helped boost memory sales after the dramatic bullwhip from shortage to glut last year. While its aid has supported sales of high-bandwidth memory (HBM) and solid-state drives (SSDs), low demand across consumer electronics has kept complete recovery out of reach.  

In a recent report by TrendForce, DRAM spot prices are suffering from downward pressure, especially across DDR4 and DDR5, with the former seeing the most. TrendForce cites an underwhelming peak season as the primary reason for the unfavorable price conditions.  

TrendForce says that spot sellers are still under pressure to offload inventory, leading to a slight sell-off. That said, TrendForce notes that inventory levels are not as excessively high as they were, which means that selling pressure will remain manageable despite market conditions. Unfortunately, there is no sign of stabilization in spot prices, especially now that Samsung Electronics has decided to release reball DDR5 chips stripped from decommissioned models at lower prices.

The plentiful supply of reball chips is exerting even greater downward pressure on DDR4 chips. Similarly, ZDNet Korea states that Chinese manufacturers, such as Changxin Memory Technologies (CXMT), are aggressively expanding production, which could “negatively affect profitability in traditional DRAM.”

Samsung Electronics and SK Hynix are monitoring the situation, as aggressive DRAM expansion by CXMT and others could negatively impact sales and profits for Korean memory-makers. While low, CXMT’s 5% hold on the market share could influence prices.  

Similarly, NAND flash spot prices are also feeling pressure from the market. Due to sustained sluggishness among consumer products and lackluster transactions in client SSDs, embedded products, and memory cards, some manufacturers are pessimistic about market stabilization occurring in the remaining quarters 2024. Spot prices have continuously dropped by a small margin due to ongoing poor market conditions.

According to TrendForce, analysts believe this current market enervation will “persist until 1H25,” meaning that the market has a long way to go in recovering despite AI hype. Meanwhile, while the overall traditional market struggles to reach stabilization, AI continues to see explosive demand across its various subgenres.  

Taiwan to Benefit in Coming Generative AI Boom

Generative AI has become one of the leading technologies in the artificial intelligence boom. Generative AI is an algorithm that uses deep learning to generate new content through text, image, audio, music, or video. It accomplishes its task by “analyzing large amounts of data to learn patterns and then use that information to predict what would come next in a sequence.”

In the last year, OpenAI’s ChatGPT, a chatbot that can generate human-like text responses to questions and props, kicked off the proverbial tsunami wave of demand for AI. Thanks to continued development in AI and the components that power it, interest is only compounding each month. As the benefits of AI applications become more apparent, numerous enterprises are setting up strategies to integrate this new technology best.

As a result, the generative AI market is expected to grow monumentally over the coming years. According to DIGITIMES Research, in its latest “Generative AI Special Report,” the market is expected to grow from $40 billion in 2024 to $1.5 trillion in 2030. That is a whopping compound annual growth rate (CAGR) of 83% from 2022 to 2030.

DIGITIMES analyst Zouhao Shen notes that as “AI transitions from the cloud to the edge, hardware limitations and model development become major challenges.”

The report states that “the development of edge AI chips will increasingly focus on enhancing domain specificity and strengthening software-hardware integration to meet the low-power, high-efficiency demands of various edge applications.”  

Another analyst, Evan Chen, explains that “as edge AI moves towards real-world applications, it will face four key challenges: miniaturization, adaptation, scalability, and cost-effectiveness. Beyond developing diverse hardware, integrating development platforms and deepening vertical applications will also be critical for establishing a foothold in the edge AI landscape.”

Each development will increase interest in the application’s capabilities, fueling demand. Generative AI is still in the relatively early stages. The market size will highly depend on the sales of AI computing hardware, enabling applications to meet the heightened computational demands. According to analyst Wing Hwang, the share of AI-related software and services will increase in the next five years.

This increase will contribute 32% to 55% of the generative AI market. Thanks to its ICT industry chain advantage, Taiwan will significantly benefit from this boom. It is poised to give the country and its companies early opportunities in the AI hardware market.

Software and services will be critical areas for future growth, meaning that many of the Taiwanese companies investing early will be able to solidify their market edge further.  

Tensions have been building in the trade war between the United States and China.

Over the last several years, both nations have passed export restrictions and tariffs to limit the other's access to advanced chipmaking materials or critical elements. The impacts of these regulations are now beginning to show across the global supply chain. The availability and price of critical minerals essential to producing specific components are starting to suffer, raising concerns among industry experts. Similarly, the growing number of tariffs on electric vehicles (EVs) may have wide-reaching effects on the global EV industry.

Export Controls on Germanium and Gallium Impact Western Supply Chains

Last year, China introduced export controls on germanium and gallium, two minerals critical in producing some semiconductors, solar panels, and other components. These restrictions were passed in response to the US-led controls on the sale of advanced chips and chipmaking equipment to China.  

Most industry experts didn't raise the alarm during the first few months after the restrictions passed. Now, concerns are mounting as the impact of such export rules affect the global supply chain. Many now worry about the possible impact it could have on the production of advanced chips and military optical hardware.  

Since Beijing’s curbs on germanium and gallium shipments, prices have increased almost two-fold in Europe over the last year. As reported by the Financial Times, large shipments of Chinese gallium were still being made, but “overall exports had fallen by about half since the controls were implemented.”

“If China reduces gallium exports as it did in the first half of the year, then our reserves will be consumed, and there will be shortages,” one source said.

Jan Giese, senior manager of minor metals at Tradium, a Frankfurt-based trader, said the gallium and germanium his group had obtained through China’s new export licensing program was a “fraction of what we bought in the past.”

“These export controls cause this extra stress on everything outside of China and another layer of complexity to markets that are difficult to navigate anyway,” Giese said.

“The Chinese aren’t even offering germanium overseas now,” said Terence Bell, manager of Vancouver-based Strategic Metal Investments, a minor metals trader.

Each shipment requires approval, which takes 30 to 80 days and makes long-term supply contracts unviable due to uncertainty. Markus Roas, a metals business manager at Indium Corporation, said that U.S. companies were finding it challenging to get licenses and only had weeks' worth of germanium and gallium left.  

“Right now, on germanium, there’s definitely a risk of running out of supply,” Roas stated.  

Should the relationship between the U.S. and China remain tense, China will remain unwilling to relax its export controls. China recently announced export restrictions on antimony, a mineral used in precision optics, adding it to the ban on rare earth minerals such as graphite and technologies used to extract rare earth metals.

However, some believe that if supplies dry up, it would only be a concern for a few years.

While China controls 98% of the world’s gallium supply and 60% of the world’s germanium, some analysts note that “there’s no shortage of them out there.”

“Given the size of the planet and the reality all of it is made from the same 90 elements, it’s difficult for there to be such an absolute shortage,” said Tim Worstall in the article Don’t Worry About China’s Gallium and Germanium Export Bans. “There can be – and is in this case – a shortage of plants that extract and refine, but not of the base material. So, the solution is a couple more plants to extract and refine gallium and germanium.”  

The US and other countries impacted by the ban can, if necessary, take a few years to secure alternative sources.  

“If China takes itself out of the supply chain, the world will move on,” said Worstall. “Some of those Western plants have been spinning up again these past couple of years, and more could be built simply enough. This is all known technology. It simply requires the desire to build it rather than anything else.”

EU and Canadian Tariffs on Chinese EVs Could Affect Entire Market  

In the past few months, the United States and the European Union have imposed import tariffs on China-made EVs. This last week, Canada has joined their ranks by announcing a 100% tariff on imports of China-made EVs, matching U.S. tariffs. This plan was instated after encouragement from U.S. National Security Advisor Jake Sullivan.  

Canadian Prime Minister Justin Trudeau said Canada plans to impose an additional 25% tariff on Chinese steel and aluminum. These tariffs will be imposed even on American brands, like Tesla if they are produced at its China-based facilities. Tesla and other brands can avoid these tariffs if they switch to different factories, such as Tesla’s U.S. or German locations.  

Unlike the EU, Chinese EVs aren’t a large player in the Canadian EV market. BYD has only recently established a Canadian corporate entity to try and begin its entry as of next year. How Canada’s recent tariff announcement will impact BYD’s plans is unknown.

However, Beijing will likely raise concerns about American tariffs as it tries to rebuild its economy post-Covid. Biden states that these tariffs ensure that Chinese companies don’t gain an unfair advantage in the world market. Chinese firms can sell EVs for as little as $12,000, and there are enough solar cell, steel, and aluminum plants to meet the world’s demand capacity.  

“We’re doing it in alignment, in parallel, with other economies around the world that recognize that this is a challenge that we are all facing,” Trudeau said of the new tariffs. “Unless we all want to get to a race to the bottom, we have to stand up.”

Deputy Prime Minister Chrystia Freeland said, “Canada also will launch a 30-day consultation about possible tariffs on Chinese batteries, battery parts, semiconductors, critical minerals, metals, and solar panels.”

“China has an intentional state-directed policy of overcapacity and oversupply designed to cripple our own industry,” Freeland added. “We simply will not allow that to happen to our EV sector, which has shown such promise.”

Meanwhile, the Chinese Embassy said the move will damage trade and economic corporations. Similarly, the Chief Financial Officer of Swedish EV maker Polestar, Per Ansgar, said these tariffs would harm European-based companies.  

Ansgar did not think the European Commission would protect the European industry by imposing tariffs, “which could hurt European companies that are investing in technology and creating jobs in Europe.”

Polestar manufactured cars exclusively in China until this month, making it vulnerable to expensive tariffs. Following Canada's announcement, the company told Reuters it would assess the situation and expected its South Carolina production to be essential. Other EV makers in similar situations should consider how these changes will negate such problems.  

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Stocks were low across the board on Monday with Intel experiencing a 25% drop due to poor financial results. While the year has seen plenty of stumbling blocks, like last week’s drop, overall, the semiconductor industry witnessed a notable surge in sales during Q2. Recovery is still slower in many end markets, but the ongoing demand for artificial intelligence (AI) and high-bandwidth memory (HBM) is helping create a strong foundation for expansion.

Growth is also not limited to memory alone. The evolution of technology within the automotive industry has propelled the need for passive components and LEDs. Original component manufacturers (OCMs) in these market sectors are optimistic about the future, especially with electric vehicles (EVs), advanced driver-assistance systems (ADAS), and customization options presenting new growth opportunities.

Chips Up by 27% in 2Q24

In a recent report by SEMI, data reveals that the global semiconductor manufacturing industry continues to show signs of improvement. This can be seen in IC sales, as stabilized capital expenditures and installed wafer fab capacity increases have helped push the market toward recovery.  

In SEMI’s 2Q 2024 publication of the Semiconductor Manufacturing Monitor (SMM) Report, authored in collaboration with TechInsights, “seasonality and weaker than expected consumer demand impacted electronics sales in the first half of 2024, resulting in a 0.8% decrease year-over-year (YoY).”

SEMI writes, “Starting in 3Q 2024, electronics sales are forecast to see a rebound, growing by 4% YoY and 9% relative to 2Q 2024. IC sales showed robust 27% YoY growth in 2Q 2024 and are expected to surge by 29% in 3Q 2024, surpassing record levels seen in 2021.”

The surge in growth will be driven by AI, as most markets have seen over the last several months. Similarly, installed wafer capacity is projected to rise in 3Q 2024, with foundry and logic-related capacity witnessing more robust growth in Q2. Likewise, memory will continue to grow over the next quarter due to the strong demand for AI chips and the rapid adoption of HBM. According to SEMI’s research, memory’s capital expenditures (CapEx) will lead the growth in the latter half of the year.

“Despite moderate semiconductor capital expenditures in the first half of the year, we expect a positive trend to begin in Q3 2024 led by memory CapEx. Strong demand for AI chips and high bandwidth memory is boosting results in various segments of the semiconductor manufacturing ecosystem,” said Clark Tseng, Senior Director of Market Intelligence at SEMI.

“The entire semiconductor supply chain is recovering this year as the market prepares for a surge in 2025. AI is certainly continuing to drive high-value ICs to the market, while also supporting CapEx for capacity expansion of AI chips and especially HBM. As consumer demand recovers, and new technologies like AI are pushed to the edge, unit volumes and especially revenues will recover and support the broader semiconductor manufacturing sector,” said Boris Metodiev, Director of Market Analysis at TechInsights.

Despite mediocre fab utilization rates, China was the top player in Q2, with installed capacity increases as the fastest-growing region. It will be interesting to see how this plays out over the end-of-year demand season as to whether China will remain dominant.  

Automotive Market Drives Passive and LED Growth

Artificial intelligence has made passive component OCMs such as Murata, Yageo, and Walsin Technology optimistic about future growth opportunities. End-use consumer electronics, such as smartphones and laptops, have proven crucial in boosting multi-layer ceramic capacitor (MLCC) consumption.  

Passive component OCMs forecast a strong performance in 2H24, but it won’t just be from AI demand as automotive clients fuel orders.  

EV production is rising, and with it, the passive component supply chain is becoming more optimistic about its future growth within this market sector. Likewise, after a sharp decline last year, LED demand has started to recover with improved operations during 1H24 in invisible light and automotive markets. Since its recovery, automotive has been a critical driver of sales growth in many markets.  

The expanding need for high-temperature tolerance, better thermal management, high reliability, and small form factor in automotive applications has increased the demand for passive components. In late 2023, DigiTimes reported that Walsin Technology saw continued demand for passive components within automotive applications, growing as EV adoption and charging station construction increased.  

Specifically, developing smaller and more efficient passives continues to fuel market growth. Thanks to their performance and efficiency, their use in ADAS has made the need for high-reliability passive components more significant. With over 90% of vehicles on sale within the United States having at least some advanced system, passive demand in the automotive sector will only continue to fuel growth in the coming years, especially with commitments to safety features such as Automatic Emergency Braking.  

Similarly, as these advanced systems continue to be implemented, the need for LEDs to power everything from warning system lights to customized ambient interior lighting will fuel the automotive LED market growth.  

There might have been some slowdown in EV demand, but in the long term, as more charging stations are built and EVs evolve, these solutions will help push for growth in these two markets alongside AI.  

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The CHIPS and Science Act has dramatically boosted America’s efforts in creating a domestic semiconductor manufacturing supply chain. Since its passage, the U.S. has seen billions in combined investments by original component manufacturers (OCMs) eager to build new locations or expand existing plants within the States. However, despite its promise to revitalize the United States semiconductor industry, problems have only increased in severity.  

Significant delays are now derailing previous production plans, slowing down progress for the U.S. in achieving its ambitions. Across the board, organizations have either hit the pause button on plans from months to years or, for some, postponed them indefinitely. Several main factors that are contributing to the recent delays, are not solely U.S. challenges. The EU is seeing similar trouble despite the success of its own Chips Act.  

Meanwhile, the electronic components market has succeeded in various sectors thanks to the artificial intelligence boom. From memory to passives, AI has increased demand for components that help it meet its hefty computational requirements. Now, thanks to its ability to reduce heat while improving efficiency, gallium nitride (GaN) chips are seeing exponential growth due to AI demand.

CHIPS Projects Stall in the United States

Since its announcement, the U.S. CHIPS and Science Act has garnered over $400 billion in incentives, loans, and subsidies to boost clean energy technology, the semiconductor industry, and promote the resurgence of U.S. manufacturing. However, these lofty ambitions have faced derailment after derailment thanks to talent shortages, worsening market conditions, slowing demand, and uncertainties in domestic policies.  

There are 114 significant projects tied to the CHIPS Act, but nearly 40% of all major manufacturing plans tied to this program have been delayed or postponed indefinitely. The most notable among these companies is TSMC, which has delayed its mass production schedule for its second Arizona plant by two years. TSMC’s local suppliers have postponed their factory by two years, citing tough competition in attracting local talent and cultural differences in work schedules.

Industry sources have also cited the slow approval process for CHIPS Act funding and unclear rules for the Inflation Reduction Act (IRA) as another pain point for investment projects.  

Another delay that has significantly affected the success of the U.S. semiconductor industry’s ambitions is Intel pausing construction at its Ohio facility. Sources reveal that the Ohio plant’s delay is due to the market downturn and the delays in U.S. subsidies, derailing the CHIPS Act’s poster child’s activities. Since the plant will manufacture advanced semiconductors, the necessary investment has put many companies under financial pressure, pushing organizations to pause or adjust their previous plans.

Should one look at Samsung Electronics, there may be a silver lining. The company originally planned to build a semiconductor cluster in Taylor, Texas, including two advanced logic fabs and one advanced packaging facility. It planned to commence production in 2024 with 4nm process capabilities but has since delayed production until 2026.

During this delay, reports suggest that Samsung will upgrade the facility from 4nm process technology to 2nm, enhancing Samsung’s competitive edge and better positioning it against rivals. This would also give the U.S. more domestic supplies of advanced components, benefitting consumer electronics giants.  

GaN Expected to Grow Nearly 50% by 2030

Gallium nitride components are on the cusp of a revolution. According to recent data from TrendForce’s “Global GaN Power Device Market Analysis Report,” the development of GaN power devices is about to accelerate considerably. Helping push the GaN market to new heights is the combined effort of the AI boom and the decision by Infineon and Texas Instruments to allocate more resources toward GaN technology.

TrendForce reports that the global GaN power market was around $271 million in 2023. Over the next several years, it will see a compound annual growth rate (CAGR) of 49%, reaching $4.376 billion by 2030. That is a significant leap.

Furthermore, TrendForce states that "the proportion of non-consumer applications will increase from 23% in 2023 to 48% in 2030, with automobile, data center and motor drive being the core application scenarios.”

GaN is quickly becoming favored in the evolution of AI technology. Rising computing demand and high power consumption by CPUs and GPUs is causing issues due to the limited efficiency offered by some power devices. GaN is growing in popularity as it is able to meet the demands required by advanced AI computations. GaN products are expected to make a noticeable difference in reducing heat and improving efficiency for AI applications.

With the heightened popularity of these components, Infineon and Navitas Semiconductor have announced technical roadmaps this year focusing on AI data centers. Infineon has highlighted the “significant advantages of combining liquid cooling technology with GaN at lower junction temperature, enabling the data center to maximize efficiency, meet the growing power demands, and overcome the challenges posed by server heat increase.”

Over the last several years, consumer electronics have been the main applications for GaN power devices, but their market footprint has been growing. It's been a go-to option for low-power smartphone fast chargers and will soon be able to enter more demanding application sectors like home appliance power supplies.  

However, TrendFore reports that the GaN power device industry is at a critical breakthrough, with new motor drive and automotive power electronics solutions. Texas Instruments and Efficient Power Conversion (EPC) are driving GaN’s application in the motor drive field, powering better humanoid robots with a higher degree of freedom (DoR).

To achieve the high explosive power required in humanoid robotics, these motor drives need higher power density, efficiency, and responsiveness, which GaN can help support, especially in load-bearing areas like robotic legs.  

Similarly, GaN is gaining traction in the automotive arena, with onboard chargers (OBC) considered its best entry point. This could be another thriving market with powerhouses like Renesas and Infineon exploring new GaN automotive solutions.  

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The electronic components landscape continues to shift as new forecasts predict buying demand trends in the latter half of the year. Over the last several months, the industry has heard chiefly about artificial intelligence (AI) 's impact on memory. After the steep decline in 2023, AI proved itself a tremendous boon in helping memory recover. It seems that active components aren’t the only ones benefiting from AI now, but passive parts as well.

There is growing optimism among multi-layer ceramic capacitor (MLCC) manufacturers as AI demand is increasing the need for passive components. The growing use of AI applications has fueled the rising demand for MLCCs, leading to a welcomed expansion in orders. Joining the ranks of high-bandwidth memory (HBM) and advanced packaging, MLCC could soon see sales surging and even rising average selling prices (ASPs).

Meanwhile, HBM is now seeing a spike in demand for a reason outside of AI. The United States is now discussing the possibility of export restrictions on memory components to China. Since the major suppliers of HBM, SK Hynix and Samsung Electronics, use American technology to produce their coveted HBM products, they might fall under these coming restrictions, prompting Chinese tech giants to stockpile HBM.  

MLCC Manufacturers Optimistic About Demand

As AI applications grow in popularity, the components powering this technology rise in demand. Over the last few months, the industry has seen the meteoric rise of memory components that help shoulder the computational demands of artificial intelligence. HBM and solid-state drives (SSDs) have been the most popular components within the DRAM and NAND flash sectors, respectively, and orders have surged thanks to their favorable uses in AI.

TrendForce reports that MLCC manufacturers have the same optimism that these passive components could see the same level of demand as HBM and SSDs. According to a report by the Economic Daily News, “the AI boom has significantly increased the use of passive components, particularly in AI PCs and AI servers.”

The news comes from an interview with Murata President Norio Nakajima, who revealed that the current AI trend “is unstoppable, leading to an expansion in MLCC applications.”

In a report by Nikkei Asia, Murata states that the end-use of consumer electronics, such as smartphones and laptops, will propel MLCC consumption, boosted by AI server demand. Nakajima went on to note that Murata has been increasing capacity utilization for MLCC for some time now, expecting a greater rise from 85% to 90% this quarter.

In TrendForce’s article on the situation, the market research firm elaborates that Murata has been on the pulse with recent market trends. Early in 2024, Murata reported that a recovery in component shipments for the smartphone market and increased capacity utilization for MLCC plants would come later in the year.  

Over the year, the average MLCC usage per AI PC has surged by a reported 80% compared to traditional PCs, with usage in AI servers doubling from an average of 3,000 to 4,000. According to TrendForce, the increased use of high-speed computing environments will only contribute to the growing demand for high-capacity and high-voltage MLCCs.  

Following Murata’s optimism, passive original component manufacturers (OCMs) Walsin Technology and Yageo are also jumping into the fray to capture the new opportunities presented by AI. Both have seen a notable recovery in their operations, “marking the beginning of a bullish phase for the passive component market.”

As AI continues to boom, Yageo believes that more opportunities will emerge with customizable orders for specific product requirements. This will be especially true for those who need high temperature and high-current tolerance, which is common for AI applications. Their heavy computational demands on data centers push for greater energy use and, by extension, cooling systems.  

Fearing Restrictions, Chinese Tech Giants Begin Stockpiling HBM

Memory has been booming thanks to rising interest in AI applications. HBM offers unmatched bandwidth and energy efficiency compared to traditional memory structures, allowing it to achieve high-speed data transfers with low power consumption. Unsurprisingly, it has become a critical component in most AI technologies today.

As companies and countries work together to promote the development of AI, the components powering this technology have quickly found themselves at the forefront of new trade restrictions in escalating conflict between the U.S. and China. Since the semiconductor shortage, these two countries have ramped up efforts to restrict access to advanced semiconductors, semiconductor manufacturing equipment, and critical raw materials.  

Over the past few weeks, the United States has been reported to be considering several different stringent measures to further China’s access to semiconductors. The main restriction is the Foreign Direct Product Rule (FDPR), which allows the United States to restrict the export products using American technology.  

Last week, it was announced that the U.S. may use the FDPR to limit the export of memory components, specifically HBM, critical to AI applications to China. Since Samsung Electronics and SK Hynix, the main suppliers of memory to China, use American technology to create these necessary chips, this could significantly impact Chinese businesses.

In response, Chinese tech giants, including Huawei and Baidu, are reportedly stockpiling HBM products from Samsung. Reuters reports that sources familiar with the matter state that these companies have increased their purchases of AI-capable semiconductors since the start of this year. China contributed 30% of Samsung’s 1H24 revenue by these actions.  

Sources told Reuters that the U.S. authority is anticipated to establish guidelines for restricting access to HBM chips. The recent demand for HBM from China has primarily focused on HBM2, which is two generations behind the latest HBM3e, as American AI companies have fully booked out the latter. Likewise, China has turned to Samsung for its HBM demands since Micron Technology, another major supplier of HBM, has been banned within the country for use in critical infrastructure. This ban has been seen as mostly retaliatory for previous U.S. restrictions rather than Micron’s products presenting risk to users.

Reuters said that various businesses, from satellite manufacturers to tech firms like Tencent, have been procuring HBM chips, while Huawei uses Samsung’s HBM2e to produce its advanced Ascent AI chip. So far, most companies involved in this manner have either declined to comment or not responded, so the industry will have to wait and see how this situation develops.  

Demand for memory chips, including high-bandwidth memory (HBM), DDR5, and server solid-state drives (SSDs) will continue to grow through the latter half of 2024. Artificial intelligence will be the primary contributor to the surge in orders, as it has been for the better part of 2024 as data-sensitive applications require robust components to withstand their computational requirements.  

As companies continue to adopt AI, machine learning (ML), and other advanced technologies, market conditions within DRAM are likely to remain favorable. That is, however, if rising geopolitical factors are avoided.  

Several weeks ago, Bloomberg reported that the United States was considering new restrictions that would significantly affect chip companies, such as ASML, Tokyo Electron, and TSMC, should they pass. These rules would give the United States the ability to halt the export of products to China should they utilize U.S. technologies. Now, the U.S. is contemplating export restrictions on memory chips required for AI.

