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By Miranda Li
The Chinese mainland is expected to build 25 12-inch wafer fabs in the next five years, covering logic wafer, DRAM, and MEMS production, according to a JW Insights analyst article.
With more fabs under construction in China, the government supervising departments are monitoring more closely the newly added and existing production lines. There will be no overcapacity in the country's fabs, with various new application demands driving the opportunity for homemade chips. China should persist with expansion plans, said the analyst article.
Over the last five years, China's semiconductor industry has entered a rapid development period, with thousands of design houses cropping up. The growth leads to strong demand for fab capacity and a considerable capacity gap, even if the local wafer factories are fully loaded all year round.
The continued COVID-19 outbreak and the geopolitical friction between China and the U.S. have brought a surge of domestic substitution of China-made chips. The capacity expansion of Chinese semiconductor manufacturers lags seriously.
According to the statistics by JW Insights, 23 12-inch wafer factories in the Chinese mainland are being put into production, with a total monthly production capacity of about 1.042 million, reaching a loaded capacity rate of a mere 66.58%, compared to the planned monthly production capacity of 1.565 million. There is still much room for expansion.
From 2017 to 2021, 15 of the 23 wafer factories were put into operation, including four foreign-funded ones.
The built capacity in the last five years is far from enough to cover China's future incremental market demands.
The JW Insights article predicts that another 25 12-inch wafer plants will be built in the Chinese mainland in the next five years (2022-2026), with a total planned monthly capacity of 1.6 million. By 2026, the overall capacity of 12-inch wafer factories in the Chinese mainland will exceed 2.763 million per month, an increase of 165.1% compared with the current level.
At the end of this year, six 12-inch wafer plants are scheduled to complete. Among them, two fabs are located in Shanghai, and one of them may postpone its operation to the next year due to the pandemic lockdown in the city since March.
As some 12-inch fabs outside China have released their capacity since the fourth quarter of 2021, there are concerns about overcapacity from the enormous expansion in the next few years. The sharp shipment decline of major mobile phone manufacturers in the first quarter of this year caused more worries.
However, the JW Insights article holds an opposite stand.
First of all, the application of 5G, foldable screen, multi-camera, and other new functions in mobile phones increases the number of chips used in a single phone far more than in the past. Automotive electronics and more intelligent devices also lead to more chip demands. So the decline in mobile phone sales does not necessarily result in overall chip market demand cut.
Secondly, since March, the lockdown from the Omicron outbreak in Shanghai and its surrounding areas led to the shutdown of some fabs and packaging and testing factories. It may tighten the production capacity in the second half of this year.
Meanwhile, relevant Chinese regulators have started implementing stringent regulations on new fab expansion, requiring proof of orders related to expanded production capacity to avoid repeated construction and waste of resources.
More and more IC design companies will sign a capacity binding contract with wafer factories in the long run. In the next five years, a wave of mergers and acquisitions is expected in the IC design sector, tightening ties between large-scale chip design companies and foundries. With more long-term contracts, it is easier for foundries to allocate their production capacity and avoid low production rates.
The JW Insights article calls on Chinese semiconductor factories to stay on with their production expansion to follow market demands. The overcapacity will not become an issue.
