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    Inflation in the semiconductor supply chain

      Jul 21, 2021

    VLSIinsiders’ cloudside chat — July 21, 2021

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

    • Inflation in the semiconductor supply chain
    • ASML’s results
      • The big order from the EU
    • 2021 WFE results driving up the forecast
    • When’s the next downturn
      • Follow the money
    • GLOBALFOUNDRIES is now GF
    • Aehr test’s stock spike: what it says about the ATE market

    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 21, 2021

    DAN HUTCHESON: Welcome to this week's VLSI Insider. 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, there's not a lot to talk about these this week, guys, is there? You know, probably the most interesting thing was ASML’s results and the big order they got from the EUV. What's going on there?

    RISTO PUHAKKA: Well, I mean, that's just that we haven't even got a good transcript yet, but I was listening half an hour of their call. But basically, it's a bang-up result, especially from the order perspective. You know, they book close to $9 billion euros in their backlog during the quarter. And of course, you know, close to $5 billion euro sales, so big numbers and very strong output. You know, the biggest concerns they had was really relaying how they can find the capacity, how their customers can get the capacity. Nothing else on that on the output side was really that everybody's capacity constraint.

    DAN HUTCHESON: What about the order from Europe that you guys are talking about a big $300 million to system order out of Europe or something like that?

    RISTO PUHAKKA: Well, that was basically a reversal. So basically, ASML purchased back a couple of scanners from Europe, and obviously, I kind of believe that they have been rebooked as well. So, it was just that, that's one of the accounting picks on that so more than anything else.

    DAN HUTCHESON: Okay.

    ANDREA LATI: Yeah, the orders make sense, Risto, because, you know, the big uptick now because you have the memory players pretty much moving in there. All the DRAM companies are actually getting there.

    RISTO PUHAKKA: Yeah.

    ANDREA LATI: …so Micron said that they already ordered. Hynix is already there. Samsung has already been there for a while, so it doesn't really surprise me those high levels because you have, you know, a new set of customers there.

    DAN HUTCHESON: Yeah, yeah. So, the other interesting thing about news was is TSMC kind of made it official that they were looking at putting a fab in Europe, and you know, we kind of had an interesting discussion around whether it makes it secure if you have a TSMC’s fab in your region or not, you know, because there's going to be one in Arizona, United States, after this one in there, does it? Does it make them secure if all of a sudden China decides to spoil it for everybody and take out Taiwan, right?

    RISTO PUHAKKA: Yeah, that's of course the big issue there. But you know, in the sense once you get fab. I mean, I believe once you get fab up and running in a few years of operational experience with it with the local staffing, it starts to run reasonably independent. Of course, the upgrades in the process advancements are probably highly dependent in Taiwan capabilities.

    DAN HUTCHESON: Yeah, John, you know, the Chinese have done quite a bit to try and to do well in semiconductors. And even though there's been fabs put there, you know, and there's been lots of IP transfer into China. They've not been able to really make a strong case, or do you think that they might just become more aggressive and want to spoil it for everybody else?

    JOHN WEST: I don't know. I kind of suspect with TSMC going to US and Europe that actually happens. You're right. A lot of the technology will transfer to those regions, but the really good stuff, the really good know how. I'm pretty sure that stays in Taiwan. Yeah, we've kind of know from the subsystem space where subsystem companies have moved manufacturing to Korea, but all of the servers that control the machines that make the subsystems are all done in the UK rather than actually in China or in Korea. So, although there is a risk that China could learn a lot, they still missing the vital ingredients. And I kind of suspect, the same thing would happen with TSMC. You know, could TSMC US operate independently? Well, probably. You're right, probably, but you know, how long before the we'll start fall off and yield start to drop and it doesn't really give them that advantage. It’s the same thing in Europe. There's a lot of pushbacks in Europe now about, hey, hang on a minute, how much is it going to cost us to pay for TSMC to come into Europe? And it's not just a one-off payment. This is going to a monster that needs feeding for decades and it's not even going to be a leading edge fab by the time they get it in there. It's going to be a 10 or 12 nanometer fab. So, and of course, you have all the other things like, what's the point of GLOBALFOUNDRIES in Europe if you've got TSMC there? And then what about the indigenous foundries and how they going to fare? So, there's a lot of discussion right now about it sounds like a nice idea to have TSMC locally. But actually, the reality is it's going to cost a lot of money. And if you're doing it in the US, you can just buy from TSMC in the US, I guess.