These restrictions could profoundly affect the semiconductor supply chain, further complicating the market’s recovery.  

Samsung’s Win Push Memory Sector Forward

Memory giant Samsung Electronics posted solid numbers for its Q2 financial results, reaching $7.5 billion. Good market conditions have contributed to a higher average sales price (ASP), and combined with robust sales of its OLED panels, Samsung has had a great Q2.  

In 2H24, Samsung expects to see the memory market continue its recovery thanks to strong demand for HBM, conventional DRAM, and server SSDs. Ongoing investments in AI by cloud service providers and businesses for on-premises servers are also helping boost growth. While PC demand remains weak, mobile product demand have stayed stable as orders by Chinese original equipment manufacturers (OEMs) rise.

Through 2H24, Samsung projects that AI servers will hold a larger portion of the market due to cloud service providers and enterprises expanding investments in artificial intelligence. Thanks to the meteoric rise in large language models (LLMs) and generative AI applications, the number of organizations investing in these technologies grows. TrendForce writes that AI servers equipped with HBM also “feature high content-per-box with regards to conventional DRAM and SSDs [so] demand is expected to remain strong across the board from HBM and DDR5 to SSDs.”  

Financial strength and rising market conditions have pushed Samsung to expand its HBM3e and high-density products capacity. This is a big leap, but Nvidia certifying Samsung’s products for its H20 components tailored to the Chinese market could be a considerable gain. On the NAND side, Samsung announced it will strengthen the supply of triple-level cell (TLC) SSDs and address customer demands for quad-level cell (QLC) products for all applications.

Similarly, Samsung has seen considerable interest in its progress on the foundry side, with solid demand for its 3 nanometer (nm) technology expanding in the second half of the year. Samsung has drawn an ambitious roadmap for its future, detailing expanded order intake for AI and high-performance computing (HPC) applications, with a fourfold increase in customer base and a ninefold increase in sales by 2028.  

The current memory market could support these lofty goals, especially with companies planning to further their AI investments. However, that’s if market conditions don’t take a major hit by geopolitical conflict or other disruptions.  

Despite robust demand, DRAM and NAND spot prices have lacked momentum. In the absence of stocking demand in July, spot prices didn’t show significant fluctuations, mostly because consumer electronics demand has yet to rebound. A typhoon in Taiwan also suspended spot trading, leading buyers to wait for further developments.  

This precarious position could see further complications if the United States decides to act, imposing new export restrictions on American technology and memory.  

Export Restrictions on AI Memory Chips Next?

Earlier this summer, Bloomberg reported that the U.S. was considering new restrictions on advanced semiconductors. The Foreign Direct Product Rule (FDPR) would allow the United States to exert control over foreign-produced items containing American technology. This would directly impact companies like ASML, the leading producer of advanced lithography equipment for manufacturing cutting-edge semiconductors.  

Now, Bloomberg reports that the U.S. is considering “unilateral restrictions on China’s access to AI memory chips and equipment capable of making those semiconductors as soon as next month.”

According to Bloomberg’s report, the strategy is designed to “keep Micron Technology and South Korea’s leading memory chipmakers, SK Hynix and Samsung Electronics, from supplying Chinese firms with high-bandwidth memory (HBM) chips.” These three companies dominate the memory market and, by extension, the HBM sector. Samsung Electronics has just gained certification for its HBM3e components to be used in Nvidia’s popular AI products.

While no decision has been made yet, the Biden Administration is working on several restrictions to stem the flow of vital chip technology into China. This new rule would deliver a new set of constraints on memory chips, joining its other export controls on necessary AI parts and equipment. Should these restrictions pass, Chinese manufacturers would have difficulty producing AI accelerators, like those Nvidia and AMD offer, as HBM chips are necessary for their unrivaled functionality.

However, Micron Technology would be unaffected by these restrictions, as the company hasn’t sold its HBM products to China since Beijing banned its components from sale to critical infrastructure industries last year.  

Should the FDPR restriction be imposed, combined with these new limitations on memory, the U.S. could give itself the authority to restrict SK Hynix and Samsung Electronics from selling to China despite being South Korean businesses. Both companies use U.S. chip design software and equipment to produce their products.

However, the impact might not be as dramatic as previously expected. Bloomberg senior industry analyst Mashiro Wakasugi says, “SK Hynix’s revenue of high bandwidth memory (HBM) chips could have a very limited impact from potential export restrictions by US government. SK Hynix’s HBM are mostly used with Nvidia’s most high-end GPUs, which are already restricted to be exported to China. Samsung may also have a limited impact, as its HBM sales are still too small to affect overall sales.”

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The DRAM and NAND-flash markets are transforming significantly due to improved supply-demand structure and increasing interest in high-value products, like high-bandwidth memory (HBM). Over the last several years, fluctuating demand and supply dynamics have made buying trends harder to predict despite the familiar cyclical nature of memory’s decades-long history. Technological advancements, buyer demands, and geopolitical influences continue to shape the landscape, which will see further changes throughout 2H24.

Simultaneously, the consumer electronics market, specifically mobile, is anticipating a notable uptick in purchases after the latest shipment projections report. Apple’s iPhone will lead the charge and is poised to see substantial shipment growth later this year thanks to the upcoming iPhone 16. This surge is expected to ripple through the supply chain, influencing component demand despite some delays.

Memory Manufacturers Turn up the Heat

DRAM and NAND flash manufacturers are seeing a delightful turnaround after steep declines left the industry floundering last year. According to TrendForce, DRAM and NAND flash will see an increase of 75% and 77% in revenue this year, respectively. Rising demand for HBM and improved supply-demand have contributed to the remarkable growth and turnaround.  

Next year will also be a bountiful year for the memory market, with DRAM forecasted to increase by 51% and NAND-flash by 29%, reaching new records. Likewise, despite poor average selling prices (ASPs), DRAM manufacturers have pushed toward recovery and stabilization, combating challenges to increase DRAM ASPs by 53% in 2024. TrendForce expects this to grow by another 35% in 2025.

Thanks to interest in artificial intelligence (AI) contributing to HBM demand, stringent control on production capacity, strategic capital expenditures, and recovery in server demand, DRAM has been able to experience an exuberant recovery in revenue. DRAM will see a 75% increase year-on-year (YoY) in revenue for 2024, with an additional 51% growth YoY in 2025. NAND-flash will experience a 77% increase YoY for 2024 and a 29% increase YoY in 2025.

With this growth, memory manufacturers can accelerate investments in the coming years with greater potential for upward revisions. Increased competition between major players within memory will continue to add opportunities for more growth in the coming year. SK Hynix and Samsung Electronics are gearing up for battle in HBM3 and HBM3e.

Samsung is said to have passed Nvidia’s qualifications tests for its HBM3 chips, meaning that the top three memory manufacturers, SK Hynix, Samsung Electronics, and Micron Technology, are all on the same page in HBM. Now that the playing field is set, the battle can commence.

Reuters and Korea Economic Daily reports say that Samsung’s HBM3 chips will initially be used exclusively in Nvidia’s H20, the company’s less advanced GPU for the Chinese market. Samsung could begin supplying Nvidia with their HBM3 chips as early as August. There is a chance that the U.S. may implement new trade sanctions on China in October, which could put the H20 under a sales ban. How this may affect Samsung’s momentum is unknown for the time being.

Meanwhile, SK Hynix remains the current market leader, with leadership prepared to take over 50% of the total HBM shipments with its significantly expanded HBM3e shipments. So far, SK Hynix’s HBM3e shipments have surpassed its HMB3 shipments, accounting for over half of its total HBM shipments in 2024.  

Micron follows suit, pushing for mass production of its 12-layer HBM3e in 2H24 and supply for its major customers, including Nvidia, in 2025. Micron aims to capture 20% to 25% of the HBM market share by 2024, building a pilot production line for HBM in the U.S. and, possibly, Malaysia to gain a greater hold on AI demand, as reported by Nikkei Asia. According to Japan's The Daily Industrial News media outlet, Micron is also gearing up to build a new DRAM plant in Hiroshima for 2026.  

After a challenging 2023, the memory market plans to see the most excitement in the coming months as AI fuels competition between these three industry titans.  

iPhone Sees Gains as Market Approaches End of Year

As memory manufacturers begin to battle for larger market shares in HBM, the NAND flash sector is ramping up for rising demand, driven by highly anticipated AI smartphones in Q3. DigiTimes reports that some production lines might already be experiencing supply shortages, which is unsurprising after chipmakers' announcements earlier this year warned customers of shortage-like conditions.

According to IDC research, mobile shipments are expected to exceed 600 million this year after reaching almost 570 million in 1H24. This marks the fourth consecutive quarter of shipment growth, building momentum toward recovery. However, demand has not yet returned.  

"While recovery is well underway with the top 5 companies all making year-over-year gains, we are seeing increasing competition amongst the leaders and a polarization of price bands. As Apple and Samsung both continue to push the top of the market and benefit the most from the ongoing premiumization trend, many leading Chinese OEMs are increasing shipments in the low end in an attempt to capture volume share amidst weak demand. As a result, the share of mid-range devices is challenged," said Nabila Popal, senior research director with IDC's Worldwide Tracker team.

"Still, there is lots of excitement in the smartphone market today thanks to higher average selling prices (ASPs) and the buzz created by Gen AI smartphones, which are expected to grow faster than any mobile innovation we have seen to date and forecast to capture 19% of the market with 234 million shipments this year."

One of the expected growth drivers contributing to demand recovery is AI smartphones, which will debut later this year. Will Wong, senior research manager for Client Devices at IDC Asia/Pacific, explains.

"Some OEMs took a less aggressive move in 2Q24 amid the BOM costs pressure, which prompted the companies to refine the product specs or pricing to ensure profitability. Nevertheless, the second quarter is more like a prelude before more Gen AI smartphones are launched in the second half of the year, which will potentially be the next growth driver after 5G and foldables."

Currently, the iPhone 16 is having the greatest impact on the mobile supply chain’s recovery. NAND-flash memory suppliers see shipment growth boosted in 2H24 by iPhone 16 demand. Likewise, recent moves in India have benefited the situation, including the government’s decision to reduce smartphone import taxes. The new custom duties on imported mobiles, chargers, and assembled printed circuit boards will be lowered from 20% to 15%. These will take effect on July 24th.  

Counterpoint Research co-founder Neil Shah told Reuters and PTI that a 5% reduction in import taxes on iPhones could boost Apple’s revenue further, as 10-12% of iPhones sold in India are imported. This would additionally benefit other mobile brands entering the Indian market, with prices on smartphone models now being cut thanks to reduced taxes.

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Geopolitical tensions continue to shape the global semiconductor supply chain. In late July, it was reported that the United States was considering new trade rules to further rein in China’s chip industry. Over the last few years, the ongoing trade war between the United States and China has only grown in magnitude, with new restrictions disrupting the global electronic components supply chain. This is expected to have wide-reaching implications for the two countries and the semiconductor market.  

Meanwhile, the memory market continues to see growth in the spot price for DRAM, reaching stabilization after support from Samsung Electronics. Over the next quarter, there will be an opportunity for improvement in NAND flash, helping it achieve greater stabilization after a dramatic decline last year.  

DRAM Spot Price Rising

New TrendForce data reveals that DRAM spot prices have stabilized with Samsung’s aid. In the coming weeks, the spot price for DDR4 products will continue the momentum expected to grow additionally over the reported increases in the last week. Spot prices are still lower than contract prices for DDR4 and DDR5 products, as module houses and other buyers prefer spot trading, reveals TrendForce.

This type of procurement has helped stabilize spot prices, with mainstream chips increasing by .81%. Last week, the largest increase was seen by DDR4 16Gb 2Gx8 2666Mbps, which went up 2.14%, or from $3.74 to $3.82. DRR4 8Gb 1Gx8 512Mx16 2666 Mbps came in second, with an overall increase of 2.05%, going from $1.95 to $1.99.  

This is good news for the memory market sector, which has experienced steep declines due to decreased consumer demand.

Similarly, TrendForce reports that NAND flash products are creeping toward stabilization, following in DRAM’s footsteps.  

TrendForce states that “spot prices have started to stabilize recently due to reluctance in truncation from spot traders and module houses, as well as the consideration on how the growth demand has been exceedingly confined by the drop of prices.”

The report continued, “Demand for a small extent of inventory replenishment remains possible for 3Q24 when sales performance from the spot market is expected to improve from that of 2Q24. Overall, spot prices would first maintain equilibrium while awaiting for the final development of suppliers’ contract prices and the market status for 3Q24.”

Samsung’s aggressive pricing strategy for server DRAM and enterprise SSDs, announced in late June, is helping maintain this equilibrium. The price change and prioritization of HBM have aided conventional DRAM’s resurgence despite the remaining symptoms of oversupply. As the back-to-school and holiday shopping seasons begin, this will continue to improve as we enter 2H24.

Inventory replenishment will help stabilize DRAM and NAND flash spot prices, especially with smartphone manufacturers and other consumer electronics companies' new product announcements in late Q3 and early Q4. By 2025, further replenishment will combat any lingering oversupply experienced in 2023.  

Possible New Restrictions Coming on China Chip Industry

Stocks are tumbling in Asia following the news that the United States is considering tighter restrictions on exports of advanced semiconductor technology to China. Among the worst hit was semiconductor foundry leader TSMC, which saw a considerable drop in market value on Thursday. TSMC, Samsung Electronics, SK Hynix, Global X Asia Semiconductor ETF, and Japan’s Tokyo Electron also saw slumps.

Bloomberg News announced the restrictions. The Foreign Direct Product (FDP) rule would allow the U.S. government to stop a product from being sold if it was made using American technology. This would put companies, including Tokyo Electron and ASML, in the crosshairs of these restrictions.

Investors have become increasingly concerned about the U.S.'s competitiveness in its semiconductor manufacturing industry.  

“It seems macro and geopolitical factors played a bigger role than fundamentals,” Kang Jin-hyeok, an analyst at Shinhan Securities in Seoul, South Korea, told Reuters. Samsung and ASML have a heavy sales presence in China, with the latter having China account for 49% of its lithography system sales in Q2. The announcement of the possible foreign direct product rule caused ASML’s stocks to fall more than 10%, even after a successful Q2.

Country allies are concerned about the nature of these new restrictions, given that the FDP rule allows the U.S. to exert control over foreign-produced items containing American technology. If passed, the rule is expected to impact ASML and Tokyo Electron mainly, and the U.S. is urging its allies, like the Netherlands and Japan, home to the two companies, respectively, to impose stricter limitations on businesses.  

Another strategy the U.S. is considering is expanding the criteria for the unverified list. This list requires companies to “obtain licenses for shipping certain restricted technologies.” Should the U.S. broaden this list, it could signal to firms that selling to China is a security risk and would face additional controls, preventing Chinese companies from circumventing current restrictions by depending on foreign expertise.  

Applied Materials, KLA, and LAM Research have argued that “FDPR and other measures could lead to non-cooperation from allies and incentivize global firms from excluding U.S. technology from their supply chains.” These rules could pose significant economic challenges and risks for the U.S., harming the same companies these rules supposedly protect.

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As the world accelerates toward a technologically driven future, Canada is beginning to emerge as a new player in the global semiconductor industry. Central to this movement is Canada’s new and ambitious initiative, the Fabrication of Integrated Components for the Internet’s Edge (FABrIC). The project is designed to strengthen the Canadian semiconductor and smart sensor industry by creating a highly skilled workforce that encourages innovation.  

CMC Microsystems (CMC) will lead the project, helping to position Canada as a global supplier of semiconductors. This aligns with various initiatives passed by other governments in recent years to support emerging domestic semiconductor ecosystems after the trouble caused by the semiconductor shortage.  

Meanwhile, the electric vehicle (EV) industry has hit a snag. Supply chain disruptions during the global semiconductor shortage, geopolitical conflicts, and technological challenges, including the lack of stable power grid infrastructure and long charging times, have contributed to EVs falling out of demand. With sales slowing down, some chipmakers have put their EV expansion plans on hold.  

The ongoing situation involving Samsung’s labor union could further disrupt the market.

Samsung Workers Holdfast in Strike

National Samsung Electronics Union (NSEU) members began a three-day general strike over pay and benefits earlier this month. Samsung ensured there would be no disruptions to production, and it was “committed to engaging in good faith negotiations” with the union.

According to local media, this strike is prolific, being the first strike by the labor union in Samsung’s 55-year history. The strike has continued into its third week, with around 1,500 workers from the NSEU rallying and marching along the Giheung campus in Yongin, South Korea. This is after initial wage negotiations last Friday, as reported by Bloomberg.  

NSEU workers announced an “indefinite strike” on July 8th after a walkout failed to secure the gains the workers began fighting for. Samsung is expected to see tremendous gains from the recent AI boom, with 1,450% in growth year-over-year. NSEU claims that workers aren’t seeing an increase in pay despite these records, leading to the strike. The NSEU demands include a 3.5% increase to members’ base wages, improved pay transparency, and other compensation.

According to experts, Samsung has little experience negotiating with its workers. That may change depending on the strike's success.

“If Samsung workers succeed in this undertaking, it will empower the rest of South Korea’s labor,” professor of Korean studies at the University of Oslo Vladimir Tikhonov told AFP.

Electric Vehicle Market Struggles

Chip and automakers alike are putting their plans for EV expansion on hold. From Wolfspeed’s Germany fab to VinFast’s U.S. plant, a slow market and rising geopolitical tension have contributed to a decline in EV sales.

According to Reuters, in its recent coverage of VinFast’s decision to delay its EV and battery factory in the U.S., demand for EVs has “faltered amid high borrowing costs and as buyers turn to cheaper gasoline-electric hybrids, forcing many automakers to reassess their plans for new factories and models.”

VinFast will postpone construction of the planned $4 billion factory in North Carolina to 2028 despite sold vehicles rising 24% in 2Q24. Due to ongoing uncertainties within the global EV market, the automaker will cut its delivery forecast by 200,000 units in 2024.  

"While the second-quarter delivery results were encouraging, ongoing economic headwinds and uncertainties in different macro-economies and (the) global EV landscape necessitate a more prudent outlook for the rest of the year," VinFast said.

"This decision will allow the company to optimize its capital allocation and manage its short-term spending more effectively, focusing more resources on supporting near-term growth targets and strengthening existing operations.”

Likewise, Mercedes-Benz is decreasing its battery plans and waiting to see if EV demand will increase before adding more battery cell capacity. With projected EV sales remaining low, Mercedes-Benz’s Technology Chief said it may no longer need the capacity it initially planned for 2030.  

However, Mercedes-Benz had expected that sales of EVs, including hybrids, would not reach 50% of the total until 2030, compared to its previous forecast of 2025, five years ago. Plans to build two more ACC plants in Germany and Italy were paused last month because of low EV demand.

At the other end of the spectrum, tariffs have contributed to Chinese EV makers' decline in electric and hybrid exports. European tariffs on Chinese EVs have cut China’s auto industry growth by 20-30%. The tariffs were introduced to “safeguard against what it described as a potential flood of unfairly subsidized EVs.”

"Our (NEV export) growth used to be at least 30-40%, and it has slowed to only more than 10%, meaning (the tariffs) had a 20-30 percentage point impact on (NEV export growth), a conspicuous short-term impact," Cui Dongshu, secretary general at the China Passenger Car Association (CPCA), said.

Domestically, China has witnessed car sales on the decline, falling 15.2% in May, according to market data. Car sales fell 6.9% in June, marking the third month despite government incentives trying to spur consumer demand.

Expectations are that EVs and other markets will see a stronger second half of the year and a more significant turnaround in 2025. In the meantime, different industries, such as artificial intelligence (AI), are spurring countries and companies to continue increasing their domestic semiconductor production.

Canada Announces Launch of FABrIC

CMC Microsystems and Innovation, Science, and Economic Development Canada (ISED) are working together to launch the semiconductor initiative FABrIC. FABrIC is “An initiative designed to strengthen the Canadian semiconductor and smart sensor industry by creating a talent pool of highly qualified people, encouraging innovation in the semiconductor manufacturing process, and providing Canadian businesses with access to foundries.”

CMC Microsystems will lead the $220 million project and support the collaboration of stakeholders from various fields to support “the design, manufacturing, and commercialization of semiconductors and the development of state-of-the-art intelligent sensor technology.”

With a strong domestic production of semiconductors, there will also be an improvement in North American competitiveness and supply chain resiliency by providing financial and technical resources, mentorship, and training for semiconductor businesses, engineers, and scientists in Canada.  

“Semiconductors are the engines behind the digital economy. Chip-based technologies power applications in all areas of our lives to make us more productive and connected. FABrIC provides Canadian innovators with the resources they need to develop next-generation, high-value semiconductor technologies, creates good jobs for Canadians, and strengthens Canada’s semiconductor industry to build a stronger economy,” said François-Philippe Champagne, Minister of Innovation, Science and Industry.  

The FABrIC initiative will enable the training of 25,000 students and 1,000 professors over five years, a great benefit to the growing labor gap within the global semiconductor industry. Graduates of the program will be able to enter the sector immediately with the skills they learn from FABrIC training programs.  

“This investment is an important step to securing Canada’s future in semiconductors and advanced manufacturing,” said Gordon Harling, President and CEO of CMC Microsystems.  

“FABrIC gives Canadian entrepreneurs and researchers the resources they need to drive innovation and make the advanced semiconductor products of tomorrow here in Canada, thanks to our world-class talent and manufacturing capabilities. Investments in FABrIC will ensure Canada remains a globally competitive semiconductor player and is well prepared to design and build the semiconductor products of tomorrow.”  

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One of the world’s leading semiconductor manufacturers, GlobalFoundries, is navigating choppy waters amid a global labor shortage. As demand for semiconductors grows thanks to rapid advancement in technologies, including artificial intelligence (AI), 5G networks, machine learning (ML), and the Internet of Things (IoT), the labor shortage has become a significant bottleneck for component production. This shortage has slowed manufacturing processes and highlighted the critical need for investments in workforce development and training within the semiconductor industry.

Simultaneously, the European Commission has expressed concerns over the possibility of a silicon oversupply. With growing investments in expanding chipmaking facilities, efforts have been made to expand silicon manufacturing. There are now growing fears that the industry might soon face an imbalance of silicon, potentially leading to wasted resources.  

This dual challenge of labor scarcity and silicon oversupply presents a complex scenario for the industry as chipmakers strive to meet the burgeoning demands of the global market.  

The European Commission Concerned Over Silicon Oversupply

Worries about silicon, a critical material needed to produce semiconductors, are growing in the European Union. According to reports, the Commission, the executive arm of the European Union, is probing its domestic semiconductor industry to learn its views on China’s expanding production of commodity silicon.

Reuters states that the Commission’s probe will be followed by two voluntary surveys due in September for the semiconductor industry and other major silicon-using industrial sectors, such as construction and manufacturing.  

Concerns about silicon have been on the rise since China started heavily investing in its production capacity for legacy components. Like many countries, China is trying to reduce its reliance on foreign-made silicon, especially since new U.S. sanctions hindered its access to other semiconductor technologies.

Earlier this year, The Register reported that China’s silicon manufacturing capacity will likely double within five to seven years. While this is good for the country in the short term, it could spell trouble for chipmakers should China’s companies decide to sell to the broader global market instead of just domestically.  

TrendForce data supports this worrisome status, as 32 large-scale wafer fabrication plants are planned or under construction in the country. Most of these fabs focus on producing semiconductors with mature node technology, such as 28nm or higher. Therein lies the potential for a market oversupply scenario in which chip prices plummet drastically. The result would be that Western manufacturers would leave, allowing Chinese companies to dominate the sector.  

This would leave the market at greater risk for disruptions such as export restrictions. The EU and U.S. may develop joint or cooperative measures to address dependencies or other distortionary effects.  

“Both the European Union and the United States are committed to continuing to engage closely with the industry on the issue,” the Commission stated. However, there was no comment on the measures the countries would take to address these effects should distortionary effects be uncovered.  

U.S. Secretary of Commerce Gina Raimondo is quoted as saying that there is a “massive subsidization of that industry on behalf of the Chinese government, which could lead to huge market distortion.”  

However, any potential action on these China-made chips would only further sour relations between the countries, which have already deteriorated over heavy tariffs on EVs. Further complicating matters across the EU and China equally is the growing challenge of the semiconductor labor shortage, which may significantly impact the market in another problematic way.

Chip Demand Is Driving GlobalFoundries to Quickly Secure Labor

The semiconductor industry continues to grow in demand, but the supply of skilled labor is not. Competition is ramping up between chipmakers due to the extremely tight labor market that is only growing more so. The U.S. alone, as it continues to disperse CHIPS and Science Act funds, is facing a projected shortfall of up to 1 million workers in the broader economy by 2030.

