Under the Sino-US trade tension, Chinese semiconductor manufacturers are rushing to buy second-hand chip manufacturing equipment because they are eager to produce their own products, which in turn pushes up equipment prices in the Japanese equipment secondary market. There is also news from the supply chain that SMIC has obtained supply licenses from some US equipment manufacturers, mainly covering semiconductor equipment used in mature processes.
On March 1, the “Nikkei Asian Review” published a report entitled “China buys second-hand semiconductor manufacturing equipment in large quantities”, stating that under Sino-US trade tensions, Chinese semiconductor manufacturers are rushing to buy second-hand chips because they are eager to produce their own products. Manufacturing equipment, which in turn pushed up equipment prices in the Japanese equipment secondary market.
There is also news from the supply chain that SMIC has obtained supply licenses from some American equipment manufacturers, mainly covering semiconductor equipment used in mature processes.
The price of second-hand equipment has skyrocketed.
According to Nikkei, the equipment prices reported by Japanese second-hand equipment dealers have increased by 20% from last year. The main reason why Chinese manufacturers are so enthusiastic is that the older generation of machines is not restricted by the US sanctions against China, so that Chinese players have no worries; the second is that the home economy brought about by the new coronavirus pandemic is stimulating the growth of global chip demand. The mature technology chips are the most out of stock, so even the latest equipment is very popular.
These second-hand machines are mainly sold through personal transactions. In order to understand market trends, Nikkei interviewed major dealers of second-hand machines.
A source from a large leasing company involved in the sale of second-hand semiconductor manufacturing equipment said: “The price of second-hand machines is rising every year.” “In the past year, prices have risen by an average of 20%.” Used to write on semiconductor chips It is said that the circuit’s lithography equipment and other core equipment have even increased by more than three times.
A source at Sumitomo Mitsui Financial Leasing Company stated that the price of second-hand equipment has risen ten times compared with the price after the 2008 financial crisis.
A source at Mitsubishi UFJ Leasing Finance said: “Nearly 90% of used machines seem to be shipped to China.”
As the United States restricts Chinese companies from using its semiconductor manufacturing technology, China is pushing to increase the localization of semiconductors. The purchase of equipment for manufacturing the most cutting-edge semiconductors is restricted by the United States, so Chinese manufacturers can only purchase equipment of the previous generation.
A second-hand dealer revealed: “I heard that some Chinese manufacturers are buying machines to stock up even if they don’t use them immediately.”
The old equipment has basically been discontinued, buy one and one less
The housing economy against the background of the new crown epidemic has also promoted the popularization of second-hand equipment. There is a strong demand for driver ICs for TVs and PC monitors and power management chips for connected home appliances. These semiconductors generally use wafers with a diameter of 200 mm and are manufactured with corresponding previous-generation equipment.
As the new generation of chip production lines generally use 300mm wafers, not many companies continue to produce 200mm wafer machines. As a result, “the price of second-hand machines that are ready to use can even exceed the price of brand-new machines,” said a source at Hitachi Capital.
Another second-hand equipment dealer said: “A few years ago, equipment that was basically free of charge is now priced at 100 million yen (940,000 US dollars).” In the actual production line, there are more “20 years ago” or even The machine “30 years ago”.
Especially in the category of power semiconductors, which use a lot of cars, there are many cases where 200mm equipment is used. The recent shortage of goods has continued to expand the demand for second-hand equipment.
An official of Sumitomo Mitsui Financial Leasing Company said: “The machines we brought in were shipped directly to the next factory.” “They actually disappeared immediately.” The company reduced the storage space of second-hand machines it rented in Taiwan last year.
In the past few years, the integration of large domestic semiconductor companies has come to an end, which has also led to an increase in the price of second-hand equipment. As factory closures decrease, opportunities for purchasing second-hand equipment decrease. A Japanese second-hand equipment company lamented, “The heritage that can be discovered is drying up.”
Don’t always think about 5nm, 28nm is enough
Some semiconductor equipment manufacturers see the revival of old machines as a business opportunity. Take Canon as an example. They will release lithography equipment for 200mm wafers for the first time in 8 years. But the production of semiconductors also requires other equipment, such as equipment for etching and cleaning, in these links manufacturers have to rely on older equipment.
