The global semiconductor production capacity is in short supply. As new capacity is gradually opened in the second half of the year, the demand for silicon wafers continues to strengthen and the supply is tight.

Silicon Wafer

Due to the limited increase in production capacity of global silicon wafers in the second half of the year, semiconductor factories are actively seeking to sign long-term contracts with silicon wafer fabs when the industry generally anticipates that there will be a major shortage in the next two years.

Covid-19 is accelerating digital transformation, boosting sales of laptops, tablets, and servers. Coupled with the rapid increase in the market penetration of 5G smartphones, automotive electronics such as electric vehicles and advanced driver assistance systems (ADAS) have become the mainstream of new car models. The capacity utilization rate of the foundry and IDM plants is fully loaded, and the memory plant is also full capacity.

Since the beginning of this year, including foundries, IDM plants, and memory plants, all production capacity has been fully opened. The demand for silicon wafers has clearly strengthened. The purchase volume has seen a rebound. Not only has the supply of 12-inch silicon wafers been tight, but 6-inch and 8-inch silicon wafers are also in short supply.

However, the world’s four major silicon wafer fabs, including Shin-Etsu, Japan SUMCO, Taiwan Global Crystal, and Germany’s Siltronic, have limited capacity growth in the second half of the year. Given that the shortfall in semiconductor production capacity will continue until 2023, the industry generally expects that, Silicon wafers may be out of stock in the next two years.

In order to consolidate and ensure the supply of silicon wafers, the world's major semiconductor manufacturers have begun to make major moves to grab production capacity and have actively requested long-term contracts with silicon wafer fabs since the second quarter.

The major chip factories have successively obtained orders from major international semiconductor manufacturers and obtained advance payments from customers. They are expected to launch expansion plans to cope with the strong demand in the next two years.

Furthermore, because the supply is getting tighter, the silicon wafer market has turned into a seller's market. The price increase in the second half of this year will expand, and the price increase trend will continue until 2023.

Expect to return to the glory of 2017?

Since the end of last year, silicon wafers have been on the upward trajectory of recovery with semiconductors, automobiles, and memory. Since the beginning of this year, all sizes have shown a full load of fiery performance.

According to the forecasts of major silicon fabs, the short supply will continue. From 2021 to 2023, it will be a positive cycle. The supply has not been significantly released, but the demand is on the rise. Customers are also worried about the lack of supply in the future and plan to sign long-term contracts first. Does the market have a chance to return to the prosperity of 2017?

The current situation is a bit like 2016~2017. Suppliers have full capacity and demand is optimistic. Customers are also worried about insufficient capacity, so they are more and more willing to negotiate long-term contracts to lock suppliers’ long-term and stable supply promises.

If silicon fabs need to be expanded, commitments such as long-term contract LTA and prepayment are required. In view of the current capacity, the proportion of long-term contract customers will increase, that is, the proportion that can be supplied to the spot market will increase. In the future, if customers with long-term contracts want new production capacity, they need to look at the market price.

As for the current shortage, it is generally seen that there will be a shortage of goods from 2021 to 2022. The shortage of goods in 2022 will be even worse in 2021, and it will ease in 2023 at the earliest.

As for the supply side, no manufacturer has explicitly stated that it will build a new factory, and it is still in the "consideration" or "assessment" stage. However, if the future market demand does not reverse and disappear, the current supply is definitely not enough, but it will take 2 years to build a new factory. So there is still no solution to the short-term supply shortage in 2 years.