This issue will likely be further exacerbated by the demand artificial intelligence is adding to the semiconductor industry. Within the semiconductor industry alone, the Semiconductor Industry Association (SIA) has stated that the U.S. will face a shortage of 67,000 technicians, computer scientists, and engineers by 2030.  

In a separate study, Deloitte found that the talent shortage could worsen with growing geopolitical conflicts and supply chain issues. To capture the little talent available, chipmaker GlobalFoundries is seeking out veterans, women in construction, and previous workers with a workforce reentry program to boost recruitment.

Similarly, GlobalFoundries has been investing in learning programs to nurture a new generation of skilled workers. Beginning in 2021, GlobalFoundries launched the sector's first registered apprenticeship program at no cost to the apprentice. The training can be completed in 2 years and only requires a high school diploma or equivalent with an interest in the field.  

GlobalFoundries also recruits graduates with technical associate degrees from the community college and veterans out of the military for the program. All to help fill the hundreds of roles it needs worldwide. However, at the current recruitment pace chipmakers will still be unable to meet the market's growing demand if further steps aren’t taken.

GlobalFoundries Chief People Officer Pradheepa Raman told CNBC, “It’s why [GlobalFoundries] is very, very aggressive when it comes to our workforce development efforts…if you’re not getting traditional talent, [the solution is] cross-training talent, identifying alternate talent pools, people who are doing things in different fields, showing them that this is a very welcoming set of opportunities that exists within the semiconductor industry, is our approach.”

Raman continued, “We believe the challenges that we face in recruiting can be solved through an ecosystem approach of workforce development and making our organization one of the best places to work through the benefits offerings that we have been providing.”

Morgan Woods, a GlobalFoundries training and development analyst who started as a fab technician, took advantage of the company’s competitive career advancement opportunities. Woods hopes that others follow in their footsteps. “As the demand for the microchips increases, we definitely need more manpower to help support the constant rollout of microchips and meeting our daily targets.”

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As we shift into 2H24, memory components will continue to see significant changes within the semiconductor industry. With their prominent role in artificial intelligence (AI) applications, memory components have been in relatively high demand compared to others.  

Price fluctuations are expected to continue within memory over the next quarter. Prioritization of high-bandwidth memory (HBM) production could lead to a DRAM shortage. Similarly, demand for solid-state drives (SSDs), another popular component within AI, may also have an identical effect in NAND-flash during late 2024.

Samsung and Others to Raise Memory Prices

The Maeil Business Newspaper, a South Korean media outlet, has reported that Samsung Electronics plans to raise prices for its server DRAM and enterprise NAND-flash by 15% to 20% in Q3. Like most price fluctuations this year, artificial intelligence demand is behind most of the increasing prices. The report indicates that the decision to raise prices will also help boost Samsung’s performance in the second half of the year as well as the momentum for several Taiwanese chipmakers, including Nanya Technology, ADATA, TeamGroup, and Transcend.

In another report by Economic Daily News, industry sources believe there is strong support for the market, especially with three manufacturers developing HBM, which will maintain a healthy state for the overall DRAM market.  

Samsung Electronics alerted customers to the coming price change on June 26th, after the chipmaker had already increased the prices of its NAND flash to 20% in Q2. Many original component manufacturers (OCMs) agree that the AI boom will continue to improve server demand, especially in the latter half of the year.  

This is part of Samsung’s more aggressive pricing strategy for server DRAM and enterprise SSDs. TrendForce predicts that server DRAM should rise by more than 10% quarter-over-quarter (QoQ). Despite the growing demand, the spot price of DRAM remains weak.

Even with Samsung’s reallocation of its D1A process to focus on manufacturing HBM, little has changed. Similarly, the recent fire-related incident at Micron’s Taichung fab in late June, with no actual losses reported, in bit terms, had no positive effect on the spot price trend. DDR4 prices have fallen far more significantly than DDR5, with the latter encountering sporadic hikes since the reallocation of D14 processes.

For some specific sectors of DRAM, such as servers, weakness will not be an issue. The average selling price (ASP) of DRAM in the third quarter will continue to rise by 8% to 13%. The cost of conventional DRAM will also increase by a modest 5% to 10% after a slight contraction.  

Buyers have been more conservative about restocking in Q2, but there may be more room for replenishment in Q3 for mobile DRAM as smartphones and CSPs prepare for peak season production. This is a significant change from the last several quarters, with smartphones and servers driving memory shipments in Q3 after being low for most of the year.

Overall, consumer DRAM continues to exhibit symptoms of oversupply, but Samsung, SK Hynix, and Micron Technology are intent on raising prices due to HBM putting constraints on capacity. Since Nanya, ADATA, and the other Taiwanese manufacturers are still fighting to return to profitability, Samsung’s price increase will hopefully strengthen the remaining ASP weakness for DRAM.

TrendForce reports that inventory replenishment in Q4 will support rising prices, and procurement strategies for 2025 may include further replenishment. It is recommended that buyers anticipate potential memory shortages caused by increased shares of HBM and SSD.

NAND-flash Shortage Coming? Possibly

In the last several quarters, manufacturers have been increasing production capacity for HBM products. Samsung Electronics is working on getting approval to begin HBM production at its latest facilities to begin deliveries in late 2024, increasing production capacity. Unfortunately, this is expected to cause a slight DRAM shortage due to capacity crowding.

This problem might also affect the NAND flash market, as the demand for high-capacity SSDs used in AI-accelerated data rapidly grows. Enterprise SSDs are expected to see a compound annual growth rate (CAGR) of 10.2% between 2021 and 2030, primarily due to AI demand. Over the last quarter, enterprise SSDs have increased by 15% or more and will likely see continued hikes over 2H24.

SSDs have grown more expensive since AI pushed demand for enterprise SSDs higher than previously forecasted. This is even with the slight contraction in Q2, enterprise SSDs have performed better than the greater market.

Samsung Electronics has already shifted its strategy from prioritizing consumer electronics to focusing on enterprise markets instead, as its recent HBM reprioritization reflects. These steps will likely be echoed within the NAND-flash market as many of the suppliers in DRAM make up are also found in NAND-flash.

Reprioritizing production capacity for SSDs will likely contribute to a NAND-flash shortage for other products, like what is being seen in DRAM. Capacity crowding will likely be one of the primary factors contributing to memory bottlenecks in the coming months with AI demand being a major contributing factor.

OCMs will continue to prioritize lucrative lines rather than following traditional market strategies, such as focusing on consumer electronics manufacturers. How the market will respond when consumer electronics demand finally recovers is relatively unknown. Suppose Samsung is already promising to prioritize enterprises over consumers. Will traditionally favored clients get the short end of the stick as automakers did during the global semiconductor shortage?  

In the face of the unknown, companies must proactively monitor the market situation to take advantage of opportunities and prepare for disruptions. Sourcengine’s global team of experts is ready to help those who don't know where to begin.

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The twists and turns the semiconductor industry experienced during the global chip shortage may be behind us, but the market landscape has never been quiet for long. Technological innovation is happening at breakneck speed, with new developments making headlines as artificial intelligence leads the pack.  

With AI applications only set to grow year-on-year, memory manufacturer Micron Technology is working on expanding its capacity for high-bandwidth memory (HBM), the ever-popular choice for most AI products. Research shows that artificial intelligence will be one of the leading technology markets in the coming years, requiring plenty of HBM. Micron’s push to expand is the next logical step for HBM suppliers.

Meanwhile, trouble in Europe has delayed Wolfspeed’s EU ambitions.

Micron Looking to Expand HBM Production

Leading U.S. memory manufacturer and one of the three biggest memory giants worldwide, Micron, is building test production lines for advanced HBM chips in the U.S. and, possibly, Malaysia. According to industry sources, the expansion to Malaysia is mainly due to capturing more demand from the AI boom.  

Since the meteoric rise of AI, Micron has been working to triple its market share for HBM by mid-20% by 2025. According to TrendForce data, this will place Micron around the same share in this market as other conventional dynamic random access memory chips, DRAM, which is around 23% to 25%.  

Earlier this year, Micron received up to $6.1 billion in grants from the CHIPS and Science Act. Micron plans to use this funding to build a $15 billion factory in Boise, Idaho, the first U.S. memory chip plant in 20 years. As the last U.S. supplier of DRAM, Micron’s position is critical within its domestic semiconductor ecosystem and more significant memory market.  

Two sources familiar with the matter said the Boise, Idaho, plant will expand Micron’s HBM-related research and development facilities, including production and verification lines. Micron has chip testing and assembly facilities in Malaysia and is also considering expanding HBM production capacity there.  

Currently, Micron’s largest HBM production site is in Taichung, Taiwan, where it is also adding capacity. SK Hynix, Samsung Electronics, and Micron Technology are the only chipmakers that can produce HBM components for advanced AI chips. HBM availability is growing tighter and tighter, making Micron’s necessary to avoid future disruptions.  

Even with Micron’s input, SK Hynix controls over 50% of the global HBM market, while Samsung Electronics possesses 42.4%, according to TrendForce. However, what Micron, and by extension SK Hynix, have is Nvidia’s approval to produce HBM3E for its H200 line of AI chips, giving Micron a greater leg up in the competition. Samsung is still awaiting approval. The company now supplies slightly less advanced HBM3 and HBM2E to AMD, Google, and Amazon.

As the AI leader, Nvidia is currently the largest buyer of HBM, procuring 48% of the world’s global output for 2024. As competition in AI grows, more HBM capacity will be necessary. Micron can expand its control within the market as it increases its capacity.

Wolfspeed Delays Plant Plans in Germany

Wolfspeed, a U.S. developer and manufacturer of wide-bandgap semiconductors focusing on silicon carbide and gallium nitride materials, is planning to delay its $3 billion plant in Germany. The plant, which would have been constructed in Saarland to focus on chips used in EVs, has not been scrapped, but Wolfspeed is seeking new funding.

This delay highlights “the challenge within the European Union’s struggle to increase domestic semiconductor production and reduce its reliance on Asian chips.”

It’s not just the EU’s struggle to kickstart its domestic semiconductor ecosystem that has resulted in the current delay of Wolfspeed’s plant plans. Wolfspeed has cut its capital spending due to weakness in the European and U.S. EV markets. Over the last year, the EV market has hit several snags precisely due to the decline in customer demand after the semiconductor shortage and the greater affordability of Chinese EVs.

According to a company spokesperson, Wolfspeed has prioritized production at its New York facilities, pushing out the Saarland plant construction until mid-2025.  

Furthermore, Wolfspeed isn’t the only chip manufacturer in the European Union hitting snags. Intel, Infineon, STMicroelectronics, TSMC, and GlobalFoundries are a few of the many chipmakers who sought new opportunities within the EU after the passage of its Chips Act.  

Like the U.S. CHIPS Act, the process of divvying out these funds has been slow-moving. Only several projects have been built in the two years after its passage, with even fewer companies having received European Commission approval for Act’s aid. W

Chip expert Jan-Peter Kleinhans at Interface, formerly Stiftung Neue Verantwortung, says that the EU’s target of winning 20% of the global market share by 2030 is out of reach.

“Self-sufficiency is unrealistic given the interconnected nature of chip markets, and Europe remains vulnerable…you have to be impressed by the sheer amount of project announcements that have been made. Even if several of them will never see the light of day.”

Germany led the way in backing plans by chip giants such as Intel, TSMC, Infineon, and Wolfspeed, but they have yet to win EU approval. Likewise, Germany has been experiencing a budget crisis, weakening its commitment to major infrastructure projects, such as Wolfspeed’s facility.  

Intel has also delayed its plant plans within Magdeburg, primarily due to an immediate geographical problem involving rich topsoil that must be redistributed to farmers rather than experiencing a funding issue like Wolfspeed.

“The (Magdeburg facility) is expected to enter production within four to five years following the European Commission’s approval,” an Intel spokesperson reported. TSMC and STMicroelectronics have seen better luck with their projects, both of which have been awarded EU approval for their new facilities.

Meanwhile, Infineon, despite waiting for EU aid approval, is on track to finish its facility by 2026 at its own risk—a path that some chipmakers might intend to follow. Onsemi, which announced plans to invest $2 billion to expand its silicon carbide operations in the Czech Republic, might have more success than its competitor Wolfspeed if it follows Infineon’s footsteps.  

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Over the last week, a recent unveiling at the Samsung Foundry Forum (SFF) sparked significant interest and anticipation for new innovations that promise to shape the future of artificial intelligence (AI) and foundry technologies. Samsung Electronics debuted its latest solutions poised to redefine the landscape of chip manufacturing and updated its technology roadmap.  

Concurrently, chipmakers in China face a formidable challenge: a plateau in their progress due to the scarcity of lithography chipmaking tools post-sanctions. This contrast underscores a critical juncture in the global semiconductor industry, where innovation and infrastructure are determined by access to chipmaking tools.  

Samsung Electronics Debuts New Innovations

Samsung Electronics isn’t wasting time ensuring its place as a leader in both semiconductor manufacturing and artificial intelligence. During the Samsung Foundry Forum U.S., an annual event held at Samsung’s Device Solutions America headquarters in San Jose, California, the company unveiled upcoming developments in its foundry services and its vision for AI.

The company’s reinforced process technology roadmap included the introduction of two new nodes, the SF2Z and SF4U. Under the theme of “Empowering the AI Revolution,” its integrated Samsung AI Solutions platform will harness the strengths of its foundry, memory, and advanced packaging (AVP) businesses to offer state-of-the-art technology to optimize performance and power delivery.

The SF2Z is Samsung’s latest 2nm process, which utilizes backside power deliver network (BSPDN) technology to eliminate bottlenecks between the power and signal lines. This is accomplished by placing power rails on the backside of a wafer, which enhances power, performance, and area (PPA) while reducing voltage drop compared to its first-generation 2nm node, the SF2.

Samsung’s SF4U, a high value 4nm variant process, also offers similar PPA improvements by incorporating optical shrink. The company’s preparations for its smallest process, called the SF1.4 nm, for 1.4nm, is running smoothly and is on track for mass production in 2027 alongside SF2Z. As the company forges ahead with smaller processes, Samsung reaffirmed its commitment to advancing beyond Moore’s Law with future processes below 1.4nm.

Within the realm of AI, Samsung announced the continued maturity of its gate-all-around (GAA) technology, an imperative process that helps meet AI applications' power and performance demands. Samsung will mass produce its second-generation GAA 3nm process–SF3–in 2H24 and expects to release its GAA 2nm process soon.  

Furthermore, its growing solutions portfolio in cross-company collaborations will aid Samsung’s desire to support further AI endeavors. As its new processes enter mass production for additional support, Samsung plans to introduce an all-in-one CPO-integrated AI solution in 2027.  

To support clients in other industries eager to implement AI solutions into different technologies, Samsung will also begin offering specialty and 8-in-wafer derivatives with continued PPA improvements to benefit the automotive, medical, wearable, and IoT industries.  

At the SFF, Dr. Siyoung Choi, President and Head of Foundry Business at Samsung Electronics, stated that the company would provide solutions across the market to aid innovation in this transformative era.  

“At a time when numerous technologies are evolving around AI, the key to its implementation lies in high-performance, low-power semiconductors,” Dr. Choi said. “Alongside our proven GAA process optimized for AI chips, we plan to introduce integrated, co-packaged optics (CPO) technology for high-speed, low-power data processing and providing our customers with the one-stop AI solutions they need to thrive in this transformative era.”

China’s Domestic Semiconductor Industry Struggling with Lack of Advanced Tools

Since the global semiconductor shortage, countries worldwide have been working overtime to secure a strong domestic semiconductor manufacturing capacity. Among these dozens of countries is China, which has passed numerous subsidy programs to fuel interest and investments in its domestic semiconductor ecosystem.  

However, over the last several months, China has struggled to see its ambitions become a reality. In a report by Nikkei Asia, China’s domestic chipmaking tool manufacturers produce only 20% of the tools the country uses for chipmaking. Furthermore, China only produces 1% of the critically important lithography tools required for advanced chipmaking processes.  

If China wants to become a semiconductor powerhouse, it will have to invest more heavily in domestic chipmaking tool firms. Most of China’s semiconductor industry is at the mercy of external forces, mainly because the nation relies on chipmaking tool manufacturer ASML for its lithography equipment.  

Rising tensions in the U.S. and China trade war have contributed to banning ASML from servicing high-end chipmaking tools in China. While Chinese President Xi Jinping has stated that the country doesn’t need ASML’s equipment to meet its goals, Beijing will likely miss its chipmaking targets by decades due to these bans.

Beijing has been working overtime to support its semiconductor industry, with some chipmakers such as Naura Technology and AMEC investing in lithography tools to grow its domestic supplies. Despite sanctions, Huawei has mass-produced its 7nm chips without EUV technology, or ultraviolet lithography. This surprised many semiconductor companies as EUV equipment was believed to be necessary to produce these chips.

Some Chinese firms are also working on another solution: concentrating on using open standard technologies such as RISC-V to manufacture chips. These open standards are accessible to everyone and, with enough talent and research, can help China’s domestic firms continue moving forward to reach their ambitions.  

While China might not reach its dream of becoming a global player that dominates the semiconductor industry without access to ASML’s equipment, China can establish a reliable and stable domestic supply chain with these solutions. To accomplish this goal, China must continue supporting its industry through further subsidies and other investments to help the chipmakers find new ways to manufacture advanced components.

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Semiconductor manufacturing has become the cornerstone of modern-day economies. Over the last several years, innovation has accelerated new developments in everything from smartphones to supercomputers. With the popularity of artificial intelligence (AI) fueling demand, industry giants are posed to become the latest members of the trillion-dollar club alongside Nvidia.

Amidst the new age of AI-capable components comes an unprecedented challenge. A shadow looms over the electronic components industry: the semiconductor labor shortage. Industry titans poised to offer the latest in AI's transformative potential are not immune to the effects of the oncoming labor crisis.  

AI could be the catalyst for unparalleled growth within the electronic components industry over the next decade if the global labor shortage doesn’t derail it first.  

TSMC and Broadcom Could be the Next AI Trend Winners

Nvidia joined the exclusive trillion-dollar company club one year ago. Companies that surpass a trillion in their evaluation are few and in-between. Only Apple, Microsoft, Saudi Aramco, Alphabet, Amazon, Meta, and Tesla had passed a trillion-dollar market evaluation before Nvidia. A year later, Nvidia remains the most recent addition to the trillion-dollar company list.

Nvidia commands around 80% of the AI chip market thanks to its cutting-edge GPUs. Nvidia managed to “briefly surpass Apple as the second most valuable company in the U.S.” by reaching over $3 trillion in market value. As Nvidia continues to reign in AI, two chipmakers may become the next members of the fabled trillion-dollar club thanks to the same ravenous demand for artificial intelligence.

TSMC, the largest semiconductor foundry globally, producing 60% of the world’s semiconductors and 90% of the world’s most advanced chips, hasn’t yet broken through the trillion-dollar ceiling. Most manufacturers, including Nvidia, don’t manufacture their chip designs but contract the process to fabrication specialists or foundries like TSMC. Despite TSMC’s popularity as a chip manufacturer, this hasn’t propelled the company to trillion dollar status. That is, not yet.

Because TSMC’s expertise in chip manufacturing processes can be applied to various semiconductor applications, it is not reliant on any one specific use case. As described by Yahoo Finance, TSMC’s “never-ending march toward faster and more power-efficient computing drives demand for its manufacturing capacity.”

TSMC specializes in contracting out its fabrication process, which has enabled the company to enjoy the recent boom in AI chip demand. According to Yahoo Finance, AI-related revenue is expected to grow for TSMC at an annual rate of 50% over the next five years, reaching 20% of its total business by 2028.  

It’s not the same jaw-dropping gains seen by Nvidia, but TSMC’s slow and steady wins could see the company reach $1 trillion in a couple of years. TSMC’s current market cap sits at $685 billion, meaning it needs to climb 46% to become an exclusive club member.

Yahoo Finance reports that chipmaking giant Broadcom also stands a chance to become the next chipmaker to reach $1 trillion thanks to its AI revenue quadrupling year-over-year during the first fiscal quarter of 2024.  

Broadcom offers AI chips that “focus on overcoming the networking challenges involved in moving around large amounts of data…[Broadcom] also makes chips for smartphones, broadband access, and data storage.”

Aside from its latest AI products, Broadcom’s software arm recently acquired VMWare, “which cements its position in virtualization and mainframe software, complementing security software.”

Like TSMC, Broadcom’s current market cap is $650 billion, with strong growth expected over the next several years the company is in prime position to join the $1 trillion club. With their diverse portfolios, both benefit from the recent AI boom but its wide variety of offerings will attract a greater audience than if they were solely AI service providers.  

CHIPS Act Facing Talent Shortage

The CHIPS and Science Act has been a significant step toward revitalizing the United States semiconductor industry. Since its passage, the U.S. Commerce Department announced “nearly $30 billion in grants and an additional $25 billion in loans” alongside generous tax breaks. In the years after its announcement, a total of $450 billion in private investments have been used to build new factories across the United States, from Oregon to New York.

Unfortunately, even the best-laid plans can hit snags.  

Industry experts tell Fortune that the semiconductor labor shortage is derailing the most recent phase of the CHIPS Act. Factories don’t have enough qualified staff to operate these fabs, which is a challenge TSMC encountered at its new Arizona facilities. TSMC had to bring over trained staff from its other plants in Taiwan to help train new workers and fill existing gaps.

“Workforce is a really, really important potential bottleneck,” an anonymous CHIPS Act official told Fortune. “We have some of the world’s greatest talent in this country. But because we have dramatically reduced our footprint in semiconductor manufacturing over the past 35 years, we have lost many of those skills, and we need to reinvigorate that.”

Due to past trends of outsourcing skilled chipmaking labor, the U.S. is currently short roughly 67,000 skilled workers. Different organizations, including federal officials, nonprofits, and educators, are working together to find solutions to close this gap quickly. Similarly, this problem isn’t inherent to the United States alone.  

China, another country working overtime to boost domestic semiconductor manufacturing efforts, faced an estimated shortage of 200,000 workers in 2023. Even the chipmaking giant Taiwan needs more skilled labor to man all its country's newest facilities.  

“You can’t run an economy like ours without having a solid manufacturing sector,” Mike Russo, President and CEO of the National Institute for Innovation & Technology (NIIT), told Fortune. “It’s a foundational component of innovation. If you want to lead, you have to innovate.”

“Over the years, semiconductor companies like Intel have relied on community college students to fill a large portion of technician jobs at [factories], but the emphasis on technician training waned over the years as companies invested more in science, technology, engineering, and math (STEM) education and research funding for bachelor, master and Ph.D. programs,” Intel wrote in a 2023 report on the semiconductor labor shortage.

Industry officials and chipmaking giants are working together to fund new programs to jumpstart career paths. The goal is to show that these positions are safe and sustainable with strong government support to ensure longevity. The more successful semiconductor manufacturers can prove that becoming a semiconductor fab technician is a long-lasting future career path, the more interested prospective workers will be in learning new skill sets.

“It’s going to be years of hard work on the ground—building programs, building connections, building stakeholder groups, getting middle schoolers excited about semiconductors,” said the CHIPS official. “That’s what it’s going to take. And we’re going to get there, but it will take a lot of work.”

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We are approaching the end of the first half of 2024’s fiscal year. As the electronic components industry nears the start of 2H24, companies are assessing how well inventory adjustments helped stem the impacts of excess stock. Reports from market analysts and company leadership reveal that ongoing efforts have achieved remarkable results thanks to strict adjustments and artificial intelligence (AI) demand.

Meanwhile, AMD continues to capture interest from the AI market, challenging Nvidia’s dominance and Intel’s growing presence. AMD’s latest announcement supports the organization’s continued commitment to expanding its AI portfolio.  

Yageo Leadership Says Inventory Adjustments Now at Healthy Level

After months of adjustments to combat the challenging inventory glut, companies are finally reaching stability. Passive component manufacturer Yageo recently announced that its current inventory adjustments have reached a healthy level.  

Yageo Founder and Chairman Pierre Chen stated, “The capacity utilization rate for standard products has increased from 50% to 65%, and for niche products from 70% to 75%, with the expectation that inventory will be fully adjusted by the first half of 2024.”

Chen and, more significantly, Yageo are optimistic about the rapid growth in high-performance computing (HPC), sensing, high-speed computing, automotive, and AI. Yageo plans to expand its global presence through different avenues, specifically connecting peripheral products to transform the company into a one-stop solution provider.

Many organizations, especially those in artificial intelligence, also aim to become a “one-stop-shop” for their niche. Nvidia is one such company working to become the go-to for all AI needs.

Despite the challenges posed in 2023, Yageo has seen steady results over the last several months. Yageo’s expansion into high-end application markets, optimization of niche product portfolios, execution of acquisition strategies, and realization of consolidation benefits resulted in the organization's robust combined revenue and gross profit performance.  

