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    COVID Hits Innovation and Semiconductor Asps Down in a Shortage

      Jul 8, 2021

    VLSIinsiders’ cloudside chat — July 08, 2021

    This week Andrea Lati, Dan Hutcheson, John West, and Risto Puhakka discuss what insiders are saying about …

    • Is the COVID communications gap hitting innovation?
      • What’s broken what’s not getting fixed?
    • TSMC’s Arizona, Japan, and Europe fabs?
    • Semiconductor ASPs, units, and sales not reconciling?
    • Micron selling fab to TI: Did the market see it as the end of the boom?
      • Costs, EUV?
    • Will China’s stock market fumble with Didi effect semiconductor stocks?

    About VLSIinsiders: Every week our analysts have a cloudside* chat to discuss current events and key issues of concern, while sharing what they’ve heard over the past week from the semiconductor industry insiders.
    * cloudside chat: A fireside chat without the fire and is across the clouds of the internet

    Other VLSIinsiders

    Transcript

    VLSIinsiders’ Cloudside Chat — July 08, 2021

    DAN HUTCHESON:- Welcome to this week's VLSIinsiders. This is Dan Hutcheson.

    ANDREA LATI:- This is Andrea Lati.

    JOHN WEST:- This is John West.

    RISTO PUHAKKA:- And this is Risto Puhakka.

    DAN HUTCHESON:- So guys ah, there's really not a lot going on was there but there's more some of the long term issues that we've been looking at, you know, we had the July 4th holiday in the US. So that kind of broke things up. But one of the interesting things that, John, you were talking about, is what I'm kind of calling the COVID communications gap. And is it hitting innovation? What's, what's going on with that? You know, what are you seeing in a supply chain?

    JOHN WEST:- Yeah, it's kind of interesting, because I think that you know, as a company, you know, we survive on finding those pieces of information you just can't get anywhere else. And most of that comes from travelling, meeting, going to factories, having a look at things. It was prompt discussion, and you just pick up things incidentally, on the go, and you're trying to figure out why I was really struggling to compete, complete some of our reports this year, to the same quality would normally do. So, I just mentioned this to one of our clients. And he said, “Hey John, we hear you, we're having the same problem. Even internally, we're a global company. And we're actually starting to find out that we're not sharing information between fabs or chain, headquarters and regional offices. And we're actually starting to feel the pain of that now.” So, you're probably not hearing a lot about it, because these companies are making a lot of money. So, everyone's happy. But I getting a sense that somewhere along the line, there could be a COVID crunch, when you know that innovation or lack of innovation starts catching up with us. I mean, have you had the same experience? Are you hearing same thing from clients?

    DAN HUTCHESON:- Yeah, I think a lot of people are simply saying it that there's just too much of a gap that, that zoom doesn't fill, you know, because when you do the zoom meetings, you go into it, you want to get out of it for us. There's no, you know, breaking for coffee and chatting, or, you know, the kinds of things that you get when you're in these informal meetings, when you fly somewhere, there's always dead time. And that time, you pick up the tidbits. And with zoom, there's no dead time, I think.

    RISTO PUHAKKA:- Yeah. And the other one is that, you know, in a normal, in a normal course of our business, you know, we would travel to trade shows, we would travel to conferences, we would travel to meetings. And, and along the way, you, you just pick up information. And then if you have projects or hot topics at hand, you'll seek out individuals and have a little chat with them. And, and, and you know, you get yourself educated and more educated on the topic and better understanding. So that's really hard to combine in with that with video calls and filling in that gap.

    DAN HUTCHESON:- It's kind of funny, I, I have gone back to the old methods. In the old days, we used to get information is too expensive. The drivers, you picked up your phone calls from multiple times, we've got the office. And so, I started doing that calling yourselves and or texting yourselves saying hey, let's chat, you know, and then just having an informal chat to kind of displace it, but you, you almost feel like you're annoying people by calling your phones, you know, as opposed to having something more, a little more formal. So…um…the other thing that happened is last week, there was a lot of news coming out about TSMC's fabs, you know, lots going on Arizona, there was this Japan coming in to find the packaging effort in Japan. And then and then in the US, there's been a lot of rumors kicking around about a European fab. Have you heard anything about a European Fab John?

    JOHN WEST:- Absolutely nothing. I, I think we had something maybe one or two months ago, and it was dismissed out of hand. Umm...and then nothing. So, it doesn't mean to say there's something going on, but you know, I haven't picked it up from any sources locally.

    DAN HUTCHESON- Just speak with it there's any chance politically that it would work for the new government to support TSMC? And is there enough demand in TSMC?