    DAN HUTCHESON: Yeah. Well, we've already decided to be here. But you see you don't, do you have an Apple or something like that that has the kind of demand of video Qualcomm?

    JOHN WEST: Exactly. So, that was the other question that 10 to 12 nanometers, how many chip designers are there in Europe that you're designing at that 10 nanometer node? And what are their volumes? Now, I could be wrong here, but I'm kind of suspecting they'll be struggling to fill a fab in Europe. Whereas the course in the US you've got between AMD, Apple, Qualcomm, you can easily fill a couple of TSMC fabs in Phoenix without any trouble at all. So again, it makes sense to do that. But Europe, it's and the central role…

    DAN HUTCHESON:only the UK right in arm.

    JOHN WEST: Yeah, exactly. I think in Europe here, you know, the story that. I think the strong story is coming out, it's a global industry. You should stick to what you know really well, stick to your strengths and just push that forward you've got rather than taking a lot of money away from, you know, better causes and putting it all into a very rich company already to essentially set up camp in Europe and the US. I think the TSMC moving to Europe is still a possibility, but I think there'll be a lot of pushbacks on that.

    DAN HUTCHESON: Yeah.

    RISTO PUHAKKA: I mean, it's a matter of EU’s priorities. I mean, take a look at other interests. Take a look at Airbus, what a success story and how much money has Europe flown on it? I mean, it's really that you know, if you pick up those and there is not too many industries where you can make let's say 20-30 year future investments that have a potential payoff. So, I'm like saying that, you know, yes, it's a lot of money but I think the Europe…

    DAN HUTCHESON: Airbus wasn't a success story until Boeing messed up.

    RISTO PUHAKKA: Yeah, exactly. Exactly. But and that's the, those are the opportunities. So, but anyway, that's really, let's call it the national security, European security. It's European Economic Development. I mean, you can blow the same amount of money on agriculture and you know what you're going to get.

    DAN HUTCHESON: For sure, yeah. Yeah, the interesting thing, too, it just shows the Boeing-Airbus story shows the risk of relying on one vendor. You know, if Airbus hadn't been there when Boeing tripped up, it could have been a real global disaster as well. So anyway, hey, Andrea, there's, you know, between ASML’s results and then we had TSMC, you know, here recently. What do you think that's doing to the WFE forecast? Risto, feel free to chime in.

    ANDREA LATI: Yeah, I think. I mean, more or less, we knew that, you know, we're looking at over 30% growth this year. We're currently at 32. It could go even higher. I mean ASML said, I think it was about 35% and the good thing is that we're close. We're very close at this point. I mean, if we have to upgrade is probably going to be a few percentage points. We're not going basically from 10 to 30 anymore. So, but yeah, there is definitely an upward bias there and we already did upgrade our semiconductor forecast. We're like looking at about 26% growth, up from I think it was 22. And again, even there, we are seeing a lot of strength across the board. I mean, whether it is DRAM, analog, logic. They are all actually tracking above expectations. So clearly, you know, 2021 will be a very, very good year for both chip makers, and also equipment suppliers, though the equipment guys will still have the upper hand because they are on track to grow faster than semiconductors.

    RISTO PUHAKKA: And the issue that we have to bring up here because there's this is now probably substantial ASP on the equipment side, which actually make give us an extra few points of growth for the whole year once we really start to get the data on that. It wouldn't surprise me that we would start to see substantial ASP’s increase because the chip makers are bidding for the machines and the capacities constraint, and you know, everybody's trying to bribe prophesies to get couple more lenses out of Oregon.

    DAN HUTCHESON: John, do you think there's any inflation subsystem components and things like that?

    JOHN WEST: I think it’s starting to come through because they, you know, their raw material costs are going up 10% for sure. So, I think while they can absorb some of that, that's going to go through. And I think, again, it's like the ASML problem is that some of these companies are truly capacity constrained, and it doesn't matter how much money you throw at them. They just can't make any more. So, I don't think they're in a position really to put their prices up because a lot of them only have one customer. We mentioned Zeiss, for example, is a great one there. So yeah, I think in that situation, pay more money for the subsystem doesn't really help. I think in some other areas. Yes, it’s a little bit I hear this a little bit. I hear there is a few contract negotiations going on now. I don't know how successful they are with the big OEMs that at least they having a try. But yeah, I think, essentially, inflation has to come through because there's a shortage. I was just looking. I mean, they're short of, you know, they can’t find people, they can't find enough materials. It's a stretch to grow that 35% that ASML is talking about.