Yageo’s inventory improvement is an excellent indicator for the electronic components market. Over the last year, companies within the industry have aggressively kept up with inventory adjustments to ensure excess didn’t grow out of hand. Fortunately, stringent corrections and the popularity of artificial intelligence kept inventory overhang from spiraling out of control.

According to Edgewater Research, 2H24 marks the turnaround from glut to growth, and with Yageo’s recent announcement, many organizations might be in the space point of recovery. Despite seeing the most demand from AI applications, memory suppliers have kept tight capacity control. They also see a growing supply-demand gap helping increase prices across DRAM and NAND flash. With Yageo’s latest update, passives may be the next market to follow suit.  

We are still several weeks out from 2H24, and time will tell if this prediction rings true.  

AMD Announces New AI Chip

In June 2023, AMD announced its newest GPU, the MI300X, which became one of the biggest challengers to Nvidia’s flagship GPUs. In a statement on the MI300X series, AMD said that the MI300X’s CDNA architecture was designed for large language models and other cutting-edge AI. AMD also offered Infinity Architecture, which combines eight chips in one system for AI applications, and its software package ROCm, similar to Nvidia’s CUDA.

AMD’s MI300X is more affordable than Nvidia’s GPUs, but it still offers capabilities that endeared Nvidia’s components to developers, such as its software package ROCm. Now, AMD’s new Ryzen AI 300 series will take up the mantle to challenge Nvidia’s dominance.

AMD Chair and CEO Lisa Su said during the conference, “AI is our number one priority, and we’re at the beginning of an incredibly exciting time for the industry as AI transforms virtually every business, improves our quality of life, and reshapes every part of our computing market.”

The Ryzen AI 300 series for next-generation AI laptops would compete directly with Intel’s Lunar Lake and Qualcomm’s Snapdragon X chips. AMD’s partnership with Microsoft will see Microsoft’s popular AI chatbot Copilot powered by AMD’s latest lineup. Su states that the Ryzen 9000 series for desktops is the “world’s fastest consumer PC processor” for gaming and content creation.

Not to be outdone, Nvidia announced new AI chips the day before, named “Rubin,” which is its successor to the previous “Blackwell” model released in March.

Many chip firms compete to launch faster and more powerful processors in the AI race. Nvidia CEO Jensen Huang pledged to release a new AI chip every year, faster than its previous two-year timeline. AMD also plans to release new AI chip tech each year.  

Su went on to detail its upcoming data center chip roadmap, announcing that Instinct MI325X accelerators, a more powerful version of the MI300 series, will be available in Q4. Likewise, its fifth-generation EPYC server processors will be launched in 2H24.  

AMD will continue to outsource the manufacturing of these powerful chips to foundries, mainly industry leader TSMC, which also manufactures Nvidia’s components. However, if TSMC is the sole manufacturer of all in-demand AI chips, this could lead to capacity issues for components. TSMC’s expansion plans could help ease this problem, but AI’s market growth over the next few years and the ongoing labor shortage might throw a wrench in these plans.

For buyers, it is pertinent to partner with an electronic components distributor with the reach and sales expertise to source these popular components. Sourceability is one such company with the skill to source hard-to-find components like AMD and Nvidia’s flagship chip lines.  

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Artificial intelligence, industrial controls, and automotive intelligence are the primary growth drivers for the semiconductor market this year. While consumer electronics demand remains low, artificial intelligence (AI) has bolstered recovery among memory manufacturers, specifically in DRAM, NAND-flash, and storage sectors. As original component manufacturers (OCMs) grapple with AI trends, prioritizing specific components may contribute to an oncoming shortage.

To fortify itself against future supply constraints, China is pushing ahead with a new investment fund to help boost its domestic semiconductor industry. With the latest restrictions and bans in its ongoing trade war with the United States, the fund’s passage saw a new level of urgency.

China Sets Up Third Fund for Chips

China has recently set up its third planned state-backed investment fund for its semiconductor industry, aiming to boost chip production. The fund, a whopping $47.5 billion, will continue to support President Xi Jinping’s goal of achieving semiconductor self-sufficiency for China. Since the growing increase in export control measures over the last couple of years, the U.S. and China are pushing for more domestic competition in advanced semiconductors.

“The third phase of the China Integrated Circuit Industry Investment Fund was registered under the Beijing Municipal Administration for Market Regulation,” according to the National Enterprise Credit Information Publicity System, a government-run credit information agency. The three phases together are more commonly known as “The Big Fund.”  

This is the largest of the three funds instituted by the China Integrated Circuit Industry Investment Fund and will be launched in September, as reported by Reuters. The first part of the phase was established in 2014, with the second commencing in 2019. These funds have provided financing to China’s two biggest chip foundries and more including Semiconductor Manufacturing International Corporation, Hua Hong Semiconductor, and Yangtze Memory Technologies.  

Due to restrictions on advanced lithography equipment, which is essential in creating leading-edge chips, the third fund will primarily support chip manufacturing. This will help promote further self-reliability, which many countries have pursued since the global semiconductor shortage.  

With Huawei’s recent increased reliance on Chinese suppliers, many few these investment funds as successful. As China loses access to some products, such as Nvidia’s cutting-edge chips, domestic companies like SMIC are stepping up to the plate to pick up the slack. However, there is still uncertainty lingering amongst top leadership.

While phase three of the Big Fund is larger than the $39 billion in direct incentives within the U.S. government’s CHIPS Act, Bloomberg notes that Beijing’s past investments don’t always pay off. Some Chinese leaders have been highly critical in how the investment money is utilized, if at all.

Still, the third phase of the Big Fund may see greater success now, especially since most countries recognize the importance of having a solid supply of domestically produced semiconductors.  

HBM Prices Going Up and Could Lead to DRAM Shortages

According to TrendForce Senior Research Vice President Avril Wu, the high-bandwidth memory (HBM) market will make great strides in the coming years. Significant pricing premiums and increased capacity needs for AI components are contributing to price spikes and growing demand.  

Currently, HBM’s unit sales are several times higher than conventional DRAMs and five times higher than those of DDR5. HBM’s share is projected to dramatically increase in capacity and market value thanks to pricing alongside product iterations in AI technology that increases single-device HBM capacity. HBM’s share of the total DRAM capacity is estimated to rise from 2% in 2023 to 3% in 2024 and a considerable 10% by 2025.  

According to TrendForce data, HBM is projected to account for more than 20% of the total DRAM market value starting in 2024 before exceeding 30% by 2025. Avril Wu states that negotiations for 2025 HBM pricing have already begun during 2Q24. With DRAM's limited overall capacity, suppliers have only increased prices by 5%-10% to manage capacity constraints. This is specifically for HBM2e, HBM3, and HBM3e.

Early negotiations have begun primarily due to the overall confidence in AI’s demand prospects in the latter half of 2024 and the next several years. Because of AI's solid demand, customers are willing to accept continued price increases.  

Furthermore, “not all major suppliers have passed customer qualifications for HBM3e, leading buyers to accept higher prices to secure stable and quality supplies. Future per Gb pricing may vary depending on DRAM suppliers’ reliability and supply capabilities, which could create disparities in ASP and, consequently, impact profitability.”

According to TrendForce, “the annual growth rate of HBM demand will approach 200% in 2024 and is expected to double in 2025.”

Samsung Electronics, SK Hynix, and Micron Technology are all investing in HBM production. Likewise, industry sources cite a report from Commercial Times which reveals that DRAM products may face shortages in 2H24. Following the recent rise in memory contract prices, these DRAM suppliers are increasing wafer input for these advancement processes, which will account for 40% of total DRAM wafer input by the end of the year.

SK Hynix is currently the primary supplier of HBM alongside Micron, utilizing 1beta nm processes and shipping to Nvidia. Samsung is close behind, reaching qualification in Q2 to begin deliveries mid-year. Samsung expects its existing facilities to be fully utilized by 2024. All three memory suppliers expect some of their new facilities to start mass production throughout 2025, contributing to the meteoric rise of HBM.  

However, the overall DRAM supply will likely be short due to capacity crowding. Availability will be challenged unless more manufacturing lines are built quickly. With most new facilities expected to come online in 2025 at the earliest, these problems may be unavoidable.

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Countries continue to court original component manufacturers (OCMs) and technology giants for their domestic semiconductor ecosystems and artificial intelligence (AI) endeavors. Over the last few years, different laws and programs have helped subsidize new facilities worldwide.

France is succeeding in its ongoing “Choose France” campaign to become the EU’s AI hub. This month, France garnered investments from tech leaders Microsoft and Amazon. Meanwhile, China is grappling with tariffs and bans that further complicate its domestic chip efforts.‍

Microsoft Invests in France to Expand AI Infrastructure

France’s AI dreams are coming to fruition. Microsoft has recently announced its largest investment to date in France, a whopping $4 billion that will go toward cloud and AI infrastructure, AI skilling, and French Tech acceleration. Microsoft aims to train around 1 million people and support 2,500 AI start-ups by 2027.  

Microsoft announced its plans during the Choose France summit, wanting to accelerate the adoption of AI and cloud technologies to increase France’s competitiveness. Digital technology made in France creates long-term benefits for the French economy and job market. Microsoft will directly contribute to France’s National Strategy for Artificial Intelligence, which will contribute to France’s goal of becoming a leader in AI development and use.

France's new cloud and AI infrastructure will operate under Microsoft’s recently published AI Access Principles, which aim to foster innovation and healthy competition. These principles also reflect Microsoft’s expanding role and responsibility in AI, showing its commitment to investments, forging business partnerships, and creating programs ensuring broad access to AI technology to help empower other organizations and individuals.

Microsoft aims to expand its data center footprint across existing sites in Paris and Marseille to support new additions in the Grand Est Region in Mulhouse Alsace Agglomération.  

Microsoft will expand its “A Vous l’IA” initiative and partner with France Travail to train job seekers in the skills they need to use AI technologies, increasing overall AI fluency within the country's labor pool.

“Artificial intelligence is an essential lever for accessing and returning to employment. Jobseekers cannot do without AI in a context where these new tools will significantly improve job search techniques and impact many job roles. France Travail’s commitment alongside Microsoft is essential to provide job seekers with all the solutions and skills they need to use AI,” said Thibaut Guilluy, General Manager of France Travail.

The company will also work alongside Kokoroe, a French Ed-Tech company specializing in micro-learning, to build this new exclusive content based on short, easy-to-consume modules with no required technical background. These modules will be available through Microsoft’s A Vous l’IA platform and other select mainstream learning platforms.

“In this Year II of generative artificial intelligence, and as it has already entered the age of reason, we are proud to announce a historic investment in France today. Through state-of-the-art cloud and AI infrastructure, a major training plan for the French, and renewed support for startups in the hexagon, we are pursuing our commitment to sustainable and inclusive growth,” stated Corine de Bilbao, Corporate Vice-President of Microsoft France.

Microsoft plans to expand its sustainability efforts by investing in renewable energy as it expands operations in France. This way, Microsoft can also push toward its commitment to reaching 100% renewable energy coverage for company operations by 2025, water-positive by 2030, and zero waste by 2030 by applying lessons learned in France to other facilities.  

Bans and Tariffs on China Electric Vehicles

In a report from Reuters, U.S. Commerce Secretary Gina Raimondo stated on May 8th that the government needed to act upon China-produced cars, suggesting “extreme action” through restriction or prohibition. According to Raimondo, the reason is to prevent the leakage of data belonging to U.S. Citizens.  

Per Reuters, the U.S. administration initiated a review earlier this year in February on whether to import Chinese automobiles. President Biden’s decision to quadruple tariffs is designed to keep Chinese automobiles from undercutting U.S. automakers with electric vehicles (EVs) that cost a fraction of those produced by American companies.  

China’s BYD Auto recently overtook Tesla as the most popular global EV brand. These small but well-built vehicles have quickly become popular in China thanks to their functionality and affordability.  

“Any car company that’s not paying attention to them as a competitor is going to be lost when they hit their market,” said Sam Fiorani, a Vice President at AutoForecast Solutions near Philadelphia. “BYD’s entry into the U.S. market isn’t an if. It’s a when.”

China’s decision to offer subsidies in EV technology has led to a rapidly developing market sector. One that could challenge America’s auto sector, which lacks the same financial support.  

According to the Associated Press, “There currently are very few EVs from China in the U.S., but officials worry that low-priced models could soon start flooding the U.S. market, even with a 25% tariff.”

“A car model launched last year by Chinese automaker BYD sells for around $12,000 in China. The car’s craftsmanship rivals U.S.-made EVs that cost three or four times as much — and is stoking fear in the U.S. industry.”

The Alliance for American Manufacturing stated that “the introduction of inexpensive Chinese autos to the American market “could end up being an extinction-level event for the U.S. auto sector.” The U.S. auto sector accounts for 3% of America’s GDP.”

Tesla CEO Elon Musk added that BYD’s dominance is not unexpected. Musk told industry analysts that Chinese EVs are so good that without trade barriers, “they will pretty much demolish most other car companies in the world.”

As countries continue to urge the public away from gasoline-powered cars, many might find the affordability of Chinese EVs attractive. In contrast, other EV automakers are often pricey and cater to higher-income markets. Hefty tariffs might only slightly offset the eventual domination of Chinese-made EVs, unless the U.S. automakers find new ways to boost efficiency and cost.

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Memory prices are going up as artificial intelligence demand feeds surging orders. Within the next decade, the artificial intelligence (AI) market will see a compound annual growth rate (CAGR) of 28.46%. If it keeps following this rate, generative AI could become a $1.3 trillion market by 2032. With the continual application of AI in different technologies, such as automobiles and search engines, this forecast is likely to come to fruition.  

Due to AI’s high demand, the components that power these innovative technologies have been in short supply. Enterprise AI and the technology sector, such as Google, Apple, and Microsoft, have eagerly ordered the little stock available. This contributed to bottlenecks for some of the most popular components during 2023.

Recent news shows that the constraints for some AI-capable components have been easing. However, a new problem has begun developing.  

AI GPU Shortage Eases but New Problem Arises

In late 2022, OpenAI’s debut of ChatGPT, a generative artificial intelligence large language model (LLM), sparked a wave of innovation in tech. New programs and applications that utilize AI capabilities made headlines, and now, seemingly overnight, one can search on Google and be aided by ChatGPT’s answers.  

As a result, the demand for high-performance graphics processing units (GPUS) surged. Nvidia’s GPU line-up was highly coveted, quickly becoming tight in supply or out of stock entirely. Even as late as March, prices remain high, with Nvidia’s latest Blackwall AI chip costing between $30 to $40 thousand.  

Over 2023, chip giant TSMC reportedly faced the brunt of the demand tsunami. As the leading supplier of advanced packaging technology, specifically its chip-on-wafer-on-substrate (CoWoS), TSMC ran out of production capacity and had inefficient capabilities to meet demands. Since that announcement, TSMC has actively expanded its CoWoS production, and now Nvidia’s GPU supply is more stable.

Earlier this year, market reports revealed that clients who had previously purchased Nvidia GPUs were reselling unused components. This was not an indication of dipping demand but a reflection of TSMC’s improved capacity and the greater availability of competition in the GPU market from other manufacturers such as AMD.

Now, even with ravenous buyer demand, the GPU shortage has eased. Unfortunately, that easement has cleared the way for another, bigger problem.

Meta CEO Mark Zuckerberg stated that the GPU shortage in AI data centers has been alleviated, but the future bottleneck will originate in power supply. With GPUs becoming less constrained, companies can kick-start significant investments in establishing data centers and infrastructure to support AI development.

The challenge here, Zuckerberg believes, is power supply. Zuckerberg said that “many new data centers could consume 50-100MW, and large data centers could reach up to 150MW. As the scale of data center power consumption grows, the AI industry may hit a power supply bottleneck.”

Compared to AI, the energy sector does not have the same ease of building new facilities or infrastructure. Establishing new energy facilities requires abiding by regulations, complex power transmission planning, and construction, which are just the tip of the iceberg. It's one of the problems the electric vehicle (EV) industry is grappling with. Due to these challenges, the likelihood of a potential future power crisis comes closer to reality.

Tesla CEO Elon Musk and OpenAI CEO Sam Altman have echoed Zuckerberg’s concerns. Musk warned organizations in April that there may not be enough electricity to run all the chips made next year. Altman stated that AI will consume more power than initially expected, meaning that future AI development should work alongside energy technology breakthroughs.

U.S. Could Increase Tariffs on Chinese Chips by 100% in 2025

There have been new developments in the ongoing trade war between the United States and China. The Biden Administration has recently announced its plan to increase tariffs on several Chinese imports, specifically semiconductors, EVs, batteries and battery components, solar cells, and many others. In a White House press release, tariffs on Chinese semiconductors will increase from 25% to 50% in 2025, doubling the country's tax rate.

The continued actions in the U.S.-China trade war have pushed Chinese tech firms to develop their domestic alternatives. Since the Netherlands has blocked ASML Holding, the primary manufacturer of advanced lithography equipment, from exporting to China, Naura Technology announced that it would enter the lithography tools market alongside Shanghai Micro Electronics Equipment (SMEE).

Liu Pengyu, a spokesperson for the Chinese Embassy in Washington, said, “We hope the U.S. can take a positive view of China’s development and stop using overcapacity as an excuse for trade protectionism.”

While the Biden Administration’s plan wasn’t met with too many dissenting votes, some representatives have spoken out against the latest tariffs. David French, the executive VP for Government Relations for the National Retail Federation, said, “As consumers continue to battle inflation, the last thing the administration should be doing is placing additional taxes on imported products that will be paid by U.S. importers and eventually U.S. consumers.”

Colorado’s Democrat Governor Jared Polis tweeted on X, “This is horrible news for American consumers and a major setback for clean energy. Tariffs are a direct, regressive tax on Americans, and this tax increase will hit every family.” On the other hand, the Republican National Committee is saying that the Biden Administration wasn’t tough enough.

The new tariffs are expected to increase the prices of semiconductors and other high-tech goods. It will be interesting to see how these tariffs will affect U.S. technology when Chinese companies have made leaps and bounds in developing their tech since the restrictions. Even with the restrictions, China could become a leader in semiconductor development without American chips.

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The semiconductor industry continues to experience twists and turns along the road to recovery. Inventory overhang and the uncertain market outlook has caused seesawing between low to high demand. As market research firms began to forecast a likely decline in memory demand, it surged again.  

Prices are rising as demand propels them forward. Natural disasters and artificial intelligence are likely the primary reasons demand has surged. With damages from the recent earthquake affecting memory supply, some buyers may be concerned about lasting impacts, even if chip manufacturers have claimed it to be limited in scope.

Memory is Expected to Rise by 20% in Q2.

It has been a little over a month since the devastating earthquake struck the eastern coast of Hualien, Taiwan. While the epicenter of this deadly quake was far from the shores of Taiwan’s more populated cities, many buildings across the island saw reported damage. As a global leader in electronic components, Taiwan is known for its numerous chip-making facilities operated by industry giants such as TSMC. While many of these original component manufacturers (OCMs) had numerous protections against earthquakes, some still experienced damage.

Micron, Nanya, Winbond, and PSMC are several chipmakers that issued impact statements following the Taiwan 2024 earthquake. Micron’s Taoyuan site reported that over 60% of its wafers had to be scrapped. Nanya stated that most of its wafers required additional inspection due to the machines' inability to bear the load. Winbond saw a 1% wafer loss equivalent to the total 2024 output.  

PSMC reported that its P3 fab experienced the most significant losses out of the four. In a report by TrendForce, 90% of PSMC’s wafer capacity was recovered by 4/8, with full recovery expected the same day. By April 18th, most manufacturers had experienced a full recovery, with only Micron’s Taoyuan plant seeing an 80% recovery on the morning of April 18th.

Furthermore, Micron’s cutting-edge processes, for its 1apla and 1beta nm technologies, are anticipated to significantly “alter the landscape of DRAM bit production. Other Taiwanese DRAM manufacturers still use 38 and 25nm processes, contributing to less total output. In its entirety, TrendForce estimates that the earthquake’s effect on DRAM production for Q2 will be a manageable 1%.

However, prices are on the upswing.  

According to TechNews, there has been a significant surge in demand, with prices trending upwards. Korean manufacturers are set to increase DDR5 prices by 13% in May alongside DDR4, which will see a 10% increase. Memory prices in 2Q24 are expected to rise by 20% to 25%. Micron has suspended quotations post-quake but has notified its clients of a 25% increase in DRAM and SSD contract prices.

Samsung’s early decision to cease DDR3 production has increased orders for DDR3 from Nanya and Winbond. Both companies are expected to increase prices by 10-15%.

In 2H24, industry experts predict that the supply-demand gap will begin to exceed 20-30%, further increasing DDR3 prices in the latter half of the year, possibly reaching 100%. This is due to the ongoing trend among major memory manufacturers of transitioning production capacity to HBM and DDR5, away from DDR4 and DDR3.

‍CHIPS Funding Goes to Digital Twins Research

The U.S. CHIPS and Science Act was a vital $52 billion boon to the American semiconductor industry. After decades of slow decline and moving outside the U.S., everyone’s realized the importance of a domestic semiconductor supply chain after the effects of the global semiconductor shortage.  

To continue to push the envelope in semiconductor manufacturing, the Biden Administration announced that it was taking applications for $285 million in federal funding from the entire $283 billion package that is the CHIPS and Science Act. The U.S. Administration is “seeking companies to establish and operate a CHIPS Manufacturing USA Institute focused on digital twins for the semiconductor industry.”

This funding will include basic and applied research related to semiconductor digital twin development, establishing and supporting shared physical and digital facilities, industry-relevant demonstration projects, and digital twin workforce training. This will be a huge step in achieving U.S. semiconductor goals, as digital twin technology is essential in chip development.  

“Digital twin technology can help to spark innovation in research, development, and manufacturing of semiconductors across the country–but only if we invest in America’s understanding and ability of this new technology,” said U.S. Commerce Secretary Gina Raimondo.  

Digital twins are virtual representations of physical chips that can mimic their real versions. This allows researchers to test new processors before they’re put into production, giving them data on how a component might react to a boost in power or a different configuration. It also makes it easier and less resource-consuming for companies and allows researchers to leverage artificial intelligence to speed up chip development and manufacturing.

The U.S. Department of Commerce said, "Companies, universities, non-profits, and other similar businesses can apply to build and run the CHIPS Manufacturing USA Institute, which will be the first such institute established by the Biden Administration.”

The institute will "focus on the development, validation, and use of digital twins for semiconductor manufacturing, advanced packaging, assembly, and test processes.”  

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Artificial intelligence demand has contributed to bottlenecks and shortage conditions across the memory market. Over the last few quarters, memory manufacturers have raised prices across DRAM and NAND-flash. Strategic production cuts by chipmakers have kept supply tight, and following the earthquake, some DRAM components might see further constraints due to damage incurred by the earthquake.

Last week, Western Digital Corporation (WDC) confirmed to its clients that certain products were experiencing shortage conditions. With the raised demand, WDC stated that it planned to raise prices in the coming weeks as demand fluctuated. Now, another manufacturer is doing the same. Despite these challenges, it is unlikely manufacturers will raise production capacity. This is to keep excess inventory from getting out of hand. A concern that is growing among semiconductor leadership as new facilities continue to pop up.  

Seagate Technology Follows Western Digital with Price Hikes?

Hard drive manufacturer Seagate Technology has communicated to its customers that it will increase prices for new orders. Like WDC, this decision has been made now that demand has exceeded former expectations. The high demand for high-capacity HDD products continues to originate mainly from the AI sector. The reduced production by manufacturers over the last several quarters has contributed to the current HDD supply being unable to meet demand, raising the prices sky-high.  

However, memory manufacturers have not planned to increase production capacity. Ongoing global inflationary pressures and low consumer electronics orders have kept prices high and stock low. Seagate indicates that prices will continue to rise in the coming quarters. Industry sources cited by TechNews agree with the likelihood of supply shortages for high-capacity HDD products throughout the year.

Similarly, a report from ETNews stated that industry sources indicated that Samsung Electronics increased the capacity utilization rate of NAND-flash to over 90%, an increase after 80% in 1Q24. In the same report, ETNews stated that the capacity utilization rate for its Xi’an plant in China has notably increased, following the gradual recovery in capacity at Samsung’s Pyeongtaek facility.

As with HDD, the primary driver in NAND-flash market recovery is the increased demand for enterprise SSDs by AI and cloud computing service providers. Kioxia and WDC are boosting their production capacity utilization from Q1, but other suppliers are keeping their production strategies conservative despite the high demands. This is likely due to the lack of recovery in consumer markets, which are the typical growth drivers throughout the year.

According to TrendForce, there will be a slight dip in NAND-flash purchasing in Q2. This dip is not attributed to market momentum but reflects decreasing supplier inventories and the expected impact of production cuts.