    JOHN WEST:- Yeah, I've always the question about if you're going to build a huge mega fab in Europe. What are you going to make and who you're going to sell it to? And you know, what's the benefit if, if they've already got fabs in the US and Taiwan. I mean, the risk of, you know, geo-geo-geopolitical risk has kind of been offset somewhat. So, I don't really see that. And Europe's very fragmented as well. And then there's, there's a lot of competition within Europe to try and get it in a certain cluster, whether it's just in Grenoble or in the Netherlands, so I, I, I haven't heard anything at all. I, I, I didn't see a clear, a clear reason for TSMC to come into Europe.

    DAN HUTCHESON- Yeah. From the supply chain perspective, what are you hearing about Arizona? Are a lot of Taiwanese companies enjoying the business there? Is it going to American companies?

    JOHN WEST:- Yeah. So yes, I think that's the other interesting story in that. So TSMC is coming into town, they're going to bring all that, all their fabs are going to come into town. Sounds great. Sounds really good for, for the US. And I could see some of the US ahh...companies that would typically support fabs rubbing their hands thinking, this is going to be great business for them. Umm..but it looks like TSMC are bringing a lot of their supply chain with them. So, it's not just TSMC coming to Phoenix, it's so the whole supply chain is, is moving to there, as well. So, we're hearing about them buying properties and facilities getting, getting prepared for that. So yeah, TSMC will probably be using their own suppliers. But then of course, once those suppliers in the US, those Taiwanese companies could actually be competitors for other American companies who supply Intel and Micron. So, it's could be quite disruptive. Aah..it's good news TSMC is coming to US. But it's not a clear cut picture, it's not everyone's going to benefit, I don't think.

    RISTO PUHAKKA:- It makes a lot of sense for TSMC, especially initially, to bring up its own supply chain, because then you have the reliability of the ramp up you have, you have the knowledge base to lean on, and all of that. So…

    DAN HUTCHESON:- Because they were originally talking about small, but now they're talking about six reasons, and it'll just normal TSMC you know, full blown mega, Giga fab. So, they're going to need to work with people that understand the way of doing business. So, so. So anyway, hey, Andrea. Lots have been going on with units and ASPS, and not reconciling to, to the normal sales sort of picture. Ah…Ah…you've been working on trying to pull that together, you know, because we've seen something, areas where there's a 40% growth in units. So, we know there can't be that much in wafers, what's happening?

    ANDREA LATI:- Yeah, we noticed that about three months ago that basically units were growing far faster, IC units were going far faster than IC sales. And even if you look at the data, you know, that we get from WSDS up to date, we're basically running about 25% year over year growth in terms of sales and units are growing close to 40% on year over year basis. So huge, huge numbers. So, the interesting part there is that, you know, we saw that and then of course, we're in the middle of a shortage. And then this, this ASP decline, right? Doesn't add up, right? So however, if you look at the all the IC units, and if you look at bi-segments, you'll see that there are quite a few segments actually, which have very high unit volumes, but very low and low ASPs are growing very, very fast. And that's primarily in the logic segment where you have the segments like standard cells, gate arrays, display drivers, asix. So, they're growing a lot faster in terms of units compared to sales, and they are pretty much diluting the ASPs. And that's what, that's why we're seeing this discrepancy. Because if you look at the main segments, let's say analog ASPS are going up, memory ASP's are going up as well. It's just in the logic segment that we're seeing this discrepancy, mainly because of this unit mix shift that we're seeing towards this low-end device, essentially. And, and again, you know, that doesn't mean that the silicon is growing that fast, because they're very small dye sizes. But again, it just shows that, you know, chip makers are trying to catch up ,especially in the consumer segment automotive, where all these you know, units account for, and then they've been just going flat out this year to meet up demand. So, it's quite interesting. And, yeah, at this pace that we're growing and growing. I mean, we could probably see units growing about 30% for the year, because again, they're, you know, on a very, very, you know, strong growth path, at least in the first half of the year.

    DAN HUTCHESON:- Yeah, so, it's all about exchanges. Where are we capacity wise, we like running 96% or something like that?

    ANDREA LATI:- Oh, utilization is still very high. Yeah, we're 96-97%. I mean, they're pretty much making whatever they can make and ship it out there. So, it's, you know, and I think that this year, they're going to run flat out even with a capacity coming online. And, and, you know, but also the fact that they can increase unit this much shows you that that, you know, bringing more capacity and they are also running flat out to pay these high numbers that we're seeing.

