In 2023, the global foundry mature process capacity utilization rate has been at a low level, and the oversupply situation has not improved. Entering the second half of 2023, the mature process price reduction wave is surging, and related foundries are cutting prices to grab orders to keep the capacity utilization rate from falling too much. Taiwan, China is a gathering place for mature process foundries in the world, mainly including UMC, World Advanced and Powerchip. TSMC also has mature process foundry services, but the proportion of business is relatively small. In the third quarter of 2023, IC design companies negotiated with foundries, hoping to reduce subsequent foundry quotations. According to statistics, the quotations of 12-inch mature process foundries other than TSMC rose by about 70% to 80% during the epidemic shortage period, but after destocking began in 2022, the cumulative decline was about 20% to 30%, which means that the increase in the previous two years has been 40% to 50%. IC design companies said that the price of mature processes for 12-inch wafer foundries will vary depending on the process. Before the epidemic, each wafer cost only more than US$1,000, and it rose to more than US$2,000 during the shortage period. After the price reduction in 2023, it returned to the 1-digit range again, but it was still higher than before the epidemic. Since some IC design companies have placed orders with wafer foundries on both sides of the Taiwan Strait, the quotations of Taiwanese wafer foundries are usually at least 10% higher than those of mainland foundries. Some Taiwanese IC design companies have begun to require that the quotations of Taiwanese foundries must be closer to those of mainland companies. As for TSMC, several IC design companies that have invested in the company and belong to different applications said that TSMC did not significantly increase the price of mature processes in 2021-2022, so there was no price reduction in 2023. At that time, according to Korean media reports, the capacity utilization rates of Korean wafer foundries such as Samsung, Key Foundry and SK Hynix System IC under SK Hynix were only 40% to 50%. Due to weak terminal demand, the above three wafer foundries decided to turn off the power of some mature process equipment and perform "hot shutdown", highlighting the downturn in the mature process market. 01 Protecting capacity utilizationBy the fourth quarter of 2023, mature process wafer foundries had to face a utilization rate defense battle of 60%. Major manufacturers such as UMC, Vanguard, and Powerchip drastically cut their first quarter of 2024 pricing by double-digit percentages. Such pricing has led to mature process foundry prices reaching a new low since the pandemic.

Despite a market rebound in PCs and smartphones in the fourth quarter of 2023, customers, fearing a repeat of the inventory glut quagmire, remained conservative in their wafer ordering strategies, only restoring to 30-40% of the pre-pandemic order strength. This forced wafer foundries to increase the discount range to prevent orders from flowing to competitors.

At that time, the demand for wafer orders from consumer chip customers was very low, causing manufacturers specializing in mature processes for 8-inch wafer foundries to suffer the most. The main reason was that IDMs and IC design companies had previously placed a large number of duplicate orders, leading to high inventory levels of chips such as power management ICs, driver ICs, and MCUs. Additionally, some products had already shifted to 12-inch wafer production lines, keeping the utilization rate of 8-inch wafer foundries at a low level.

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In the fourth quarter of 2023, UMC's utilization rate dropped from 67% in the previous quarter to 60-63%, and the gross margin slid from 35.9% in the previous quarter to 31-33%, returning to the level at the beginning of the pandemic in 2021. Regarding pricing, UMC stated that the 8-inch production line saw a larger decrease, while the 12-inch remained unchanged. The supply chain revealed that Vanguard's pricing cut reached 5%, and customers with large wafer orders could even get a 10% discount. Due to losses in the third quarter, Powerchip also significantly reduced prices to improve utilization rates.