Research Warns that Unchecked Investments Might Contribute to Excess Inventory Risks

The CHIPS and Science Act in the United States, the European Union’s Chips Act, India’s chip grants, and more are just a few of the many government programs by countries worldwide to push for domestic semiconductors. Other countries plan to go for expansion plans to support their current manufacturing industry.  

After the global semiconductor shortage challenges, countries and chipmakers alike have been eager to build domestic chip ecosystems. The greater the diversity, the less likely the semiconductor supply chain will be disrupted by bad weather, geopolitical conflict, or lockdowns.

However, companies might create a more problematic risk in the industry’s mounting efforts to grow the global supply chain.  

According to DIGITIMES Research, the “demand for wafer foundry services in 2024 is unstable, and major wafer foundries have adjusted their capital expenditures downward to regulate the pace of adding new production capacity, with new capacity expansion plans being more conservative than in 2023.”

The problem with a growing amount of chipmaking facilities is the possibility of reaching semiconductor factory overcapacity and increased chip inventories. Excess inventory proved a major adversary throughout 2023, contributing to numerous issues, such as the downturn of memory and diminished purchasing power among organizations.

If the industry and governments are not careful in planning their semiconductor investments, an excessive number of chip facilities could cause inventory overhang, a problem doomed to persist.  

The Global Semiconductor Industry Outlook 2024 conducted by KPMG and the Global Semiconductor Alliance (GSA) shows that “the global economy is impacted by high inflation and interest rates, resulting in weak economic performance, with no significant recovery in end-consumer demand.”

“Only 8% of respondents in KPMG and GSA's survey believe there will be supply chain shortages in the next four years, with 42% even believing that excess inventory has already occurred…However, 19% believe there won't be excess inventory because demand for chips in electric vehicles, AI, and emerging applications continues to increase.”

Over half of the senior executives in the study believe leaders will slow capital expenditures and instead allocate resources toward research and development in 2024. In the next three years, semiconductor overcapacity will rank alongside the talent shortage as one of the top five concerns for the industry.

OCMs must strategically plan, weighing the benefits against drawbacks such as increased risk of overcapacity. Excess electronic component inventory proved to be a challenging behemoth in 2023 and remains a problem many organizations are still fighting against.  

New domestic facilities are necessary for a country’s national security and economic success. Chipmakers must approach each opportunity critically to ensure the risk and reward benefit the entire industry and not put it at greater risk.  

After months of waiting, the U.S. government is quickly distributing the funding from its long-awaited CHIPS Act. Over the past several months the U.S. government has announced, numerous recipients of the grants. The chipmakers have gone on to inform news outlets on how they plan to allocate the funding they’ve received. Samsung Electronics and TSMC were two of the most recent awardees, alongside Intel and BAE Systems.

Another memory giant joined just a few weeks after Samsung Electronics joined the ranks.  

The memory market has seen a flurry of activity these past months. Artificial intelligence (AI) has contributed to the ongoing rise in memory contract prices. More funding to major memory manufacturers could be the saving grace the industry needs, increasing future production capacity. However, is the memory market really moving in a positive direction for the long haul? Or is this just a short burst of good fortune?

Micron Receives CHIPS Funding

Micron Technology has joined the ranks of United States CHIPS Act recipients. The Biden Administration plans to give Micron up to $6.1 billion in grants, which will go towards its New York and Idaho facilities. In New York, Senator Chuck Schumer announced that the grant would help Micron construct two new facilities by the decade's end.

Since the CHIPS Act was first announced, Micron is one of many chipmakers that planned to expand their manufacturing footprint within the U.S. In September 2022, months after the successful passage of the CHIPS Act, Micron said it would build a $15 billion factory in Boise, Idaho. This would be the first new U.S. memory chip plant in 20 years.

A month later, Micron set its sights on Syracuse, New York, pledging an initial investment of $20 billion by the end of the next decade and plans to spend upwards of $100 billion over the next two decades or more. This massive project could lead to four new manufacturing plants for the Syracuse area, bringing thousands of jobs to New York’s citizens.  

With Micron’s announcement, the funding already given out from the CHIPS Act is now more than $29 billion. Less than $10 billion remains, a significant amount for the other chipmakers waiting for their chance.  

While all CHIPS Act recipients play a crucial role in helping bolster U.S. domestic semiconductor manufacturing, Micron’s role is two-fold. Micron is the last U.S. supplier of DRAM. With a significant stake in flash memory, the memory market is dominated by two giants, Samsung Electronics and SK Hynix, both South Korean companies. South Korea alone is a giant exporter of memory chips, leaving the U.S. with few options if it wants to go completely domestic.  

Before the market consolidation in the 80s and 90s, other massive U.S. players, such as Intel and Texas Instruments, were once part of the market. Only three major players remain: Samsung, SK Hynix, and Micron. Because DRAM and flash memory are mainstays in the greater electronic components market, which is necessary in everything from data centers to AI, having a larger domestic memory manufacturing presence will be critical to U.S. semiconductor aspirations.  

Most of Micron’s manufacturing facilities are in Taiwan, Japan, and Singapore, with its offices remaining in San Jose, California. Micron’s current CEO, Sanjay Mehrotra, has worked hard to spearhead efforts to boost U.S. production and win government subsidies. According to Mehrotra, the recent award of CHIPS grants has worked out well with the market timing.  

Though, that depends on whether the market is really moving in an upward direction.

Memory Chip Prices Are Going Up, but Is It Positive?

During the worst of 2023’s inventory glut, the memory market suffered the steepest decline compared to most components. Prices took months to consolidate at a bottom, finally reaching it in late Q3 and Q4 of 2023. Most memory manufacturers engaged in strategic production cuts to stem the excessive flow.  

These cuts and AI’s popularity prevented the downcycle for DRAM and NAND-Flash from reaching historic lows. While the market downturn hurt plenty, Edgewater Research confirmed that the lows in 2023 were nothing compared to what was seen in 2008.  

In 1Q24, major memory manufacturers announced price hikes, including Micron, Samsung, and Western Digital. Continued production cuts have helped manufacturers keep a tight grip on supply and allow them to raise prices. Likewise, the recent earthquake in Taiwan has only prompted further imbalance, leading to more price hikes.  

However, according to industry experts, the ongoing price hikes do not indicate a greater market turnaround. Instead, the primary driving force lies with the manufacturers keeping supply tight. The main growth areas aren’t consumer electronics, more industrial control, AI large language models (LLMs), and automotive smart technology. All other markets have remained tepid, with no apparent signs of growth.  

Micron may increase the price for its products by 20% over Q2, due to the Taiwan earthquake. However, the company is still in price negotiations regarding this decision. The damage Micron’s facility received because of the earthquake, specifically on its advanced processes, has experts discussing the possibility of greater price increases on its server DRAM than its mobile DRAM. TrendForce reports that it believes there will be an increase of 3%-8% QoQ in mobile in general.

Western Digital confirmed a shortage in its HDD and SSD product lines, warning clients of upcoming price adjustments over the next quarter, with no range given yet. As rumors about an enterprise SSD supply shortage circulate, there is an expectation that Samsung may follow Western Digital’s lead. Industry sources suggest that Samsung might raise its prices for enterprise SSD by 20% to 25% in 2Q24, reversing the downward trend seen in 2023.

Overall, TrendForce reports that momentum for inventory replenishment, which fueled many large purchases earlier this year, is expected to weaken. With a lackluster demand outlook and large price increases, DRAM contract prices will converge to 3%- 8%.

NAND-Flash will see a high increase of 13%-18% as the market climate and reduced supplier inventory influence the procurement trends. Memory is still in uncharted waters at this stage of recovery. Consumer electronics demand isn’t expected to return to normal levels until the latter half of the fiscal year, at a minimum. AI will continue to set the pace, meaning organizations looking for HDD and SSDs should take note of expanding lead times and high prices.  

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The semiconductor industry continues to forge ahead with new facility plans and partnerships. Just last week, OpenAI, the company behind the breakout generative artificial intelligence (AI) chatbot ChatGPT, announced its intention to collaborate with Japan’s top semiconductor minds. This new partnership aims to avoid a possible AI chip capacity challenge from the overwhelming demand.

Brad Lightcap, COO of OpenAI, says Nvidia is the leading force behind the high-performance graphics processing units (GPUs) essential for generative AI. Nvidia currently holds 80% of the market, which is already tight, and Lightcap says it will be crucial that the industry avoids a shortage.  

“Our priority is making sure that we don’t end up in a world where there’s so much demand for AI, but we don’t have enough capacity,” said Lightcap. Given how robust demand is now, with forecasts predicting it will extend for several years, we might have already reached that point with some AI components.

AI Demand Contributing to Shortage Conditions

In a recent letter to customers, memory giant Western Digital confirmed that there is a shortage of large-capacity HDD and SSD products. The overall demand from the AI market has caused HDD prices to surge, leading to ongoing adjustments for NAND-Flash and hard drive products.  

Due to AI's requirements for data storage and memory suppliers' strategic production cuts over 2023, HDD prices have skyrocketed. Industry sources say that from 3Q23 to 1Q24, HDD prices rose by 10% to 20%.  

While robust, this jump is smaller than SSD products over the same period. This results from SSD’s growing popularity over HDD in mainstream consumer PC markets for storage devices below 2TB. SSDs have access speeds that surpass HDD by almost ten times, allowing SSDs to narrow the cost gap when NAND-Flash saw declines.  

TrendForce reports that there will be a substantial increase in Q2 for NAND-Flash contract prices, likely falling between 13%-18%, with enterprise SSDs landing on the high end of the spectrum. Kioxia and Western Digital are boosting production capacity utilization rates due to demand, while others remain conservative. There will be an overall dip in Q2 NAND-Flash purchasing, likely influenced by decreasing supplier inventories and production cuts. Western Digital’s supply shortage is evident, and the market demand will remain high for the foreseeable future.

Industry sources believe there will be a supply shortage for large-capacity HDD products through this quarter and possibly the year. Western Digital’s recent letter to customers only affirms this prediction.  

Similarly, HDD and SSD prices could see another price increase of around 5% to 10% in 2Q24. According to TrendForce's sources, suppliers are unlikely to expand production immediately to sustain the upward price trend. Further stabilization depends on AI’s developments and whether HDD fits AI’s requirements or is outdone by enterprise SSDs or other high-performance components. Demand is already higher than previously forecasted.

Western Digital communicated that pricing adjustments will be frequent in the future and that the company has a limited ability to handle unplanned demand and orders. Customers are encouraged to notify their representatives early to accommodate changes better.  

Samsung Receives CHIPS Act Funds

Intel, TSMC, BAE Systems, and others have received their portion of the highly desired United States CHIPS Act. TSMC was the most recent recipient, making headlines with its plans to build a third facility within the U.S. to join its other two fabs. Now, Samsung Electronics is joining these chipmakers with the Biden Administration’s announcement.

Samsung Electronics will receive $6.4 billion in funding to help construct a new semiconductor plant in central Texas. Samsung will invest $40 billion to build new plants in Taylor and expand its pre-existing facility in Austin. The plants will be used for semiconductor research and development and semiconductor packaging.  

A semiconductor packaging facility will be another essential part of the developing U.S. semiconductor ecosystem. U.S. semiconductor companies still have to ship components to Taiwan to be packaged.  

"For the first time, Samsung can conduct core research and development in the United States of America, support the future, manufacturing at scale, and advanced packaging all in Texas," Commerce Secretary Gina Raimondo told reporters on a conference call.

The Samsung plants will also benefit national security endeavors, as they manufacture chips directly for the U.S. Department of Defense (DoD).

"It will boost our production capacity for chips in critical U.S. industries, including aerospace, defense, and autos. And doing so will bolster our national security," Lael Brainard, Biden's top economic adviser, said.

As the third largest recipient of CHIPS Act funds, the Texas state government and the Semiconductor Industry Association (SIA) have expressed their excitement about Samsung’s investment. The White House estimates the construction of the new plants will create 17,000 jobs and require over 4,500 manufacturing jobs within the next decade.  

In an official announcement, Samsung Semiconductor CEO Kye Hyun Kyung said, “We’re not just expanding production facilities; we’re strengthening the local semiconductor ecosystem and positioning the U.S. as a global semiconductor manufacturing destination. To meet the expected surge in demand from U.S. customers, our fabs will be equipped for cutting-edge process technologies for future products like AI chips and help bring security to the U.S. semiconductor supply chain.”

To support the demand for local talent, Samsung plans to “support and participate in the CHIPS R&D program such as NSTC and NAPMP to create new opportunities for the innovation of semiconductor industry. However, for our semiconductor ecosystem to succeed, it is absolutely critical that our efforts here attain active support from the public sector, including more inclusive STEM education, more eligibility for Investment Tax Credit programs, and more…”

More announcements on CHIPS Act recipients are expected to come soon. Each one is certain to strengthen the growing U.S. semiconductor industry in this next decade.

Domestic semiconductor facility plans continue to forge ahead within the United States. As CHIPS Act subsidies are doled out, new facility plans are on the table. It has been a long road, but the U.S. is finally underway in building a strong foundation for its domestic semiconductor ecosystem.

Not everything is sunshine and rainbows across the board. Due to the prolonged delay in awarding CHIPS funding, some companies have scaled back plans, if not canceled them altogether. It is still too early to tell how much of a detriment the extended wait time will have on U.S. semiconductor dreams.

TSMC Goes All in as SkyWater Technology Folds

After months of waiting for CHIPS funding, TSMC is finally receiving its portion of subsidies. Over the last few years, thanks to the CHIPS Act proposal, TSMC has been developing a vast expanse of the Arizona desert to produce its most advanced semiconductors. Apple has already booked out most of the chip capacity produced at TSMC’s Arizona location, making it a significant player in U.S. semiconductor goals and the broader economy.  

TSMC’s Arizona plant plans have suffered setbacks throughout their creation. Initially, the problems were the lack of local talent, an indicator of the greater global semiconductor labor shortage. To remain on schedule, TSMC brought in some of its domestic workforce to train the incoming U.S. staff. This set back plans and upset local government officials, who stressed the importance of TSMC hiring domestic U.S. employees.

As TSMC grappled with this problem, it was besieged by another pressing issue: the postponed arrival of the coveted CHIPS funding. In response, TSMC pushed out its expected production start date from 2026 to 2027 or 2028. In late February, TSMC Chairman Mark Liu said Arizona’s progress depends on “how many incentives the U.S. government can provide.”

Now, TSMC is moving full speed ahead. The Biden Administration announced that the company would receive $6.6 billion in federal grants. With these funds, TSMC says it plans to invest another $25 billion to expand operations in Arizona, bringing the total number of TSMC facilities in the state to three.

The three plants will produce TSMC’s most advanced chips and, hopefully, its upcoming 2nm fabrication process. These chips will be used in consumer electronics and artificial intelligence (AI) applications. The $6.6 billion in grants includes an allotment of $50 million in workforce development and an additional authorization for up to $5 billion in government loans alongside manufacturing tax credits.

TSMC expects some of the labor challenges it encountered to lessen with each project. Mark Liu said, "Even though we encountered challenges in Arizona for our first fab construction ... we believe the construction of our second fab will continue to be much smoother."

As TSMC prepares for expansion, chipmaker SkyWater Technology is scaling back.  

In a recent announcement by SkyWater Technology, plans to build a $1.8 billion semiconductor R&D and fabrication facility in Indiana have been temporarily scrapped. A Purdue spokesperson stated that SkyWater released its option on the land it planned to develop but would remain a partner with research opportunities in the works.  

“As the details of the CHIPS initiative have unfolded over the last year, we have taken the opportunity to reassess our plans for new fab construction in conversations with the state of Indiana,” SkyWater Technology said. “While we don’t have a definitive plan targeting new fab construction in Indiana, we remain committed to growing the microelectronics ecosystem in the U.S., including Indiana, with emphasis on providing fab access and production support for emerging and strategic technologies.”

While disappointing, SkyWater Technology’s withdrawal isn’t a surprise. In the original announcement, Purdue stated that the project depended on receiving funds from the CHIPS and Science Act. However, Purdue isn’t starting back at square one with SkyWater’s pullback. South Korean memory giant SK Hynix plans to invest $4 billion in a semiconductor facility at Purdue Research Park.

Productivity and Prices are Up with AI

AI is having another stellar year. Continued demand for AI applications and growing competition between Nvidia and its rivals have led to a rapidly developing market. AI’s influence has aided the recovery of DRAM and NAND-flash markets alongside strategic production cuts by their manufacturers. Continued implementation of artificial intelligence will only bolster demand in the coming years, strengthening as the benefits of AI become more well-known.

Research by the International Data Corporation (IDC) shows that applying generative AI to various marketing tasks may result in an estimated productivity increase of 40%. IDC’s research results show that generative AI could handle over 40% of the collective work of marketing teams and potentially 100% of specific marketing tasks. These results will vary from company to company, but the productivity gains already show strong guidance for marketing teams of all sizes.

"In the next five years, GenAI will advance to the point where it will handle more than 40% of the work of specific marketing roles," said Gerry Murray, Research Director at IDC's Enterprise Marketing Technology practice. "Because of the rapid evolution of GenAI capabilities, marketing leaders must prepare their staff for fundamental changes to roles, skills, and organizational structure."

With the growing use cases for AI, such as IDC’s marketing productivity results, components used in these AI applications are also increasing in demand.  

Over the past several weeks, there has been a developing shortage of enterprise solid-state drives (SSDs) within the NAND-Flash market. The shortage has been correlated to the AI boom and “subsequent construction of data centers by global big tech companies, with a particularly explosive increase in demand for storage devices needed for data centers.”

Following the ongoing trend by memory manufacturers over 1Q and 2Q of 2024, Samsung Electronics is expected to raise the price of its enterprise SSDs by 20% to 25% in 2Q24. With the surge in demand exceeding previous marker forecasts, Samsung Electronics is going beyond its original planned price increase of 15%.  

A semiconductor industry insider told DigiTimes, “Server companies seeking to expand their storage capacity are rushing their SSD orders recently, and some products are even experiencing shortages, leading to considerations for increased production.”

The decision to increase SSD prices is also a result of accelerated AI-related storage server expansions by Nvidia and Tesla. Major server companies, including Dell Technologies and Hewlett Packard Enterprise (HPE), are competitively purchasing SSDs.  

Continued reports highlighting AI implementation's benefits will bolster further aggressive purchasing trends among other companies, leading to higher prices for these components throughout the year.  

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Over the last several years, countries have worked overtime to improve domestic semiconductor manufacturing. The global semiconductor shortage emphasized the gaps left behind by declining chip ecosystems. The lack of diversity on a worldwide scale, with most chip manufacturers centered in one geopolitical area, further supported new domestic initiatives.  

Access to semiconductors has become necessary for a country’s economy and national security. Because semiconductors are needed in almost every modern product, it’s pertinent for countries to protect this supply. Unfortunately, this need has contributed to a growing trade war between the two giants over the last few years. The chipmakers they’re trying to court are suffering from the fallout.

More terrifying than the back and forth between governments are devastating natural disasters, like the earthquake that occurred last week in Taiwan.  

Earthquake Shakes Taiwan

One of the largest earthquakes in 25 years struck Taiwan on Wednesday morning, April 3rd. According to the Central Weather Administration, the 7.4 earthquake hit 15 miles south of Hualien before 8 a.m., and 76 aftershocks were recorded in less than five hours post-quake. In preliminary reports, over 1,000 people were reported injured, with nine tragically losing their lives.

On Wednesday, the quake and its resulting tremors, landslides, and damaged buildings trapped over 150 people. A silver lining in the terrifying aftermath was the location of the earthquake’s epicenter. On the eastern coast, Taiwan’s larger cities, including its capital, Taipei, were out of the earthquake’s danger zone on the island's west side. A tsunami warning was issued soon after the quake but was downgraded quickly.

Chipmaking giant TSMC quickly moved staff out of certain facility areas and evacuated others. United Microelectronics Corporation similarly halted production and evacuated some of its facilities in Hsinchu and Tainan. Other chipmakers or semiconductor industry players, such as ASE Technology Holding Co., are assessing the damage to their facilities.

TSMC said in a statement, "Safety systems are operating normally. To ensure the safety of personnel, some fabs were evacuated according to company procedure. We are currently confirming the details of the impact.”

Like many countries along the Pacific Ocean’s Ring of Fire, Taiwan is no stranger to earthquakes. However, Taiwan is more prone to quakes than others due to its proximity to the convergence of two tectonic plates. U.S. officials have long called for Taiwanese semiconductor companies, especially TSMC, to diversify operations off the island due to its earthquake vulnerability. A single tremor can destroy entire batches of precision-made semiconductors.  

However, Taiwan hesitates to lose what has been deemed its “silicon shield” should its semiconductor manufacturing prowess decline. Since the global semiconductor shortage, Taiwan has been expanding its international footprint with new expansion projects in Japan and the U.S. These facilities will take several more years to reach full speed.

In the earthquake's direct aftermath, early assessments of building safety and production have been minimal. TSMC reports that personnel were safe and have returned to their workplace without concerns.

"A small number of tools were damaged at certain facilities, partially impacting their operations. However, there is no damage to our critical tools, including all of our extreme ultraviolet (EUV) lithography tools.”  

Micron Technology, which also has operations in Taiwan, said its staff were safe and that once damage evaluations were completed, consumers would be informed of changes in delivery commitments.  

New Developments in Trade War

The trade war between the U.S. and China continues to escalate. Over the last year, new restrictions or other export controls have been announced every few months. In 2023, the Cyberspace Administration of China (CAC) said Micron Technology had failed to pass a network security review. As a result, Micron products were banned from selling key domestic infrastructure products.  

Luckily, according to experts, the impact on Micron’s sales was expected to be limited as most of Micron’s products were used in consumer electronics such as smartphones. Similarly, Micron planned to work alongside Chinese authorities to solve the problem.  

Some security experts believed Micron’s ban was retaliation against earlier actions by the U.S. that limited the sale of advanced semiconductor manufacturing equipment and chips. In 2023, with AI's rising popularity, the U.S. placed restrictions on the sale of specific AI-capable components, such as Nvidia’s GPUs. China then restricted two elements critical to some chips: gallium and germanium.  

There has been a new development in the trade war escalating tension.

According to a recent report by the Financial Times, Beijing has instructed official institutions in China to refrain from using PCs and servers equipped with microprocessors from Intel and AMD. Similarly, Beijing plans to have businesses reduce procurement of Microsoft Windows operating systems and database software outside of China.  

Neither government officials nor companies have officially responded, but Microsoft and Intel have declined to speak on the situation. The Financial Times says Chinese authorities have “requested state-owned enterprises to promote localization internally.” Intel and AMD dominate nearly all global PC processor market shares.

The move is not entirely unexpected. With increasing restrictions, both countries are focused on establishing a secure and self-reliant domestic semiconductor ecosystem. Chinese officials released new guidelines on the latest PC, laptop, and server procurement standards in late December. Government departments at the township level and above were mandated to incorporate standards for purchasing “secure and trustworthy” processors and operating systems.

Most of the 18 approved processors came from Huawei and Phytium, with China-based processor manufacturers utilizing a hybrid architecture of existing components and self-developed designs. It will take a lot of work for China to achieve its goal of transitioning entirely to domestic processors. Some of its domestically produced processors, such as Zhaoxin’s KaiXian (KX)-7000, are years behind other manufacturers in terms of technology.  

Likewise, as Huawei and SMIC seek patents on self-aligned quadruple patterning (SAQP) processes for chip production, experts believe they will eventually need ASML’s advanced lithography to remain competitive. One can only speculate how hard that will be should these restrictions become more stringent in the coming years.

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After the harsh decline in the semiconductor industry last year, the DRAM and NAND-Flash market has had to pick itself up by its bootstraps. Seeing the most significant drops in consumer demand, leading memory manufacturers, including Samsung Electronics, SK Hynix, and Micron Technology, engaged in strategic production cuts to quickly prevent inventory overhang from worsening.

Even now, the same manufacturers and others are still planning to continue strategic production cuts and partial facility shutdowns. The goal is to keep supply and demand tight until the market enters its rebound stage in 2H24. Despite increased sales, the market is still relatively poor, which could be attributed to the typical low-sales season following end-of-year holiday shopping.  

DRAM and NAND-Flash are seeing significant upticks in procurement now that buyers are stockpiling specific components. Artificial intelligence (AI) demand, specifically for high-bandwidth memory (HBM), is propelling it to become a major player in DRAM for 2024.

HBM Demand is a Rising Star for DRAM Rebound

HBM is rapidly increasing its market share within DRAM. TrendForce data in a recent report reveals that the DRAM industry will have allocated “approximately 250K/m or 14% of its total capacity to producing HBM TSV, with an estimated annual supply bit growth of around 260%.”  

HBM is expected to increase its revenue share from around 8.4% in 2023 to 20.1% by 2024, a major spike.