    DAN HUTCHESON: So, umm, interesting. You know, everything is so super hot. We're seeing price inflation and in the supply chain. Is it changing in the horizon or whether the next downturn going to be here, anybody?

    ANDREA LATI: Well, I'm still sticking with another positive year for 2022. I still think there's a lot of momentum that we're carrying. The thing that I get a little bit more worried is really 23 because at that point, you know, we might be looking at, you know, downturn. But I think, yeah, 2022, I think we still have this plenty of momentum on both sides, equipment and ICs. So, and then we'll look at 23 when we get in 22 and see what the market dynamics are. But we should have at least another one good year of runway as far as the cycle is concerned.

    DAN HUTCHESON: Yeah, the psychology kind of worries me right now. Because you know, last year it was, it's going to be this quarter, but it's not this quarter, it's going to be next quarter. Right?

    ANDREA LATI: Yeah.

    DAN HUTCHESON: It's all coupled to the macroeconomy. And then people kind of broke away from that, and you start to get these views of really hyper long-term cycle, which to some extent could be because we are decoupled and there's been this whole pulling up digitalization. But we also know that it's fundamentally cyclical…

    ANDREA LATI: Yes.

    DAN HUTCHESON: and at some point, that we go through a downside. So…

    ANDREA LATI: Yeah.

    RISTO PUHAKKA: No, Dan, it’s our job to remind it’s cyclical. We have to take that role in the industry.

    ANDREA LATI: And you notice that, when it happens, it happens overnight. It's not something that, you know, sort of grows over, you know, six months or so. It's very quick. You know, so and yeah, that's what makes it, you know, interesting at the end of the day. So…

    DAN HUTCHESON: Yeah, so, the in the other news of the week, we had GLOBALFOUNDRIES, they changed their, they officially became GF. And any of you that have email addresses that go at GLOBALFOUNDRIES, it's going to be now at GF. And you know, for anyone that writes about the companies, it sure is nice to know that I won't have to type GLOBALFOUNDRIES in all caps anymore.

    RISTO PUHAKKA: Yeah, it's a, I was joking that it took me 20 years to learn to write GLOBALFOUNDRIES with capital letters and now I have to unlearn it. So yeah.

    DAN HUTCHESON: Yeah.

    RISTO PUHAKKA: But it's a natural change. I think it's a great, great change, because it's, that's how what it's called, GF.

    DAN HUTCHESON: Yeah, that’s what everybody calls them and it gets away from the kind of the derogatory globe flow that people like to throw around there. The other interesting thing that I found was the degree is the amount of political leaders, and you know, leaders from Ford and whatnot that came to their summit on Monday. And we're talking about it and just the issues around national security in terms of making sure the chips don't have malicious code in them, especially ones in military systems, as well as the auto industry having a secure supply. And the auto industry is now looking deep into the supply chain, and they were saying, we're no longer going to be just talking to our OEM component suppliers that are supplying modules is going down all the way into the foundries.

    RISTO PUHAKKA: Yeah. And that's it's, that's the lessons learned. And you know, I think your analysis a couple of weeks ago that, you know, every million dollars, the automotive industry, say a year ago, they lost 100 million in sales. So, I think it's a good, it's a good lesson.

    DAN HUTCHESON: Yeah, yeah. It was a very painful one. Hey, one final note, John, what happened with Aehr’s stock this week? Is there something going on in test?

    JOHN WEST: I don't know. Yeah, I had a call with them last week. This is Aehr Test Systems. They do wafer level burning test systems and they seem to be on a winning streak right now. But I think earlier this week, their share price tripled within about an hour. So, there was a halt to their trading. So, I don't know quite what’s happening there. They're actually just, it is a familiar story with the companies I talked to in this test space. Right now, they're having exceptionally strong orders coming in so either it's one big order from one big company or it's across the board. I don't know yet that seems like they're having a quite a successful couple of months.

    RISTO PUHAKKA: It's one thing remember now that you know we have to wait for volumes up they need to…

    JOHN WEST: Yes.

    RISTO PUHAKKA: and that drives back and backings you know up and stronger. You know, that's desire very high in and that's probably where we can have the forecast upgrade, actually, some tests.

    DAN HUTCHESON: Yeah, wafer volumes have exploded. Well, we've run out of time, guys, again. We didn't think we had much to talk about. So, thanks for taking the time to come today.

    ANDREA LATI: Thank you, Dan.

    JOHN WEST: Thank you, Dan.