Looking back at the entire year of 2023, global wafer foundry prices for mature processes have been continuously declining for several reasons:

1. Weak market demand: The sluggish end-market demand affected the release of wafer foundry capacity, and the fact that there are many mature process manufacturers and production lines with intense competition is also one of the reasons for the across-the-board price reduction;

2. Digesting excess inventory: In the past two years, the semiconductor industry has entered a phase of digesting excess inventory, leading to a significant drop in production and prices;

3. Declining utilization rates: Due to industry inventory adjustments, the utilization rate of wafer foundry business has decreased;

4. New capacity coming online: The launch of new capacities by IDM factories has impacted the wafer foundry market, leading to a new wave of price reductions for industry players.02 Continue to reduce prices   After entering 2024, the competition for mature process wafer foundry orders is still fierce. In March, the demand for mature process wafer foundry is still very weak. An IC design company revealed that in the first quarter of the year, the quotations of mature process of some wafer foundries dropped by 4%~6%. This is a big benefit for IC design companies, especially driver IC and power management IC. In the past, IC design companies that invested in wafer foundries in mainland China mainly focused on driver IC. Recently, some power management IC design companies have gradually increased their orders in wafer foundries in mainland China. At present, the maximum gap between wafer foundry quotations on both sides of the Taiwan Strait has reached 30%. For this wave of mature process price cuts this year, senior executives of IC design companies said that the reduction of Taiwanese wafer foundries is 1%~3%, and that of mainland manufacturers is 4%~6%. If the order volume is large, the price can be negotiated lower, or there are other discount methods. In March this year, according to the Mercury News, Tower Semiconductor plans to shut down most of its Newport Beach operations for three weeks due to the industry downturn, which will put nearly 700 employees on leave. During the shutdown, the equipment will remain in a "hot shutdown state." In response, Tower Semiconductor issued a statement saying that the Tower Newport Beach plant plans to carry out maintenance from April 1 to April 7, and the wafer launch plan and production will be restricted during this period. Because this is a planned normal maintenance, we will still fulfill the wafer delivery commitment as planned. Tape out work will continue without interruption. Not all mature processes are reducing prices. For example, high-voltage 28nm is in short supply and can even increase in price, but processes such as 40nm and 55nm can only reduce prices when the capacity increase is faster than the demand recovery. In summary, the mature process of wafer foundry experienced a significant price reduction in 2023. In 2024, the price reduction continued, but the magnitude was smaller.Diversifying Risks

Looking at the market trends from January to February this year, it appears that the downward pricing trend for mature process technologies will be difficult to halt in the short term. Some institutions predict that global wafer foundry mature processes will continue to decrease in price in the second quarter, leading to a cumulative reduction of 10% in the first half of 2024. This news will have a significant impact on enterprises throughout the semiconductor industry chain. In response to this situation, related wafer foundries need to closely monitor market dynamics and adjust their development strategies to cope with potential future challenges.

To reduce and diversify risks, some wafer foundries have already begun to take action. Taking the mature process foundry UMC as an example, it has started to collaborate with Intel. The two parties will jointly develop the relatively mature 12nm process technology and engage in contract manufacturing at three Intel factories in Arizona, USA.

Intel is changing its business model, focusing on wafer foundry services, to compete with TSMC and Samsung for a large market share. By cooperating with UMC on mature processes, Intel can concentrate more resources on cutting-edge process technologies such as 1.4nm.

For UMC, collaborating with Intel enables it to mass-produce chips that are more advanced than its mainstream 22nm to 28nm products. Gaining production facilities in the United States will also help this mature process giant to secure more orders from North American customers. Currently, UMC's revenue from this region accounts for less than 30%, indicating a significant room for expansion.

Joanne Chiao from TrendForce stated that if the cooperation between the two parties proceeds as planned, Intel's existing factories in Ireland and Oregon, USA, could also become candidates for joint operations.

In addition to UMC, Powerchip has also taken action. The wafer foundry announced in February this year that it plans to assist the Tata Group in building a chip factory in India. Powerchip stated that it will provide intellectual property support for the project without investment, aiming to earn licensing revenue.Order Transfers

Since entering April, the market situation has improved, especially with the performance of mature process wafer fabs showing a better-than-expected recovery trend. Additionally, the earthquakes in Taiwan and the tense situation in Israel have also affected production capacity to some extent, which will play a positive role in curbing price declines.