The growing demand for HBM is likely due to two major factors. Firstly, HBM’s use in AI applications. Secondly, in 1Q24, unfulfilled DDR5 orders triggered aggressive buying trends among procurement teams. Buyers were stockpiling components because of the uncertain market outlook and undelivered products. HBM has a much longer production cycle than DDR5, which may have triggered similar strategies as buyers considered their long lead times.

TrendForce reports that “the die size of HBM is generally 35%-45% larger than DDR5 of the same process and capacity. The yield rate (including TSV packaging) for HBM is approximately 20% -30 % lower than that of DDR5, and the production cycle (including TSV) is 1.5 to 2 months longer than DDR5.”

The complex packaging required of HBM, which consumes three times the DRAM capacity for DDR5, has indirectly led to capacity constraints for non-HBM. This tight supply-demand has contributed to DRAM’s improvement in the market, as tight supply allows manufacturers like Samsung to increase product prices.  

If TrendForce’s forecast rings true and HBM rises to 250K/m, Samsung Electronics total production capacity for HBM is 130K, while SK Hynix’s is 120K. Micron Technology’s CEO, Sanjay Mehrotra, says Micron’s HBM capacity has been fully allocated for 2024 and 2025’s capacity booked too.  

Micron expects that its revenue forecast will surge 58% year-on-year (YoY), massively surpassing Wall Street expectations. This is a big turnaround from losing $2.3 billion in the same period last year. This year, reduced production and explosive AI growth have immensely benefitted upstream memory manufacturers.  

Mehrotra said, “We believe Micron is one of the biggest beneficiaries in the semiconductor industry of the multiyear opportunity enabled by AI.”  

New Production Method for China-Made 5nm Chips?

According to a recent Bloomberg report, patents for a chip production process called “self-aligned quadruple patterning (SAQP)” have been submitted. Huawei and presumably China’s Semiconductor Manufacturing International Co. (SMIC) are behind the submission to produce chips using this 5nm-class process technology.  

SAQP is a process that has been used before. Unfortunately, the results were not overly spectacular. This process is cited as a contributing factor to the failure of Intel’s 1st generation 10nm-class process technology. Intel used the SAQP technology to eliminate reliance on high-end lithography, specifically extreme ultraviolet (EUV) lithography.  

ASML explicitly dominates EUV lithography production. When one manufacturer holds most of the market share or is the only manufacturer, bottlenecks and shortages become more frequent. However, due to SAQP’s failure to measure up, Intel reverted to more conventional manufacturing processes, such as AMSL’s lithography machines.

Unlike Intel, Huawei and SMIC have little choice otherwise, having but cut off from leading-edge chip manufacturing tools due to export restrictions. SAQP technology is the only tool they may have to increase transistor density.

This doesn’t mean that Huawei and SMIC’s endeavor is automatically doomed to failure. The SAQP process could enable SMIC to build chips on sub-10nm technologies related to SMIC’s rumored 5nm fabrication process.  

Huawei’s SAQP technology patent is reported to involve “etching lines on silicon wafers multiple times to boost transistor density, reduce power consumption, and potentially increase performance.” If this technology works as planned, it could help increase the production of more sophisticated chips by SMIC, such as the Kirin 9000S. Bloomberg also notes that SiCarrier, a state-backed chipmaking gear developer working with Huawei, has also been granted a patent for multi-patterning.  

TechInsights Vice Chairman Dan Hutcheson believes that even if these multi-patterning technology processes help Chinese OCMs manufacture 5nm-class chips, they will eventually need the aid of EUV machines. The help of advanced lithography machines is necessary to remain competitive in the market and go beyond 5nm nodes. Without EUV lithography, the cost per chip using SAQP technology might exceed economic feasibility. Eventually, these companies must procure or develop their own EUV technology.  

Advances in chip technology are critical to modern-day country economies. Consumers within China would like to possess competitive products, such as Apple iPhones, which require smaller and smaller chip nodes. SMIC must catch up to supply Huawei with the chips to accomplish such a feat, requiring advanced chipmaking process technologies.  

Whether Chinese manufacturers will eventually be able to purchase EUV machines or develop their own is still up in the air.  

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Mitigation efforts continue to eliminate remaining inventory overhang and excess electronic component stock. Many manufacturers plan to continue with strategic production cuts or engage in partial shutdowns to keep supply-demand tight for the coming market rebound.

Organizations are seeking new ways to expand their global operations during the transition from glut to growth. Likewise, countries with small domestic semiconductor ecosystems or those eager to build more stable supply chains are considering new proposals to strengthen such areas.

Samsung NAND-Flash Price Could Increase by 20%

According to a report by the South Korean news outlet, The Chosun Daily, Samsung Electronics is coming out of the other side, after enduring the worst of the 2023 market downturn. Its strategic decision to reduce production on some of its product lines has paid off. Since late 2023, memory chip prices have consolidated at a price bottom and are now increasing.

In a recent report, an anonymous semiconductor industry source says that Samsung plans to increase its NAND-Flash chip prices by 20%. This is to restore the profitability of its memory chips. Price hikes are a common trend amongst DRAM and NAND-Flash suppliers this year, since forecasts were made in early 1Q24 regarding the likelihood of growing component costs.

“The first-quarter price negotiations between major memory manufacturers such as Samsung Electronics and SK Hynix and their customers have not yet been concluded,” said the industry source. “However, customers are rushing to secure supplies as the price of NAND flash has been steadily increasing, and fears spread that NAND flash cuts will continue this year.”

With growing demand for mobile, PC, and server products, Samsung plans to renegotiate prices with major customers in these areas for March and April. Samsung will push for an increase of 15% to 20%.  

After months of declines in the memory sector and strategic production cuts, NAND-Flash prices have steadily increased over the last five months. Despite being in the middle of a traditional low-demand season, TrendForce data reports buyers are stockpiling NAND-Flash to establish safe inventory levels. This action is also reflected in the DRAM market, where undelivered stock for DDR5 products has increased buyer stockpiling.

With buyer attitudes changing, Samsung’s decision to push for higher prices to minimize previous losses is expected. While the NAND-Flash market is not as consolidated as the DRAM sector, NAND-Flash is still dominated by five major players, with Samsung and SK Hynix holding the greatest market share. Samsung continues to remain in the top position.  

If Samsung goes forward with the planned increase, the others will likely follow suit.  

UAE Investors Interested in OpenAI Plans

Earlier this year, Sam Altman, CEO of ChatGPT creator OpenAI, came out with an ambitious and expensive proposal: a multi-trillion-dollar venture to establish an artificial intelligence component supply chain. This proposal would help OpenAI achieve its goal of creating its own semiconductor chips in-house, reducing OpenAI’s reliance on Nvidia, the current king of AI chips.  

OpenAI made a deal with Thrive Capital by selling company shares in February 2023 as part of its process and funding efforts. This dramatically increased the company's valuation, skyrocketing the price to over $80 billion—nearly a threefold increase in under ten months.  

It is a crucial step in the right direction, but OpenAI needs a lot more to achieve its goals. It's one of the reasons Altman is courting leadership in the United Arab Emirates (UAE). UAE’s state-backed group, MGX, is reportedly in discussions to back OpenAI’s venture, according to two people with “knowledge” of these talks.

MGX, the group behind the potential UAE investment, is an AI-focused fund recently formed and headed by UAE’s National Security Advisor, Sheikh Tahnoon Bin Zayed al-Nahyan.

The fund was also created in collaboration with “G42 and Mubadala, the former having already entered into a partnership with OpenAI in October 2023 as a part of the company's Middle East expansion.”  

Altman says the partnership with G42 plans to bring AI solutions that “resonate with the region's nuances.” The UAE and others are attempting to establish themselves as hubs for emerging technologies such as cryptocurrencies and the metaverse.  

Sources say the fund hopes to create “a structure that will put Ahu Dhabi at the center of this AI strategy with global partners worldwide.” The UAE’s recently launched free zone will help support companies involved in digital and virtual assets such as blockchain and Web3.  

TSMC is Looking to Japan to Increasing Advanced Chip Packaging Capacity

During 2023, despite the overall market decline, there were some bottlenecks, specifically with components used in artificial intelligence. TSMC saw dramatic drops for several product lines but could not meet the high demand for advanced packing orders or its chip-on-wafer-on-substrate (CoWoS) packaging.  

This advanced packaging technology is used in Nvidia’s flagship GPUs, which propelled the company into the trillion-dollar club over 2023. TSMC’s CoWoS is a high-precision technology that stacks chips on each other to boost processing power while saving space and power consumption. All of TSMC’s CoWoS capacity is located within Taiwan.

According to two unnamed sources, Reuters says that TSMC wants to expand its advanced packaging capacity with new facilities within Japan. Deliberations are still in the early stages, but should they evolve, this move would be a welcomed boon to Japan’s domestic semiconductor revitalization efforts.  

TSMC’s ongoing attention in Japan might indicative its future global expansion plans. TSMC just built one plant and is moving forward with a second plant in Kyushu, same as the first. TSMC is partnering with Sony and Toyota for these facilities, with a total investment expected to reach over $20 billion.  

As a leader in semiconductor materials and equipment makers, Japan is uniquely poised to take a more prominent role in advanced packaging should it be given the opportunity. However, TrendForce analyst Joanne Chiao said that should TSMC move forward with building advanced packaging capacity in Japan, it would be limited in scale.  

Besides TSMC, Intel and Samsung want to establish advanced packaging capacity within Japan. Intel declined to comment on specific plans, but two separate sources have spoken about Intel’s interest in establishing an advanced packaging research facility within the country. With government support, Samsung Electronics is already working on setting up its own facility in Yokohama.  

The renewed interest in manufacturing capacity within Japan is helping the country’s revitalization efforts in semiconductor production capacity. Like other countries, Japan hopes to regain its lost domestic semiconductor manufacturing ecosystem ever since the dramatic effects of the global semiconductor shortage.  

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The semiconductor industry is slowly gaining traction after a year of poor consumer demand. Artificial intelligence spurred a wave of orders for specific components, especially Nvidia’s GPUs, but it couldn’t draw the entire industry out of its decline. Many manufacturers, including memory giants Samsung Electronics and SK Hynix, engaged in strategic production cuts to soften the harsh blow.

According to experts, these mitigation efforts have helped reduce the inventory overhang currently plaguing the semiconductor industry. However, more corrections are needed in the next few months for a truly successful market rebound in 2024. That said, semiconductor demand is ramping up, a great sign after a year of low sales.

Global Semiconductor Sales are up 15% in January 2024

The Semiconductor Industry Association (SIA) has good news for the semiconductor industry. Year-on-year (YoY) analytics indicate that the semiconductor industry saw sales increase 15.2% YoY in January 2024 compared to January 2023. Sales in January reached $47.6 billion, up from $41.3 billion in 2023. However, January fell behind December 2023 by 2.1%, or $48.7 billion, in total sales.

The slight decline from December to January is easy to explain. December, a massive holiday shopping season, is one of the best months for companies globally. Numerous businesses, such as Apple, release new products around late Q3 and early Q4, sparking interest and demand. The fact that January demand didn’t drop too drastically is good news.

“The global semiconductor market started the new year strong,” said John Neuffer, SIA President and CEO. “With worldwide sales increasing year-to-year by the largest percentage since May 2022. Market growth is projected to continue over the remainder of the year, with annual sales forecast to increase by double-digits in 2024 compared to 2023.”

Regionally, year-to-year sales were up across China, the Americas, Asia Pacific, and others, with exceptions in Japan and Europe. Similarly, month-to-month sales were down across all markets, as expected in the post-holiday shopping season.  

Monthly sales data is compiled by the World Semiconductor Trade Statistics (WSTS) organization, with the SIA representing 99% of the U.S. semiconductor industry and 2/3rds of non-U.S. chip firms.  

This news comes right after the SIA’s most recent analytics showing that the semiconductor industry saw an 8.2% decline in global sales revenue in 2023. This noticeable decline contributed to some strategic production cuts and new facility construction delays as chipmakers, distributors, and others prioritized retaining capital during the worst of the slowdown.  

The industry isn’t out of the woods yet, but it is gaining ground on clawing its way back to a rebound.  

Tower Semiconductor Halts Operations

While the semiconductor industry sees positive numbers indicating returning consumer demand, excess electronic component inventory remains. Mitigation efforts continue, with some chipmakers taking more drastic steps than others. Samsung Electronics and SK Hynix made headlines last year for their decision to engage in production cuts after memory saw the worst of the market decline.  

According to research firms, the first half of the year will be critical in efforts to reduce the remaining industry overhang. Customers are still reducing orders as they clear inventory that has accumulated over the past two years. Considering the fragile state of the semiconductor industry recovery, memory manufacturers, despite seeing increased orders in DRAM and NAND-Flash, are continuing production cuts to keep supply tight.

Similarly, Tower Semiconductor is planning a 3-week shutdown for most of its operations in Newport Beach, as Data Center Dynamics reports. Nearly 700 employees will be taking leave from April 1st to 7th. Further shutdowns are expected from July 1st to 7th and October 7th to 13th. The announcement also details that most of Tower’s employees will be affected by the 3-week furlough period.  

According to IJIWEI, Tower Semiconductor management announced that its equipment will remain in a “warm shutdown,” and power to unused plant areas will be shut off. This is typical for semiconductor facilities as they cannot be switched “on and off” from no production to full production the same way an automotive manufacturing line can.  

Despite Tower Semiconductor’s planned shutdown and sales falling behind other chip behemoths like Intel and TSMC, these actions do not indicate the company’s performance. Tower Semiconductor produces components for major clients like Broadcom and enjoys a high market position in rapidly growing fields like electric vehicles (EVs).

Likewise, Bloomberg recently reported that Tower Semiconductor has proposed a $9 billion investment to establish a facility in India. This planned facility is a step in Tower Semiconductor’s overall strategic goal of expanding its global operations and producing 80,000 wafers per month.

Like so many other chipmakers, Tower Semiconductor has needed to adjust due to lingering inventory challenges and last year’s decline. Given the company's massive room for growth, it is unlikely that Tower Semiconductor will continue this trend in the future. Tower is preparing itself for the coming market rebound during its transitional period.  

The semiconductor market is going through a transition. Consumer demand hasn’t returned in full yet, and excess inventory mitigation remains a priority among chipmakers. There are still several months until the market rebound many hope for is expected to arrive. In the meantime, low customer demand is affecting everyone, even AI-chip leader Nvidia.

Nvidia’s H100 Is Being Resold By Customers

After a year of explosive growth and demand, Nvidia’s highly coveted and elusive products are beginning to see challenges in the company’s AI-chip dominance. The popular and scarce Nvidia data center GPU, H100, is experiencing a noticeable reduction in lead time and improved market conditions.  

Over 2023, despite poor market conditions, Nvidia experienced spectacular growth after the AI boom, thanks to ChatGPT’s success. Customers, including tech giants like Microsoft and Google, battled to purchase large stockpiles of Nvidia’s components, including H100. While there was no genuine shortage for these GPUs in 2023, bottlenecks occurred. TSMC struggled to meet production capacity for advanced packaging utilized in Nvidia’s GPUs.

Due to the recent easement in market conditions and part lead time, customers who once purchased large quantities of H100 chips are beginning to resell them.

In a report by Tom’s Hardware, the H100 saw a reduction in delivery wait times from 8-11 months to 3-4 months, indicating a relief in supply pressure. While there is still an ongoing surge for artificial intelligence, major cloud suppliers such as AWS, Google, and Microsoft Azure offering access to AI computing services have also contributed to enterprises' decisions to offload their GPUs.

Reduced scarcity and high maintenance costs have led to enterprise customers selling their stockpiles, but this change does not indicate a more significant market trend. Current orders for AI remain robust, with large-scale artificial intelligence model computation keeping overall demand greater than the supply. Ongoing AI popularity and integration efforts have prevented a steep drop in price for H100 GPUs.

According to the report, customers are now prioritizing price and practicality when leasing AI computing services from cloud service providers rather than immediately going all in on their own AI services. Likewise, competitors' alternative solutions to the H100 have since emerged on the market, offering comparable performance and software support. These new products provide some customers with more affordable pricing, contributing to a more equitable market condition.  

In new data by TrendForce, research suggests that the 2024 market landscape for high-demand AI servers powered by Nvidia, AMD, or other top-tier ASIC chips will be influenced by North America’s cloud service providers. Around 60% of the global demand will be divided between Microsoft, Google, AWS, and Meta, with Microsoft leading the charge with 20.2%.  

However, despite the saving grace, Nvidia is still contending with some challenges. These problems go beyond Nvidia’s stronghold in AI, as even with competition from AMD and others, Nvidia’s GPUs hold 70% of the AI market. The issue lies with limited growth, attributed to U.S. restrictions on technological exports to China. Nvidia, trying to enter China’s market with chips that work around restrictions, such as H20, might not be able to challenge Huawei, which has capitalized on Nvidia’s market absence.  

Similarly, while Nvidia holds the AI throne now, AMD is quickly rising as a competitor with cost-effective strategies. AMD offers similar products at 60%-70% of Nvidia’s comparable model price. This has allowed AMD to break into the market effectively, carving out a section against Nvidia’s pressure. Microsoft, one of Nvidia’s largest clients, is expected to be “the most enthusiastic adopter of AMD’s high-end GPU MI300 solutions in 2024.

The M1300 series, debuted by AMD last year, offers similar software solutions that developers have praised Nvidia for. Should H100 continue to see reselling throughout the year, it will probably not indicate poor customer demand but rather the growing competition Nvidia faces.  

Newport Wafer Fab Acquired by Vishay

Since the summer of 2021, the former Newport Wafer Fab factory in the UK has been awash in national security concerns and other controversies. In July 2021, Nexperia, the Dutch-based technology company subsidiary of Shanghai-listed Wingtech, purchased a majority stake in the plant. The action led many ministers in the UK government to express concerns over national security if a Chinese company controlled the firm.  

As a result of these concerns, the UK government forced Nexperia to sell 86% of its stake in what was then known as Newport Nexperia. Most of the problem seemed to originate from the worry that China would be able to undermine the UK’s domestic semiconductor manufacturing ability by transferring knowledge of critical technology used in modern digital devices to a Chinese-owned entity.  

In November 2023, Vishay announced it would buy the plant outright from Nexperia for $177 million. However, just like before, the purchase wasn’t a simple handoff. The deal still required national security clearance by the UK’s Cabinet Office. This clearance would take another four months before Secretary of State Oliver Dowden issued the consent order.  

The Newport Wafer Fab is the UK’s largest manufacturer of semiconductors and mainly supplies components for the automotive industry. Vishay is eager to expand the site and prioritize research and development of compound semiconductors.  

Vishay and the UK government will have to keep in close communication, as stated in some of the conditions that came with clearance for the purchase to be approved. If Vishay plans to enter future agreements to sell, transfer, or lease to a third party that would give them access to the property, the company must inform the UK government. Likewise, ministers want the intellectual property and sensitive information now owned by Vishay upon the Newport Wafer Fab purchase to be tightly controlled.  

In an official company statement, Toni Versluijs, Country Manager Nexperia UK, said that Nexperia would have liked to continue its strategy with the Newport Wafer Fab location but agrees that Vishay’s solid customer base and capabilities will ensure the site’s future success.

UK’s Economy Minister, Vaughan Gething, said: "I am pleased that the long-overdue decision to permit the acquisition of Newport Wafer Fab by Vishay International has now been taken. Today's news brings security to a hugely talented workforce after a long period of uncertainty, and I hope they can look forward to a new sense of optimism."

The semiconductor industry is poised for a market rebound in 2H24. New semiconductor manufacturing facilities are entering construction or preparing to begin chip production. Due to low consumer demand in 2023, some chip manufacturers have readjusted their schedules, no longer expected to commence production in 2024, as previously suggested. In the United States, the government's delay in awarding the CHIPS Act’s highly coveted subsidies has led to slowdowns in construction as manufacturers wait to receive additional funding.

That’s not to say all countries are facing similar delays. While some manufacturers have scaled back in the United States, waiting for more suitable timeframes, they are ramping up production in other global locations. Geopolitical volatility has pushed for greater diversification, and many chipmakers are eager to add new locations worldwide to their corporate footprint.  

With artificial intelligence expected to buoy demand as a primary growth driver in the coming months, these new facilities can’t come soon enough.  

TSMC Joins Japan’s Domestic Chip Push

TSMC isn’t just bringing its power to the desert of Arizona in the U.S. Last month, TSMC opened its first chip fabrication plant in Japan, with a second one in the offing. Construction on the second plant may begin at the end of 2024 and represents TSMC’s continued push toward diversification outside of Taiwan.  

The new chip fabrication plant in Kumamoto is slated to begin production in late 2024. The facility was constructed by Japan Advanced Semiconductor Manufacturing Inc. (JASM), majority-owned by TSMC. Established in 2021 with support from the Japanese government, Sony Semiconductor Solutions, and Japanese automotive components maker Denso Corporation, the goal was to help power Japan’s semiconductor ecosystem.

Japan, once a powerhouse in semiconductors, lags ten years behind chip-making leaders TSMC and Samsung, according to the Center for Strategic & International Studies. Trade challenges and disputes with the U.S., missed opportunities during the PC revolution, and other scenarios have contributed to Japan’s decline. Since the global semiconductor shortage, Japan has been striving to strengthen its semiconductor presence, much like the European Union and the United States.  

With the ongoing trade war between the U.S. and China, Taiwanese companies like TSMC are eager to diversify production outside Taiwan. Japan has become a great option.  

Earlier this year, TSMC, Sony Semiconductor Solutions, Toyota, and Denso agreed to further invest in JASM for the second planned plant. It will produce semiconductors for automotive, industrial, and consumer uses for high-performance computing-related needs. Morris Chang, TSMC’s founder, believes that the resurgence of Japan’s semiconductor industry will begin with the inauguration of TSMC’s first facility, enhancing the country’s resilience.  

The Japanese government, represented by Minister Ken Saito, has shown “strong support for TSMC's investment, viewing it as a model for semiconductor industry growth. The new plant is already positively impacting the local economy in Kyushu, offering higher-than-average wages and promising to contribute to the region's economic development,” according to Reuters’ latest article detailing the plan.

Chang is very optimistic about TSMC’s success in Japan, citing the country’s history of production quality and previous positive encounters, including his 1968 joint venture with Sony and Texas Instruments. With the rising demand for artificial intelligence, Chang says it’s not just that AI chipmakers are looking for tens of thousands of wafers but “multiple new fabs with formidable semiconductor manufacturing capacity.”

A need that TSMC’s new plant can offer. Should it continue, especially with the Japanese government doling out investments, TSMC’s total subsidy would put it beyond the 1 trillion-yen mark.  

Nvidia’s Earnings Report Powers Up AI Sector

Nvidia recently released its earnings report for the end of 4Q2023. It’s a big one, which isn’t unexpected news considering Nvidia’s prolific boom last year thanks to the rising popularity of artificial intelligence. Two days after it released its quarterly earnings report, Nvidia briefly hit $2 trillion in market value for the first time. This high comes directly from the insatiable demand for its components that power most AI applications today.  

Beyond Nvidia, the AI craze has made winners out of many AI companies, including Super Micro Computer and Arm Holdings. Nvidia’s shares are up 60% year-to-date, Super Micro Computers have grown by 200%, and Arms’s shares are up 77%. For Nvidia, 2023 was a record year in revenue, coming in at $60.9 billion, up 265% from a year ago.  

“Accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries and nations,” said Jensen Huang, CEO of Nvidia.

“Our Data Center platform is powered by increasingly diverse drivers — demand for data processing, training and inference from large cloud-service providers and GPU-specialized ones, as well as from enterprise software and consumer internet companies. Vertical industries — led by auto, financial services and healthcare — are now at a multibillion-dollar level,” Huang said about Nvidia’s recent report.

Huang continued, “NVIDIA RTX, introduced less than six years ago, is now a massive PC platform for generative AI, enjoyed by 100 million gamers and creators. The year ahead will bring major new product cycles with exceptional innovations to help propel our industry forward. Come join us at next month’s GTC, where we and our rich ecosystem will reveal the exciting future ahead.”

Furthermore, Nvidia expects this growth to continue through 2024, into 2025 and beyond. Its earnings report included previous product announcements, detailing which components supported its fantastic rise over 2023. The markets that contributed the most to Nvidia’s climb were data centers, gaming, professional visualization, and automotive sectors. In 2024, similar exciting launches are bound to come.  

The AI craze will help drive the semiconductor market to rebound and Nvidia will be there to provide the next generation of leading-edge AI chips.  

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The semiconductor industry is on its way toward a market rebound. As recovery approaches, funding for semiconductor programs and facilities continues to be proposed and given out to chipmakers across the globe. In the United States, the multi-billion-dollar CHIPS Act that sparked over $200 billion in investments from chipmakers is finally starting to be divvied up.

The market downturn in 2023 and tax concerns have delayed that process until now. With the slow response of the U.S. government to hand out the CHIPS funding, some chipmakers are starting to readjust their projected production schedules as concerns over CHIPS incentives rise. This could evolve into a larger problem, since market growth is expected to return before global production capacity has been sufficiently increased.

