Saturday, August 30, 2014

Potential signs of loosening of tight wafer supply?

Loosening of supply for non-leading-edge wafers?

Recently, DigiTimes, which often provides reasonably accurate information from sources close to the supply chain, but also sometimes publishes inaccurate infomation from vague sources, has published two partly contradictory articles reflecting potential loosening of the wafer supply situation at foundry houses in Taiwan.

On 28 August, it posted an article titled "Production schedules at 12-inch fabs begin to loosen", saying that "while most 8-inch fabs of major foundries are expected to run at full capacity until the end of 2014, production schedules at 12-inch fabs, particularly those of second-tier foundry houses, are said to have begun to loosen as some IC players have been reducing their wafer start orders, according to industry sources". However, it also added that TSCM's 12-inch fabs continue to run at full capacity due to production of Apple's A8 processor.

The fact that TSMC continues to run at full capacity in its 12 inch fabs puts any loosening of supply into perpective. As it happens, all major smartphone SoC vendors (Qualcomm, MediaTek and Apple) are currently single-sourcing the overwhelming majority of their smartphone chips from precisely TSMC's 28/20nm 12-inch fabs. So there a few signs yet that the tight capacity for smartphone SoCs, and other chips depending on advanced processes at TSMC such as NVIDIA's GPUs, will be resolved in the near future.

UMC likely seeing reduced demand for 40nm and above

UMC, the other, smaller foundry in Taiwan, until recently (Q2 2014) had a 28nm wafer capacity proportion in the low single digits, meaning that its production capacity for 28nm was until recently roughly on the order of 30 to 50 times lower than TSMC, a negligable amount, although it is currently attempting to increase that capacity. The DigiTimes article may refer to reduction in demand for non-leading-edge process nodes produced at UMC's 12-inch fabs, such as 40nm and 55nm.

This reduction could be stemming from so-called "second-tier" design houses in China and Taiwan targeting consumer electronics, such as low-end chips from Chinese chip designers targeting tablets and other devices, and Taiwanese companies like Sunplus and Realtek. On example of a product segment for which there is likely to be decreasing demand is stand-alone WiFi chips used in tablets and smartphones. As SoCs integrating much of the required WiFi functionality (such as the digital processing part) from vendors such as MediaTek become dominant, stand-alone WiFi chips for applications such as tablets are seeing much lower demand. Reduction in demand for older or mature product lines from MediaTek (involving segments such as DVD players, optical storage and feature phones) and Qualcomm still produced at UMC could also be involved. TSMC's 40nm and above 12-inch capacity could also be seeing lower demand, but is continuing to be converted to 28nm.

The article specifically notes that trailing-edge 8-inch fab capacity, where products such as LCD driver ICs and power ICs are produced, remains tight across the board.

ASPs said to be trending down due to increased competition

In another article on 29 August, DigiTimes reported that average selling prices of 3G/4G smartphone SoCs, touch controller and LCD driver ICs are trending down in 3Q14, due to increased competition. The article also mentions that abundant supply of wafers from foundry houses contributes to price reductions. This statement seems to partly contradict other recent articles by DigiTimes, such as one referenced above that notes continuing tightness of 8-inch fab production (used for many LCD driver ICs), as well as 12-inch production at TSMC that continues to be fully utilized, and an earlier article saying that TSMC's production capacity was already fully booked for the year (also see my earlier blog post about this). However, more available capacity at UMC's 12-inch fabs (involving nodes such as 40nm) could be a reason for the some the noted trends.

The article also notes a slow-down in domestic demand for handsets in China in Q3, that has led Qualcomm, MediaTek, Marvell and Intel to reduce pricing. It also notes that new low-cost 3G smartphone SoCs from Spreadtrum that are rolling out are potentially contributing to competitive pressures, especially for MediaTek which dominates the segment.

Potential reduction of leading edge wafer requirements at TSMC from more economical chip designs

Even for TSMC's leading-edge (28/20nm) capacity, for which there is likely to still be a significant shortage, there are developments that could reduce capacity requirements and thus eventually largely resolve the shortage of capacity, and it is possible that the DigiTimes articles are hinting at this development.

One factor is that Apple's A8 SoC chip production volume likely to have a peak around now, in order to build inventory in time for the expected September launch of the iPhone 6 and the end-of-the-year peak selling season, and may be somewhat reduced (but still significant) going towards the end of 2014. That in itself can reduce capacity tightness as the year progresses.

Qualcomm transitioning away from uneconomical Snapdragon 800/801 platform

At the same time, Qualcomm appears to be aggressively transitioning a large part of its higher-end production from the high volume Snapdragon 800/801 platform using Krait-400 CPUs to more economical platforms such as the Snapdragon 610 and 615, which use ARM Cortex-A53 CPU cores, and later the high-end Cortex A57 + A53 based Snapdragon 808/810. Snapdragon 800/801 series SoCs have a notably large die size (118 square mm for MSM8974, even at 28nm HPM) mainly due to the large size of the Krait-400 cores, as well as other design features such as the GPU and other factors. Because Qualcomm has had a virtual monopoly in the high-end smartphone SoC segment, the high manufacturing cost of Snapdragon 800/801 SoCs has not been a major issue for Qualcomm because of the ability to sell it at a very high ASP.

Cortex-A53 CPU cores, even in an octa-core configuration, have a die size that is significantly smaller than that of a quad-core Krait-400. With likely additionally reduced size of other components such the GPU, Snapdragon 610/615 SoCs are likely to be significantly smaller than Snapdragon 800/801, as small as half the size or smaller. In this way the transition away from high volume, wafer-consuming Snapdragon 800/801 SoCs can immediately reduce Qualcomm's wafer requirements significantly, assuming a similar level of unit shipments, effectively reducing the severity of the shortage of capacity at TSMC.

Some time ago, Qualcomm already executed a similar transition by successfully transitioning its mid-range Snapdragon 400 platform from dual-core Krait-300 to quad-core Cortex-A7 CPUs, likely significantly reducing cost while improving performance. Qualcomm is currently further transitioning its mid-range platform to a quad-core Cortex-A53 configuration with the production ramp of the Snapdragon 410.

Market share gains by MediaTek for mid-range and high-end segments could also effectively reduce overall wafer capacity requirements for smartphone SoCs, because of the tendency of MediaTek SoCs to have a significantly smaller die size and cost compared to competing solutions.

Sources: DigiTimes, MEPTEC

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