On April 8th, according to media reports in Taiwan, although the utilization rate of mature process wafer fab capacity was relatively low in 2023, with the end of destocking and the continuous expansion of the order transfer effect, the mature process market has now become more stable, even slightly better than previous market expectations. In the second quarter, the performance of mature process wafer foundries is expected to show a slight increase compared to the first quarter.

Currently, UMC has provided special processes such as 22nm, 28nm, eNVM, and RF-SOI, and it is estimated that the revenue share of special processes in the first quarter of this year will exceed 30%, with the market optimistic about the continuous increase in this proportion. World Advanced has clearly stated that it will not participate in price wars and will focus more on competitive technology capacity. Powerchip, on the other hand, focuses on a small and diverse range of niche products, striving to break away from price competition.

Chairman of World Advanced, Fang Lue, stated that global consumer chip inventory adjustments have been intense since the second half of 2022, and have now lasted for over a year and a half, gradually coming to an end. It is expected that consumer electronics will gradually return to their original seasonal growth patterns. Fang Lue believes that there should be no problem with World Advanced's performance meeting targets in the first quarter of this year, and a moderate recovery is expected after the second quarter.

Chairman of Powerchip, Huang Chong-Ren, pointed out that many manufacturers have started production at wafer fabs in Mainland China. Currently, they need a second source of supply, or they need to shift production to Taiwan to supply American customers. These situations are slowly fermenting, which will benefit Powerchip. Therefore, Huang Chong-Ren is optimistic about the performance of Powerchip gradually improving after the second quarter.

Regarding order transfers, World Advanced noted that since the beginning of this year, there has indeed been a sense of international customer orders transferring.

Recently, the situation in Israel has been very tense. Intel has a wafer fab there, and the seventh-largest global wafer foundry, Tower Semiconductor, is also located in Israel. The increasingly tense situation in Israel may lead to some mature process chip manufacturing orders shifting from Israel to wafer fabs in the East Asian region.

Intel has 15 wafer fabs globally, with production lines in Israel mainly concentrated in Jerusalem and the town of Kiryat Gat, and R&D centers in Jerusalem, Haifa, and Petah Tikva, employing nearly 12,000 people. Intel's wafer fab in the southern central city of Kiryat Gat in Israel produces 10nm and below process chips, with a monthly production of 66,000 pieces in 2023.Tower Semiconductor is an Israeli wafer foundry with its headquarters in Migdal HaEmek, primarily producing mature process chips such as analog chips, CMOS, discrete devices, and MEMS (Micro-Electro-Mechanical Systems) for automotive, mobile, medical, industrial, and aerospace applications.

Currently, Tower Semiconductor operates two wafer fabs in Israel, focusing on mature processes of 80nm and above, with a monthly capacity of 64,000 wafers (8-inch wafers).

Foreign media speculate that in the event of escalating conflicts in the Middle East, the worst-case scenario could be a halt to operations at all wafer fabs within Israel. In such a case, wafer fabs in East Asia would have the opportunity to receive additional orders. Additionally, if Intel suspends operations at its Israeli fabs, it may outsource some of its production.

On September 5, 2023, Intel announced that it would provide Tower Semiconductor with related foundry services, and Tower Semiconductor would also purchase approximately $300 million worth of fixed assets located at Intel's New Mexico facility. This marks a further expansion of their cooperation. According to the agreement, Intel will provide Tower Semiconductor with a new production line, with a monthly capacity of 600,000 photo layers, to meet anticipated demand.

Overall, the market was initially pessimistic about the mature process wafer foundry market for this year. However, recent destocking and order expansion have become a focus of attention. Influenced by these and other factors, the mature process market has been gradually stabilizing since April, and the industry is beginning to look favorably on the performance of mature process lines in the second quarter, with expectations of a slight recovery. The recovery trend in the second half of the year is even more anticipated.

As the market continues to warm up, it is projected that by the end of 2024, the utilization rate of 8-inch wafer foundry capacity at most fabs is expected to recover to over 60%. This implies that with the increase in market demand and the improvement in capacity utilization rates, prices for mature process technologies are likely to rebound.