GlobalFoundries Receives CHIPS Funding

The U.S. government has recently awarded GlobalFoundries $1.5 billion to subsidize the company’s semiconductor production. This is the first major announcement of the CHIPS Act’s funding allocation since its passage. The $39 billion fund for domestic semiconductor production continued to be divvied up in the coming weeks. GlobalFoundries will use its allotment to expand and upgrade its facilities in New York and Vermont.

These facilities are responsible for producing components utilized mainly in automotive and defense industries. The coming improvements to both factories are especially welcome after the impact of the global semiconductor shortage. Both automakers and defense contractors ran into numerous problems when they could not secure necessary stockpiles.

"The chips that GlobalFoundries will make in these new facilities are essential to our national security," Commerce Secretary Gina Raimondo told reporters. Later, Raimondo told Reuters that the agency is in active talks with numerous applicants and expects to make several announcements by the end of March.

"We're in the process of really complicated, challenging negotiations with these companies," Raimondo said. "These are highly complex, first-of-their-kind facilities. The kind of facilities that TSMC, Samsung, Intel, are proposing to do in the United States -- these are new-generation investments -- size, scale complexity that's never been done before in this country."

Despite the good news, production delays have haunted chipmakers over the last year. TSMC and its widely publicized $40 billion Arizona plant have faced several obstacles. Last summer, TSMC had to push back its production start date from 2024 to 2025 when it needed more workers with the expertise to install sophisticated equipment.  

More recently, TSMC stated that its second plant will not produce chips until 2027 or 2028 rather than 2026 due to concerns over tech choices and federal funding. TSMC Chairman Mark Liu, said that Arizona’s progress depends on “how much incentives the U.S. government can provide.”

TSMC isn’t the only chipmaker encountering problems either. Intel, Microchip Technology, and others have needed to adjust production schedules to manage infrastructure due partly to the sales slump in microelectronics last year. New facilities are massively complex. To ensure organization and focus, funding and construction timelines were delayed to prioritize surviving the worst of the market decline last year.

Meanwhile, concerns have risen over the success of the CHIPS Act. The U.S. government has been locked in negotiations with major chipmakers over the funding amount and timing. These impediments could lead to rival countries with subsidy programs, such as the EU and East Asia, obtaining other projects.  

“The longer the U.S. government waits to distribute benefits, the more other geographies are going to snap up these investments, and more leading-edge investments will be made in East Asia,” said Jimmy Goodrich, Senior Advisor for the RAND Corporation. “So, the clock is ticking.”

White House and Treasury Department spokespersons say that the delays have been due to questions over tax credits and the overwhelming number of companies that submitted interest statements for the grants. After the shock of the low demand drop from last year, many organizations have been left with inventory overhang and no immediate need for new factories.

“Companies are rethinking how and what and when investments will occur,” said Thomas Sonderman, the Chief Executive of SkyWater Technology.

Microchip and Intel have adjusted purchases of factory tools, waiting until business conditions improve before considering investing further. Operations have slowed but not ceased entirely. Others, such as Micron Technology and Texas Instruments, are pushing ahead despite the market downturn. Rather than delay the inevitable, Micron’s Vice President, Scott Gatzemeier, said that construction projects should be based on future demand over current conditions.  

“Once you start, you don’t want to stop,” he said. “Renting massive cranes and other equipment and securing construction workers are big expenses that might need to be repeated if a project is halted.”

Arm Considers AI as SIA Forecasts Major Growth

SoftBank, the controlling stakeholder behind world-renowned chip designer Arm, is considering a new strategy to take on the reigning king of artificial intelligence (AI) chips, Nvidia. This new AI strategy will require a hefty $100 billion investment, broken up by $30 billion from SoftBank and $70 billion from Middle Eastern institutions.  

Codenamed Izanagi, the recent news increased SoftBanks’ share price by 5%. Arm’s chip designs are crucial for dozens of chipmakers, including Nvidia. Due to this, antitrust concerns could become prominent if Arm partners with any specific chipmaker, echoing Nvidia’s failed takeover of Arm two years ago.  

Something else that sounds familiar is the recent trend of turning to the Middle East for investments. OpenAI’s Sam Altman is currently attempting to do the same with his proposed multi-trillion-dollar AI supply chain venture. Like Arm, there is concern that Altman could unwittingly put OpenAI in a place of antitrust scrutiny if it ends up being a separate venture from OpenAI. Altman would require the blessing of the U.S. government before receiving investments from the Middle East as well.  

Despite the challenges, SoftBank’s push into AI is an expected next step for the chip designer, considering the overwhelming growth in AI over the past year. The semiconductor market is poised to rebound, with memory and AI leading the charge. The Semiconductor Industry Association (SIA) forecasts that the semiconductor industry will see a sales rise of 13% in 2024 after announcing a decline of 8.2% in 2023.  

“Global semiconductor sales were sluggish early in 2023 but rebounded strongly during the second half of the year, and double-digit market growth is projected for 2024,” said SIA CEO John Neuffer, “with chips playing a larger and more important role in countless products the world depends on, the long-term outlook for the semiconductor market is extremely strong. Advancing government policies that invest in R&D, strengthen the semiconductor workforce, and reduce barriers to trade will help the industry continue to grow and innovate for many years to come.”

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Investments within the semiconductor industry are on the rise. Organizations and governments are financing every part of the electronic components supply chain, from research and development to artificial intelligence manufacturing. The U.S. government continues to fund semiconductor-related research and development under the CHIPS Act, as OpenAI’s Sam Altman embarks on his most ambitious plan yet.  

The U.S. Continues its Investment in Semiconductors

To support domestic semiconductor manufacturing, the U.S. passed the CHIPS and Science Act, a great start to revitalizing this neglected industry. Since its creation, the U.S. has seen over $200 billion in investments for U.S. semiconductor manufacturing. Under the law, the allocated $52.7 billion was split into several areas, with $39 billion in subsidies for semiconductor production and $11 billion in research and development.  

At the center of this new push for research and development is the National Semiconductor Technology Center (NSTC). The NSTC, in U.S. Commerce Secretary Gina Raimondo words, is “a public-private partnership for the government, industry customers, suppliers, academics, entrepreneurs, and venture capitalists to come together to innovate, connect, network, solve problems and allow Americans to compete and outcompete the world.”

The NSTC will establish an investment fund to help “emerging semiconductor companies advance technologies toward commercialization.” The center will also conduct research and prototyping of advanced semiconductor technology.  

Raimondo spoke about the plan with Reuters, discussing the upcoming announcement to award funding to several chip manufacturers. “These are highly complex, first-of-their-kind facilities…These are new-generation investments–size, scale complexity that’s never been done before in the country.”  

More recently, the National Center for the Advancement of Semiconductor Technology, a nonprofit created to operate the NSTC, appointed Deirdre Hanford as its CEO. Hanford said the first step will be to “build a community whose members will help define the strategy and investments core to the semiconductor R&D ecosystem.”  

Hanford said this represents a “once-in-a-generation opportunity” to create a new institution that will give the U.S. semiconductor industry a boost that Washington hopes for.  

Alongside the NSTC, there are three other programs to improve research and development within the U.S. These new programs under the CHIPS Act are the National Advanced Packing Manufacturing Program, the CHIPS Metrology Program, and a CHIPS Manufacturing USA Institute.  

"With strategic investments in R&D complementing targeted industry incentives, CHIPS for America will not only bring semiconductor manufacturing back to the US – it will keep it here for good," said Raimondo.  

Semiconductor research and development will help fuel economic growth, secure national security, and improve technological competitiveness. The NSTC will play a significant part in that. According to the Semiconductor Industry Association (SIA) and Boston Consulting Group (BCG), five key areas that the CHIPS Act R&D’s funding should strengthen are:

1. Transitioning and Scaling Pathfinding Research

2. Research Infrastructure  

3. Development Infrastructure

4. Collaborative Development  

5. Workforce

These projects should create over 400,000 jobs within the semiconductor ecosystem and support thousands more throughout the economy.  

OpenAI’s Sam Altman Seeks Trillions to Reshape the Semiconductor Industry

The capabilities of large language models (LLMs) and generative artificial intelligence have taken the world by storm, thanks in part to OpenAI’s ever-popular ChatGPT. The chatbot, released in late 2022, quickly captured the interest of companies and countries alike. Over the last year, everyone from tech giants to small businesses has developed their own version of OpenAI’s successful LLM.

There were some stumbling blocks, mainly regarding Microsoft and Google’s accidental missteps with Bing and Bard, which have since been rebranded and corrected but are not enough to trip up AI’s rise to the top. Over the last year, OpenAI has been working alongside Microsoft to enhance the latter’s AI application, Copilot, and petitioning other technology giants to establish AI regulations and universities to educate students.  

Now, OpenAI’s CEO, Sam Altman, is exploring a new area, and it could be one of the company's most significant undertakings yet.  

Sam Altman is currently in talks with investors and others, including the United Arab Emirates government, to raise funds for “a wildly ambitious tech initiative that would boost the world’s chip-building capacity, expand its power-to-power AI, and other projects.” Such a zealous action plan could cost as much as $5 to $7 trillion—quite the expense.  

AI’s expansion has been limited in comparison to its possible potential due to the scarcity and expensive nature of AI chips. This problem has placed constraints on OpenAI and other AI companies’ growth. As Altman explained, these chips are necessary to train large language models effectively but are far too limited. The number of GPUs needed to help push for greater AI use would need to be significantly expanded, hence the reason for this massive fundraising initiative.

However, an investment of this size is bigger than the current worth of the global semiconductor industry, which reached $527 billion in 2023, down 8.2% from poor sales and economic decline. The semiconductor industry isn’t forecast to even reach $1 trillion in size until 2030 at its current growth rate. This investment is even more significant than the national debt of some countries, like the U.S., with its corporate debt reaching $1.44 trillion. The combined market capitalization of Microsoft and Apple, the two highest-valued businesses in the U.S., is $6 trillion.

However, this plan might be necessary for OpenAI’s continued growth toward reaching human-level artificial intelligence. The support needed for such an extreme level of AI would require a solid and secure global-spanning network of funders, industry partners, and governments to provide funding and energy–of which AI facilities require oceans.

In the last few weeks, Sam Altman has met with U.S. Secretary of Commerce Gina Raimondo, U.A.E.’s Sheikh Tahnoun bin Zayed al Nahyan, a top security official and brother of U.A.E.’s President Mohamed bin Zayed al Nahyan, and the chair of numerous vehicles of Abu Dhabi’s sovereign wealth. Sam Altman has also discussed this initiative with Masayoshi Son, Softbank's CEO, and TSMC's representatives.  

The U.A.E. and its growing financial portfolio would be significant players in the venture but is dependent on allowance from the U.S. government. Altman plans on raising money in the Middle East to build new chip-fabrication facilities and have TSMC build and run them. Microsoft supports Altman’s goal in this venture. Whether it will prove to be successful is another question.

A new supply chain that helps support the growing AI sector will be necessary, considering how limited GPU supply is already causing bottlenecks. Whether this challenge will be solved through Altman’s venture, or another initiative is left to time.

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The semiconductor industry will see many changes this year. Research shows that 2023 saw continual declines in late Q3 and Q4 despite inklings of oncoming recovery. Memory giant SK Hynix stated in October 2023 that initial signs of chip recovery were beginning to appear. A month later, SK Hynix and Samsung Electronics indicated that signal demand weakness bottoming out was a good sign of recovery in 1Q24.

SK Hynix and Samsung Electronics have cited the rising popularity of artificial intelligence (AI) applications boosted chip demand, preventing the market downturn from growing worse. Despite the recovery outlook, SK Hynix and other memory manufacturers are still planning production cuts to keep supply-demand tight in 1H24. Market research predicts that there will be a rebound, like SK Hynix and Samsung Electronics expected in late 2023, but it could take longer than the original hope of 1Q24.  

Market Demand to Rebound Coming Late in the Year After Declines

A recent Semiconductor Industry Association (SIA) report revealed that the semiconductor industry’s revenue was down 8.2% in late 2023 compared to the same time frame in 2022. Despite the downturn, sales peaked during the second half of 2023, reaching $526.8 billion worldwide.

“Global semiconductor sales were sluggish early in 2023 but rebounded strongly during the second half of the year, and double-digit market growth is projected for 2024,” said John Neuffer, SIA President and CEO. “With chips playing a larger and more important role in countless products the world depends on, the long-term outlook for the semiconductor market is extremely strong. Advancing government policies that invest in R&D, strengthen the semiconductor workforce, and reduce trade barriers will help the industry continue to grow and innovate for many years to come.”

Counterpoint Technology Market Research reported similar findings, with global semiconductor industry revenue declining by 8.8% in 2023. This was due to a slowdown in enterprise and consumer spending. Counterpoint Research reported that 2023 was “a year for semiconductor companies to fine-tune their strategies/outlook and manage inventory adjustments to prepare for the impending AI boom.”

William Li, Senior Analyst at Counterpoint Research, said, “In general, we believe artificial intelligence (AI server, AI PC, AI smartphone, etc.) will continue to be a major organic growth driver in the semiconductor industry in 2024, followed by the memory sector’s rebound due to normalizing oversupply situation and demand recovery. The automotive sector could be another driver for the market due to content growth, which was already a key revenue driver for Infineon and STMicroelectronics in 2023.”

Nvidia will continue to lead the charge in market industry regrowth thanks to its high market share of general-purpose GPUs utilized in AI/high-performance computing.

The industry is at the end of its inventory correction cycle, and the current support from consumer demand is solid. Supply constraints may continue to be a challenge this year from outside factors, so it will be important for companies to be cautious despite the positive market forecast.

Challenges That Might Impact the Global Supply Chain in 2024

Stability is still far from reach after months of shortages, excess inventory, long lead times, and sharp price changes. Most research firms believe 2024 will be a year of growth for the semiconductor industry. The expectation of how much growth will come depends on the research firm's optimism. Edgewater Research has expressed a more tepid outlook, viewing 2024 as a transitional year.

In contrast, the International Data Corporation (IDC) and World Semiconductor Trade Statistics (WSTS) are far more optimistic about the market outlook. Most research points to AI and memory components being the main drivers of growth in 2024, with a significant rebound occurring in 2H24.  

The semiconductor industry isn’t out of the woods just yet. Sourceability’s Senior Vice President of Sales, Josh Pucci, discussed six of the biggest challenges poised to cause significant supply chain disruptions if left unchecked.  

There is a silver lining: opportunities for new avenues for business development and growth for every problem. The six issues EPS News listed in its recent article, “6 Trends Shaping the 2024 Supply Chain,” are:

1. Geopolitics: Geopolitical volatility has risen in the last several years. Currently, the world is grappling with strife as the Russia-Ukraine war and Israel-Hamas conflict continue. Houthi rebel attacks on vessels in the Red Sea have delayed logistics as companies reroute around Cape Good Hope, and the ongoing trade war between the U.S. and China has contributed to restrictions on manufacturing equipment and raw materials.

2. Climate Change: Billion-dollar weather events are on the rise, leading to costly droughts, fires, floods, and storms that disrupt nearly the entire length of the global semiconductor supply chain. In Panama, shipping companies have been delayed by a historic drought that has led to heavy restrictions on passage through the much-needed Panama Canal.  

3. Environmental, Social, and Governance (ESG): Sustainability in the semiconductor industry is becoming a major priority as companies work to reduce their overall carbon footprint. Semiconductor manufacturing is known for its, unfortunately, toxic past with dangerous chemicals leeching into groundwater. Intel has been working alongside cleanup agencies in the U.S. to help detoxify its previous facilities.

4. Cyber Attacks: It’s said that the next war will be fought on the frontlines of cyberspace and sophisticated malicious malware attacks are ramping up. Semiconductor facilities can present an attractive target to foreign hacking groups as successful breaches can have widespread effects. These attacks can delay shipments, leak intellectual property, and cause production downtime. Worse, these attacks can lead to infected products hurting a company’s brand.  

5. Excess Inventory: The bullwhip from shortage to months of excess electronic component inventory has contributed to rising concerns about obsolescence risks. Electronic components have expiration dates, and improper storage can make components deteriorate faster. Long lead times, like those seen during the shortage, can pose a risk for holding inventory, as by the time the market rebounds, the stock could be useless.  

6. Labor Shortages: From a lack of a sufficient talent pool to labor strikes, the semiconductor industry is grappling with an increased demand for higher production capacity but insufficient staff to accomplish this goal. Most countries working to improve domestic semiconductor manufacturing resiliency are also grappling with labor shortages, with an additional one million workers needed by 2030.

These challenges can cause massive disruptions in the fragile, global supply chain. Each delay can result in far-reaching ripple effects that vary in severity, especially with how interconnected the semiconductor supply chain is.  

It’s not all bad news. These challenges are the perfect catalyst for continued digitalization and the use of artificial intelligence applications within the semiconductor industry. Automation can help compensate for the lack of skilled labor on production lines while reducing human error and optimizing workflows to lessen a facility’s carbon footprint.  

Better inventory management through market intelligence can prevent dramatic inventory overhang and help organizations avoid the possibility of obsolescence. Greater visibility can highlight risks related to geopolitical volatility, and diversification can fortify supply chains against disruptions.  

Increased attention to digital tools and digitalization can improve an organization’s cyber security, preventing successful breaches by ransomware. Lastly, continued collaboration between semiconductor suppliers and environmental agencies can help find new alternatives for the toxic chemicals needed in manufacturing.

Countries continue to work toward semiconductor manufacturing resiliency. Since the global semiconductor shortage, new programs and plants have made headlines over the last year. In the coming months, subsidies to support semiconductor manufacturing will be awarded to selected chipmakers.  

According to reports, the Biden Administration will soon announce which chipmakers will be receiving funding under the CHIPS Act. Since its creation and passage, the CHIPS Act has garnered the U.S. over $200 billion in private investments toward semiconductor manufacturing. Financial aid from both federal and state governments has continued to captivate interest among industry competitors.  

A side effect of new tax breaks and other monetary benefits has contributed to a rise in collaborative partnerships among semiconductor manufacturers. The benefits of these strategic partnerships are invaluable. They could prove essential in overcoming one of the biggest challenges for the electronic components industry in the coming decade: the labor shortage.  

Reports Indicate Semiconductor Projects Could Receive Billions in Subsidies

The Biden Administration will soon award billions in subsidies to top semiconductor manufacturing companies. The Wall Street Journal reports that executives expect this announcement to occur during President Biden’s State of the Union Address on March 7th. The likely recipients of these subsidies include Intel and TSMC, which will help these companies complete their latest U.S. semiconductor facilities.

Intel has projects underway in Arizona, Ohio, New Mexico, and Oregon that will cost more than $43.5 billion. TSMC has two plants in Arizona with a total investment of $40 billion, announced last year. Samsung Electronics, which could also be among the recipients, has a $17.3 billion project in Texas. The Wall Street Journal also expects Micron Technology, Texas Instruments, and GlobalFoundries to be among the top contenders for the subsidies.  

It’s predicted that the announcements will kick-start the manufacturing of advanced semiconductors for smartphones, artificial intelligence (AI) applications, and weapons systems. This comes after remarks from U.S. Commerce Secretary Gina Raimondo in December, stating that she would make around a dozen funding awards for semiconductor chips within the following year. This will reshape U.S. chip production.

The first award was also made public in December, with over $35 million in funding to a BAE Systems facility in New Hampshire. The facility is said to produce chips utilized in fighter planes and is part of the $39 billion “Chips for America” subsidy program.  

While these economic initiatives are an added boon to the United States, lingering concerns remain due to the ongoing labor shortage. Despite investments, some experts worry that semiconductor manufacturing production will take years to meet goals because of the need for more skilled labor.  

Universities and semiconductor companies are working together to create educational pipelines, but it could take years, not months, to properly establish. There is hope that these new subsidies will help propel educational efforts to grow the talent pool faster. If not, AI’s growing improvements can help bridge the gap left by the labor shortage.

Intel and UMC Collaborate for High-Growth Markets

Intel and the United Microelectronics Corporation (UMC) recently announced their collaboration to develop a 12nm semiconductor process platform. The new process will address high-growth markets like mobile, networking, and communication infrastructure. This long-term agreement will leverage Intel’s at-scale U.S. manufacturing capacity and experience alongside UMC’s extensive foundry capabilities on mature nodes to enable an expanded portfolio.

To begin, the partnership will focus on Intel’s U.S.-based high-volume manufacturing capacity and experience with FinFET transistor design. This design offers a potent combination of performance and power efficiency, giving Intel and UMC an excellent springboard for creating a product that satisfies customer demand. Intel and UMC will cooperate on design enablement to support the 12nm process through electronic design automation and intellectual property solutions from other ecosystem partners.

The project is forecasted to begin operations in 2027, with the 12nm process being developed and manufactured in Fabs 12, 22, and 32 at Intel’s Ocotillo Technology Fabrication site in Arizona. Intel and UMC will significantly reduce the investment needed to create this new process by using existing equipment.  

Since the announcement, Intel and Taiwan have shared positive statements regarding each other’s strengths.  

“Taiwan has been a critical part of the Asian and global semiconductor and broader technology ecosystem for decades, and Intel is committed to collaborating with innovative companies in Taiwan, such as UMC, to help better serve global customers,” said Stuart Pann, Intel Senior Vice President and General Manager of Intel Foundry Services. “Intel’s strategic collaboration with UMC further demonstrates our commitment to delivering technology and manufacturing innovation across the global semiconductor supply chain and is another important step toward our goal of becoming the world’s second-largest foundry by 2030.”

Jason Wang, UMC Co-President, said, “Our collaboration with Intel on a U.S.-manufactured 12 nm process with FinFET capabilities is a step forward in advancing our strategy of pursuing cost-efficient capacity expansion and technology node advancement in continuing our commitment to customers. This effort will enable our customers to smoothly migrate to this critical new node, and also benefit from the resiliency of an added Western footprint. We are excited for this strategic collaboration with Intel, which broadens our addressable market and significantly accelerates our development roadmap, leveraging the complementary strengths of both companies.”

The landmark collaboration is a win-win for both companies as UMC can agilely leverage the FinFET capacity without the added pressure of costly capital investments. For Intel, this collaboration is expected to aid the company in its goal of shifting from an integrated device manufacturer (IDM) to a foundry business model. Both companies, especially UMC, will be able to solidify their standing among fierce competition in their respective markets.  

Trendforce notes that if the partnership succeeds, Intel may consider “co-managing additional 1Xnm FinFET facilities with UMC, potentially expanding to sites like Ireland’s Fab24 and Oregon’s D1B/D1C.” However, it goes without mentioning that the journey to its tentative production start in 2027 is not without challenges. Intel continues to face hurdles as it attempts to break into the foundry industry, and UMC’s 14nm process has been in development since 2017.

Hopefully, Intel and UMC can strengthen each other's weak points with their individual experience and expertise. It will be interesting to see what develops in this new alliance in the coming years.  

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Ongoing coverage over the recent price hikes to DRAM contract prices is now shifting to NAND Flash. Prices are going up and up after a low year for the memory market, marked by significant capital losses for manufacturers and strategic production cuts.

New data by TrendForce reveals aggressive price hikes by suppliers for several reasons ranging from market outlook uncertainty to manufacturers offsetting losses. The semiconductor industry will likely see many different production strategies among various suppliers for 2024. Expectations are still optimistic for a market rebound in the latter half of the year.  

Meanwhile, countries continue to push for domestic semiconductor manufacturing resiliency in the new year. With recent government funding aid in the United States and facility construction commencing in Europe, Chinese companies are working overtime to boost domestic capabilities. Over the last few weeks, China’s production capacity is expected to boom over the next few years as its imports of semiconductor equipment reach billions.  

NAND Contract Prices See Growth Echoing DRAM in 1Q24

In true cyclical fashion, the NAND Flash sector is following behind DRAM. Earlier this year, TrendForce reported that DRAM contract prices were forecasted to rise 13-18% in 1Q24. In 4Q23, there were already expectations that prices across DRAM and NAND would see hikes after a year of drops.  

Due to uncertainty about DRAM's market outlook, memory manufacturers are increasing prices as buyers make bold purchasing decisions. Unfilled DDR5 orders are fueling this uncertainty with suppliers continuing production cuts to keep the supply-demand tight. Buyers are stockpiling DRAM components in some industry sectors, such as graphics and consumer.

TrendForce's most recent report reveals that even though the market faces a traditional low-demand season, buyers are increasing their purchases to establish safe inventory levels. The NAND Flash market will see an estimated 15-20% increase during 1Q24.  

According to TrendForce, “With demand struggling to keep pace with these rapid increases, future price escalations hinge on the resurgence of enterprise SSD procurement. The first quarter of 2024 will see varied production strategies among suppliers, with some ramping up output early. This could lead to added pressure if anticipated demand growth falls short, moderating price hikes in 2H24.”