    DAN HUTCHESON:- But it also showed you that you couldn't have a 40% increase in wafer volumes if you’re 96%.

    ANDREA LATI:- No...No...not. Again...

    DAN HUTCHESON :- Again it proves the mix trend shift argument right or...

    ANDREA LATI :- Correct. Correct.

    DAN HUTCHESON Now when you look at the years itself. So, one other thing I want to switch gears now and talk about Micron last week, they had their, their conference call, and the whole market went down right after that. And you know, the whole semiconductor part of the market went down. If you looked at the stock market itself, it boomed into Friday, but yet into Friday's close, actually. But the semiconductor stocks all cratered after Micron’s announcement, it wasn't just Micron, what do you guys think was driving that? Was it? Was it selling the fat to TI? Was it the sort of sell cost about comments about cost? Or was it EUV or all of the above?

    ANDREA LATI:- Well, I think if you look at microns numbers, they were very, very good. I mean, their Q2 sales, they were up about 35-36% on year over year basis. And if you look at their guidance, they're pretty much around at the same growth clip. And I think for the whole year, Micron grow about 34-35%. So again, it's going to be a very, very good year for them. But I think the street probably viewed it more as the peak of the cycle. And of course, you know, that more forward looking than, you know, than anything else, so, and that's probably the reason why there was that bit of a sell off. And I don't know what you guys think. But to me, it was more of a, you know, a recognition that maybe we're at the peak now. And then it's a matter of how long we stay there and what happens next.

    DAN HUTCHESON:- Yeah. Risto, any comments?

    RISTO PUHAKKA:- Well, I mean, not. I mean, it's kind of if you're, if you're a little bit uninformed, and selling them a reasonably major asset like Lehigh, you know, since to signal why you're selling when you are having record, record revenues.

    DAN HUTCHESON:- And, there's shortages, right? What are you selling when they're shortages?

    RISTO PUHAKKA:- Lehigh, Lehigh, he is old, it's a perfect sale to, to, to TI in, in so, so that's, that's not an issue. And then that there was those comments about, hey, costs increasing so. So again, it's a forward looking your profitability may be, may be compromised, you know, again, even though it was more EUV related, related commentary, rather than just the costs increasing, but you know, those, those are pretty easy to take us as a we are, we're at the peak. And as you know, and everybody's looking where's the peak and tried to get out of the market on the right time. So, so this could be one of one of those,

    DAN HUTCHESON:- The markets been incredibly nervous about that sort of thing. So interesting angle there, though, is TI bought it to get a 300 millimeter capacity. And you keep reading in the media about all the stuff about 200 millimeter shortages and everything. But it makes a lot more sense for them just to go straight to 300 millimeter, which is what you guys been doing for several years, right?

    RISTO PUHAKKA:- Oh, yeah. Oh, yeah. And the cost, cost advantages is, is, is enormous. At the end of the day, it's just that you need to bear the initial cost to transfer your production to 300. And it's definitely more modern than the TI’s 200 millimeter capacity. So again, there is a roadmap now for additional, you know, advanced and more advanced capacity for TI.

    DAN HUTCHESON- Right. In a 300 millimeter fab they have in Richardson has been a goldmine for them.

    RISTO PUHAKKA:- Oh, yeah.

    DAN HUTCHESON:- up against 200 millimeter fabs, and it's one of the reasons why TI has such great earnings in recent years. You know, that's really helped them a lot. So, this will just keep them on that track. Right?

    RISTO PUHAKKA:- Exactly. Exactly. Yes.

    DAN HUTCHESON:- So…

    RISTO PUHAKKA:- …and that they are experts converting memory fabs into, into analog, so they know how to do it.

    DAN HUTCHESON:- Yeah, fabs are pretty good.

    RISTO PUHAKKA:- Yeah.

    DAN HUTCHESON- One final note. What about China's stock market fumble with Diddy? You think that's going to have an impact on semiconductor investments and stocks, you know, willingness of investors to invest in Chinese semiconductor companies, companies?

    RISTO PUHAKKA:- Basically, basically, it puts all of the, all of the let's call it investments in China in question because. You know, the government has now a track record of two or three back to back trashing, trashing companies starting from the Ali Ali Baba, you know, IPO back in October and in couple others now so, so there is clearly a clear trend that the central governance, government wants to manage, manage the commercial side, whichever way it goes. And, and it's not a good, good sign, whether to semiconductor investments or any other investments in the, in the region.

    DAN HUTCHESON:- It certainly is a new angle in the geopolitical game. Anyway, anyone else have any more comments or kind of running out of time here? Well now, thank you for taking the time today.