So far, enterprise SSD has not seen any demand spikes in the North American market. Lately, Chinese CSPs and server brands have filled the gap NA CSPs left behind. This keeps the market buoyant and encourages buyers to beef up their orders, helping push SSD contract prices to a high of 18-23% during 1Q24.  

Meanwhile, eMMC and UFS products are witnessing bold price hikes in both sectors as suppliers' persistent production cuts have greatly limited production capacity. Because of the limited capacity, buyers must accept the price increases to prevent shortages. This is especially true for the UFS market, where critically low smartphone client inventories lead to UFS 4.0 being highly coveted.  

Stabilizing smartphone and Chromebook demand is the primary driver of buyers' stockpiling and suppliers' bold pricing strategy. Some UFS series products are even witnessing price jumps of over 30%, with a forecast of a high of 18-23% rise. NAND Flash will see a moderate increase in 1Q24 at 8-13% from diminished buyer enthusiasm.  

Uncertainty plagues DRAM and NAND Flash markets, with buyers and suppliers making ambitious moves while observing how the market plays out. Keeping a watch on pricing over the year's first half as excess inventory mitigation continues will be pertinent for buyers and suppliers to prepare for the forecasted market rebound in 2H24.

China Continues Pushing Toward Self Resiliency

Analysts at Barclays have indicated in a recent report that China’s semiconductor manufacturing capacity is expected to double in the next 5 to 7 years. This analysis of 48 chip manufacturers with production facilities in China surpasses previous market expectations significantly. Research suggests that 60% of the expected additional capacity to meet these goals will be able to come online within the next three years.  

Currently, 22 wafer fabs are under construction in China. Ten more are planned to be constructed by companies like SMIC, Nexchip, CXMT, and Silan in the coming months. All of them are expected to come online by the end of 2024.  

Chinese firms have also accelerated the procurement of crucial chip manufacturing equipment to ensure the timely completion of these facilities. The import value of lithography equipment from the Netherlands, essential in producing advanced semiconductors, has surged by 1050%. It has reached nearly $40 billion, according to Bloomberg. The most recent surge came in December as firms rushed to buy ahead before Dutch restrictions on lithography equipment started.  

To circumvent challenges by export controls, many firms are investing in the development of China-made semiconductor manufacturing equipment. Last year, sales revenue for China-based semiconductor manufacturing equipment surged significantly after restrictions passed.

Barclays analysts expect most of China’s production capacity will be held by mature semiconductors (28nm and above) over advanced semiconductors. Research suggests that China will likely lag in advanced semiconductor production for at least another decade. Most mature semiconductors are still used in household appliances and automotive systems, meaning these facilities will be a welcomed addition.

There is concern that the larger production capacity and focus on mature nodes could lead to a market oversupply, but Barclays research suggests it would take several years to reach that point. It would also depend on new trade restrictions, if any arise, and on component quality.  

However, TrendForce notes that China’s mature process capacity, rising from 29% to 33% and driven by local production policies, could cause a flood of mature processes to enter the global market and trigger a price war. Such a move would take place around 2027. As China’s mature process capacities emerge in the coming years, prepare for this.

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This year, the semiconductor, interconnect, and passive industries are poised for growth. Most analysts forecast a rebound to come fully in 2H24, with excess electronic component inventory remaining a challenge for the year's first half. Mitigation of excess inventory has been making progress, noticeable in 3Q23 and 4Q23, despite low sales. Artificial intelligence (AI) made its mark on the industry in 2023 and will continue to do so in 2024.

A surprise contender for one of the main drivers of market recovery in 2024 will come from the memory sector. Last year, memory giants experienced the steepest declines from the drop-off in consumer demand. DRAM contract prices are rising in 1Q24, fueled by production capacity uncertainty for unfulfilled orders of specific components.  

As memory manufacturers strategize for the year, logistics companies face another few months, if not the year, of challenges from disruptions to the two most well-known waterways worldwide.  

Expansion in Memory to Account for Undelivered DDR5 and HBM Stock

A recent report from TrendForce made one thing clear about the coming quarter: DRAM contract prices were rising. After months of price drops throughout 2023, there were clues of an upcoming price increase in 4Q23, according to Sourcengine’s Lead Time Report. There is likely an average increase of between 13%-18% across DRAM market segments.  

Uncertainty in the market outlook is fueling the current price trend, with buyers in consumer and graphics DRAM making more aggressive purchase decisions to stockpile components.

Unfulfilled DDR5 orders generate market unpredictability, feeding into the recent DRAM surge. Similarly, the industry is pivoting toward DDR5 over DDR4 and is poised to surpass DDR4 in the ongoing pricing rally.  

December is the starting point of the memory rebound, with recovery evident in revenue growth among Taiwanese companies such as Macronix, Nanya Technology, and Transcend. Despite the growth, some memory manufacturers plan to continue with production cuts to maintain the supply-demand balance throughout the year. SK Hynix is one such company that plans on continuing production cuts but reducing the scale in 1Q24. The company plans to make similar adjustments to NAND Flash production in 2Q24 and 3Q24.

Over the next few weeks, SK Hynix’s expansion will focus primarily on DDR5 and high-bandwidth memory (HBM) products. Manufacturers believe that over 2024, manufacturers will expand penetration of HBM and DDR5 through each quarter. According to TrendForce, low-margin DDR4 capacity “will be crowded out.”

HBM products are vital in using cloud servers and artificial intelligence applications, such as generative AI and large language models (LLMs). SK Hynix, Samsung Electronics, and Micron Technology have been working toward new-generation HBM components for cloud services.

Logistics Complications Continue in Two Important Canals

Over the last year, disruptions from geopolitical volatility and the energy crisis have led to challenges in logistics. In the early days of the global semiconductor shortage and the Covid-19 pandemic, a peculiar problem arose when a container ship called the Ever Given ran aground in the Suez Canal. The obstruction lasted six days, holding up nearly $60 billion in trade and causing an estimated 60-day shipping delay on an already overtaxed global supply chain.  

Now, the world is grappling with challenges impacting two of the world’s most important trade routes, the Panama and Suez Canal. These challenges have already caused a litany of headaches for shipping companies worldwide.

Panama is experiencing one of the worst droughts on record. To combat the ongoing drought, the Panama Canal Authority has placed restrictions on vessels passing through the Panama Canal due to the reduced water levels. Usually, the Panama Canal sees 36 ships pass through the route per day. This has been lowered to 22.  

However, since the drought began in December 2023, the situation is improving. The El Niño oscillation in the Pacific Ocean brings a fair amount of warmer ocean temperatures, contributing to more storms and wetter weather. Panama might see a decent amount of rainfall this year, remedying the drought.  

“Rainfall and lake levels have been higher than expected,” Air Cargo News reported on the situation in Panama. “Restrictions were set to become stricter with ships to be limited to 18 by February next year,” but due to higher water levels, the Panama Canal Authority will increase the transit number to 24 ships in January.  

Conversely, the Suez Canal is grappling with the ongoing Red Sea Crisis. Due to the devastating Israel-Hamas conflict, tensions in the Red Sea from rebel attacks on passing ships have surged. The additional security risks to Suez Canal-bound transport ships have raised the insurance cost.

Reuters says navigation through the Suez Canal is flowing normally, with the canal authority watching the tension and analyzing the impact on shipping. The Suez Canal is used by roughly one-third of all global container ship cargo, and the redirecting of ships costs around $1 million extra in fuel.  

The Panama Canal and Suez Canal lack an abundance of alternate routes. Those who avoid either waterway must go around Cape Horn in Chile or Cape Good Hope in South Africa. The increased fuel costs by taking alternate routes could translate to higher prices on some shipped components, similar to what the market experienced during the initial days of the war in Ukraine when Russia cut off natural gas to the European Union.  

The effect might not be as dramatic as the energy crisis, but it will be imperative for companies to keep an eye on it in the coming weeks if these matters aren’t resolved. The semiconductor industry is poised for a rebound in the latter half of 2H24, but market demand may be muted and not enough to offset even small price increases. If the market recovery follows a more positive outlook, lead times could grow following shipping delays.

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From a global perspective, the difference between new and old is a thin lens. In the chip world, the days of silicon’s dominance are coming to an end. Researchers believe a new form of graphene, merged with silicon carbide, could be the future of chipmaking and quantum computing. They recently unveiled the world’s first graphene semiconductor.

Meanwhile, the international supply chain is applying lessons learned from past disruptions to manage a new wave of uncertainty. As war rages in the Middle East and Ukraine and demand for goods fluctuates wildly, the supply chain is embracing diversity and risk mitigation to bolster confidence.  

The World’s First Graphene Semiconductor Could Power Future Quantum Computers

The limits of using silicon to create semiconductors are rapidly approaching—perhaps sooner than many would like to admit. With this in mind, researchers are searching for the next material to carry the industry forward. Graphene is promising thanks to its superior conduction properties. However, its lack of a band gap has limited its ability to be used in chipmaking.  

According to a new study published in the journal Nature, this problem might be solved. The solution comes from a source with which many in the industry are already familiar: silicon carbide (SiC).  

The research team bonded a single-atom layer of graphene with a silicon carbide layer using their specialized heating and cooling process. Their result? An epitaxial graphene-based semiconductor that could revolutionize chipmaking in the coming years.  

In this system, the SiC atoms “donate” electrons to the graphene molecules, which creates a functional band gap. This refers to the minimum amount of energy electrons need to move within a material to allow transistors to switch between “on” and “off” phases in a computer chip. Using SiC allowed the researchers to bypass the limitations of graphene and create the world’s first functional graphene semiconductor.  

Since graphene moves electrons much faster than silicon, the chip can operate at terahertz frequencies. Such speeds are a massive leap compared to today’s silicon chips and promises big things for the industry.  

Notably, the researchers believe their approach can be easily integrated into existing wafer manufacturing processes. Indeed, many chipmakers are already experimenting with SiC wafers given their increasing importance for clean energy and electric vehicles. With this in mind, it’s realistic to see how the industry could shift towards this new epitaxial graphene as a medium for advanced semiconductors without a revolutionary upgrade to existing processes.  

Perhaps even more exciting is the material’s relevance for quantum computing. Today’s leaders in this segment are using a variety of methods to achieve their goals. There is plenty of disagreement on which technology will yield the greatest quantum results. Intel, for example, believes in a silicon-based solution that houses spin qubits inside. Meanwhile, Google, IBM, and Rigetti Computing are focused on a more mainstream superconducting model that requires extremely low temperatures but is tremendously powerful.  

In an interview, lead researcher from the graphene chip study, Walt de Heer of the Georgia Institute of Technology, said, “Like light, electrons in graphene have quantum mechanical wave-like properties that can be accessed in devices, particularly at very low temperatures.”  

The research team hopes to explore the quantum applications of their discovery in future studies. Though it remains speculative, de Heer says graphene-based chips could outperform superconducting technology. If true, this would be a massive breakthrough in the quantum computing world and could reshape how the industry evolves in the years ahead.  

For now, graphene-based semiconductors are an exciting area to explore. More research and significantly more testing are required before mass production can be considered. However, the need for more advanced chipmaking materials is dire, and epitaxial graphene is a promising solution.  

Diversity, Risk Mitigation Key for Combating Global Supply Chain Uncertainty Amid Turmoil

Globally, the supply chain is still working to recover from the effects of the COVID-19 pandemic. More recently, though, new factors have introduced further disruption. The conflicts between Russia and Ukraine, as well as Israel and Hamas, have a ripple effect on the supply chain. Ongoing fluctuations in demand also make it nearly impossible for logistics managers to predict future needs. As a result, there is an undeniable element of uncertainty right now as manufacturers, logistics operators, and consumers grapple with the influx of changes.  

Fortunately, global risk diversification efforts are beginning to pay dividends. Following the onset of escalating tensions between the U.S. and China in 2018, chipmakers and players across numerous other industries have engaged in strategic realignments to protect their operations from uncertainty. Indeed, this trend of global diversification has been one of the biggest headlines in recent years as companies expand their operations in new locations and avoid regions ripe with conflict—economic or otherwise. This diversity has dampened the impact of military conflicts and gives all parties more flexibility for moving goods around the world on schedule.  

With the chip industry at the center of rising global demand for components to power the AI revolution, Taiwan is handling a surge in business. The island’s Taiwan International Ports Corporation saw record-breaking highs in 2023 with even more volume projected for 2024. This comes partially thanks to the opening of its newest terminal, which can berth four container ships at a time.  

In Taiwan’s port and others worldwide, lessons learned during the pandemic are improving efficiency and preventing congestion. This includes the increased use of automation and better global planning and operating rules from leading logistics corporations.  

Of course, waning demand for goods also plays a role. According to data from several international institutions cited by DigiTimes Asia, global trade volume growth currently lags behind maritime capacity expansion. Today, the supply chain is better equipped to keep up than in years past.  

Alongside this, the latest PMI for the U.S. manufacturing and services sectors points to sustained activity moving forward with no more declines on the horizon. While the same isn’t true for the EU, consumer confidence is rising in the region.  

The global supply chain will need much more time to forget about the massive disruptions that shook the industry to its core in 2020. In reality, it’s best not to forget those trials or the lessons learned as a result. Even so, the uncertainty will linger as a barrage of political and economic tensions continues to put pressure on manufacturing and logistics.  

Fortunately, the global supply chain is now more diverse and robust than ever. There’s no sign that the efforts behind this trend will slow down in the coming years. As companies worldwide emphasize operational security, global collaboration will be increasingly essential, and the broader supply chain will benefit.

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Japan’s semiconductor industry appears to have dodged a significant blow following a deadly 7.6 magnitude earthquake as early reports reveal minimal damage to key facilities in the affected region. Experts believe the current temporary shutdowns for inspections will be resolved quickly and operations will resume shortly.  

Meanwhile, the memory market has finally turned the page on a tumultuous 2023 and is preparing for a more positive year. While spot prices for DRAM and NAND Flash components remained flat to close the year, analysts have high expectations for prices in the first quarter of 2024.  

Japan Earthquake Temporarily Halts Production at Key Chip Plants, Damage Appears Minimal

Following a devastating 7.6 magnitude earthquake that rocked Japan on the first day of the new year, experts are still assessing the impact on the country’s chip industry. At least 94 people have been confirmed dead following the quake that centered in the Noto region of Japan’s Ishikawa Prefecture.  

While there is no making up for the tragic loss of life, there is a glimmer of hope for a fast economic recovery. According to a report from TrendForce, the recent earthquake does not appear to have significantly damaged any of the several key chip-related facilities in the affected region.  

Ishikawa is home to several important fabs and raw wafer production plants. While these sites are shut down temporarily for authorities to thoroughly investigate each of them for damage, preliminary reports appear positive.  

Most of the factories weren’t located near the quake's epicenter and only experienced seismic forces of levels 4 to 5—well within the tolerance of the affected structures. Fortunately, early inspections reveal no damage to essential chip machinery, which should prompt a speedy return to operation.  

Shin-Etsu and GlobalWafers both operate plants in the area, which are currently shuttered for inspection. Due to the crystal growth needed for wafer production, seismic activity impacts these facilities more drastically. Fortunately for Shin-Etsu, most of its crystal growth operations are located in Fukushima, so the impact is limited, according to TrendForce.  

Meanwhile, Toshiba’s facility in Kaga is also halted for inspection alongside TPSCo’s trifecta of factories in Uozu, Tonami, and Arai. The latter is a co-venture between Tower Semiconductor and Nuvoton. Taiyo Yuden, Murata, and TDK, key MLCC manufacturers in the region, also reported no significant damage.  

While the humanitarian impact of Japan’s recent earthquake is still devastating, the country’s disciplined approach to earthquake preparedness prevented the disaster from being much worse. Ever since the brutal 1995 earthquake, Japan has invested heavily in infrastructure designed to be more resilient against strong seismic forces.

Interestingly, the country has also invested in drones to help aid in disaster relief. These robotic fliers can access hard-to-reach or dangerous areas much faster than human workers. Drones often assist in search-and-rescue operations to find people buried underneath the rubble and perform preliminary inspections of certain structures to ensure they are safe for human experts to enter.  

As Japan continues its recovery, expect the local chip industry to be back on its feet sooner rather than later. Thanks to the country’s preparation and quick work from disaster recovery teams, the earthquake's economic impact should be minimal, and chipmakers in the area shouldn’t be significantly affected.  

‍DRAM, NAND Flash Spot Prices Hover Due to Sluggish Year-End, But Increases Are on the Horizon

The memory chip market was up and down throughout 2023 and ended the year on a relatively flat note. Per new data from TrendForce‍, spot prices for both DRAM and NAND Flash components remained unremarkable thanks to the year-end and sluggish demand.  

The report outlines that some DRAM suppliers are releasing more stock into the spot market to lower their inventories. This trend has put downward pressure on spot prices. However, buyers have been slow to increase their procurement quantities, keeping prices for the DRAM market in flux.  

Meanwhile, NAND Flash spot prices have also remained flat thanks to the lack of driving forces to boost demand. TrendForce reports that purchasing stagnated at the end of the year. However, the NAND Flash market is in the midst of a substantial price correction thanks to restricted supply. Top memory chip makers, including Samsung, SK Hynix, and Micron, have all sustained sharp production cuts over the latter half of 2023 and into the new year to boost prices.  

Despite the stagnation in memory spot prices, industry analysts have a sunny outlook on the memory market’s future for 2024. TrendForce data suggests DRAM prices will increase by 13-18% in the first quarter. This jump will largely come thanks to demand generated by AI applications. The market is also currently flooded with unfulfilled DDR5 orders as OEMs race to manufacture devices with the fastest memory chips available today.  

Moreover, AI is also expected to spike demand for high-bandwidth memory (HBM) chips. These components play a crucial role in smartphones and other devices featuring on-device AI capabilities. As a result, mobile DRAM is expected to be the strongest category in Q1, with an expected price hike of 18-23%.  

Chipmakers will likely need to start churning out more memory modules in 2024. Analyst Roko Kim told Financial Times, “DRAM chipmakers’ inventories are likely to fall short of appropriate levels by the end of the first quarter. Then, they will need to think about increasing output and plant operating ratios.”  

Meanwhile, NAND Flash is poised for a surge of its own. TrendForce data projects a price increase of 13-18%. However, unlike the DRAM market, much of this increase is due to price hikes from manufacturers rather than organic demand.  

Ultimately, the memory market is sure to have a better year in 2024 than it did in 2023. Between growth driven by AI and price increases as manufacturers seek to offset their recent losses, buyers shouldn’t expect to procure memory chips on the cheap this year—even if current spot prices are stagnant.  

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Chipmakers are pushing the limits of what’s possible with cutting-edge silicon. However, as buyers continue to demand more and more from the latest chips, creative design and manufacturing solutions are more critical than ever. For some, this means turning to collaboration and joint projects. Samsung and ASML’s recent partnership to build a new $760 million EUV facility in Seoul is a testament to this trend.

Meanwhile, a push for geographic diversification is sparking interest in chips and equipment from places outside traditional hubs. Japan aims to recapture a spot at the top of the industry amid this shift. The country’s hopes center on its darling startup Rapidus, which believes it can close a 20-year gap with the world’s leading chipmakers thanks to its ambitious roadmap and strategy.    

Samsung, ASML Partner to Build New $760M EUV Facility in South Korea

Collaboration has recently been the name of the game in the chip industry as players look for new ways to gain an edge. ASML and Samsung recently unveiled plans to jointly build a $760 million advanced chip plant in the latter’s home of South Korea. The Seoul facility will utilize ASML’s next-gen extreme ultraviolet (EUV) equipment to produce high-end advanced semiconductors.  

The partnership is part of a broader diplomatic effort between the two sides as they seek to strengthen their collaboration in the chip sector. It comes after South Korean President Yoon Suk-yeol recently visited the Netherlands on a four-day trip, including a tour of ASML’s headquarters alongside Dutch King Willem-Alexander. Yoon said during the visit that his government is committed to working alongside the Netherlands and will provide all necessary support for the project.  

ASML has been working to expand its presence in South Korea beyond the four sites it already operates. Given the ongoing trade tensions between the U.S. and China, ASML is investing in geographic diversity with its latest expansion facilities.

Along with the new EUV plant in Seoul, ASML and Samsung are also working together to establish the Korea-Netherlands Advanced Semiconductor Academy. Aimed at addressing Dutch-based ASML’s severe labor shortage at home, the program will give South Korean students and chip workers opportunities for education and employment in the Netherlands.  

In a statement, Yoon Suk-yeol’s office said, “The technological innovation led by ASML is becoming a powerful driving force of the Fourth Industrial Revolution around the world, and Dutch semiconductor companies such as ASML and ASM are building new facilities for production, R&D, and talent training in Korea.”  

“This will mark a crucial turning point for the Korea-Netherlands semiconductor alliance,” the statement adds.  

ASML’s EUV machines are critical for Samsung and other chipmakers wanting to stay at the leading edge of chip production. As the South Korean firm maintains its status as a global leader in memory chip production, EUV advancements will remain vital. With demand for high-performance DRAM chips being driven by applications such as AI and electric vehicles, the need will be even greater in the years to come.  

However, Samsung isn’t the only South Korean firm joining hands with ASML. SK Hynix, the second-largest memory chip manufacturer, is working with ASML on hydrogen recycling technology for EUV equipment. The goal is to boost efficiency by reducing power usage and operating costs for EUV machinery.  

According to DigiTimes Asia, successful commercialization of the technology could yield annual cost savings of nearly $13 million per EUV machine. That’s an exciting proposition for the chip sector given EUV’s ubiquity for advanced chip production.  

The blossoming partnership between ASML and South Korea’s leading chip firms is an intriguing development to monitor. Close collaboration could yield results that significantly impact the wider industry and have widespread ramifications for chip production.  

Rapidus is Confident Japan Can Close 20-Year Gap with Global Chip Leaders

Japan’s most exciting chip startup, Rapidus, has taken the industry by storm since it was first announced. With the lofty goal of churning out 2nm chips by 2027 and already planning for 1nm production, Rapidus has set expectations sky-high. However, there’s no denying that its rivals have a two-decade head start and much more experience behind them.  

Even so, Rapidus believes it can quickly close this gap and catch up with the likes of TSMC and Intel. At the same time, the startup hopes to reinvigorate Japan’s semiconductor industry and return it to a place of prominence on the global stage.  

During the recent Semicon Japan conference, Rapidus Chairman Tetsuro Higashi noted that his firm’s forthcoming plant in Hokkaido will “surely succeed.” Higashi points to several fast-paced shifts in the chip industry as the driving factors.  

For one, the arrival of gate-all-around architecture is changing the way advanced semiconductors are designed and manufactured. Experts believe it will begin to replace traditional designs before this decade is over. Higashi notes this shift will unlock new chipmaking advancements which Rapidus intends to capitalize on with its 2nm production.  

“Around 2027 or 2028, there will be a point in time where the pendulum for the trend of the technology will start to swing in a different way,” he says, referencing this change.  

Higashi adds, “The chip market is moving more toward focusing on products with specific capabilities, instead of general use chips.”  

The latter is another critical shift Rapidus is targeting as part of its plan to catch up with industry leaders and boost Japan’s domestic industry. Companies across sectors, but particularly those in tech, are aggressively pursuing in-house development projects. While the likes of Apple and Meta have stolen the spotlight, countless others have shifted their focus to chips tailor-made for their applications. This is a significant trend to monitor in the coming years as traditional chipmakers will need to adapt to meet the changing demands of buyers.  

For Rapidus, this transition period over the next ten years or so presents an opportunity. The startup hopes it will be an ideal time to enter the market alongside more established players.  

One way Rapidus aims to break in is by harnessing the full support of Japan’s chemical and fab machine suppliers. Though the country’s overall chip sector lags behind other industry hubs, these firms are already key suppliers for the world’s largest manufacturers, including TSMC and Samsung. This will make Japan’s return to global semiconductor relevance a bit easier.  

However, the path forward isn’t without challenges. Japan’s chip industry has fallen far behind hubs like Taiwan, South Korea, and the U.S. in recent years. While Rapidus offers a breath of fresh air, it can’t revitalize the industry alone.  

Higashi says, “Japan must at all costs create a platform where cutting-edge technology can be born.”  

As Rapidus aims to close the gap between itself and global chip leaders, domestic support is essential. Fortunately, the Japanese government has fully bought into the project and has already pledged significant support for the startup. This includes hundreds of billions of yen for its Hokkaido headquarters and future chip research and expansion projects.  

Over the coming years, Rapidus will be one of the hottest chip firms to watch as it seeks to achieve a seemingly impossible feat. Whether or not it will draw level with TSMC and Intel anytime soon remains to be seen. However, it seems inevitable that Rapidus will shake up the industry with its ambitious roadmap and play a major role in returning Japan to a place of prominence in the global chip landscape.