In any case, if the old equipment stocked in warehouses can be used, it may help ease the tight semiconductor production capacity.
In fact, in the face of sanctions, Hu Weiwu, chairman of China’s domestic CPU company Godson Zhongke last year, also said that China’s IT industry is weak. With chip manufacturing limited by people, China’s chip manufacturing chain, materials, and equipment are still waiting. Strengthen “my own judgment, there will be an initial relief in three to five years, but to fundamentally relieve, I think it will take two five years of effort”, as to how long it will take to get rid of the status quo? He said frankly that “don’t think about 5 nanometers anymore” and “28 nanometers is enough.”
China has now become the world’s largest semiconductor second-hand equipment market. Currently, a lot of 6-inch, 8-inch, and 12-inch old equipment are still needed to meet the needs of the semiconductor industry. But even if you place an order with ASML, it is subject to US sanctions, and manufacturers will not ship to them. On the contrary, it is easier to pick up goods from second-hand dealers.
However, there is good news from SMIC that they don’t have to be busy buying second-hand equipment.
The global chip is out of stock, the US looses up production capacity
Since the U.S. Department of Commerce issued a statement on its official website in December last year, announcing that SMIC was included in the “Entity List” to restrict its use of U.S. technology and equipment. At that time, SMIC issued an announcement stating that after the company was included in the “entity list”, the US Department of Commerce would adopt a “presumptive rejection” approval policy for products or technologies used at 10nm and below technology nodes (including extreme ultraviolet technology). Audit; At the same time, the company’s provision of foundry services for some special customers may also be subject to certain restrictions.
Zhao Haijun, the co-CEO of SMIC, once stated that since SMIC has maintained a stable cooperative relationship with US suppliers for the past 20 years, a large number of US suppliers are SMIC’s first choice. According to the provisions of the US Export Control Regulations, after being included in the list of entities under the prohibition order, US suppliers must apply for permission to ship to SMIC. But at that time, Zhao Haijun emphasized that both SMIC and suppliers will actively apply for permits at the first time, and suppliers have been working on the progress of SMIC’s application for renewal of permits. At that time, SMIC also promised to customers that the company would not interrupt the consumables with a short shelf life within 3 months. For components, the company will do so within 6 months without interruption.
Recently, Morgan Stanley issued a research report stating that US equipment suppliers have resumed component supply and on-site services, which at least alleviated investors’ short-term concerns about SMIC’s spare parts and component inventory issues, and will raise SMIC’s The rating was changed from neutral to overweight, and the target price of H shares was raised by 34%, from HK$23.8 to HK$31.8.
Morgan Stanley further pointed out that this means that SMIC’s mature process business is expected to obtain equipment supply licenses. Qualcomm and other US customers continue to have business dealings with SMIC. Some Chinese Taiwanese IC companies such as MediaTek are seeking to obtain more SMIC production capacity. SMIC’s revenue growth in 2021 will be 10%-15%, and the company’s 2021 net profit per share forecast will be revised up by 14%, and the figure for 2022 will also be revised up by 6%.
The news that overseas suppliers have obtained supply permits is also within market expectations.
Morgan Stanley also emphasized in the report that because the United States only relaxes the procurement ban on SMIC’s mature technology, this is not what the Chinese semiconductor industry wants to see, because it symbolizes that SMIC may really have to suspend its 10 nanometers. The following process development. But also because of the opening of the ban in the United States, this will actually help SMIC increase free cash flow and long-term return on net assets, so that SMIC can maintain business opportunities through the operation of mature technology.
SMIC’s strategy shifts to mature technology
It is reported that some suppliers in the United States have obtained relevant licenses for company A, and companies L and K are still waiting for the results. They are expected to obtain licenses one after another. The license is 10nm as the demarcation point, and 14nm and above process related products are obtained. License, 10nm and below nodes did not get a license.
On March 1, CITIC Securities issued a research report and analyzed that the reason why SMIC has a higher probability of obtaining a process license above 14nm is because:
1) The U.S. Department of Commerce mainly restricts items related to processes of 10nm and below (including EUV extreme ultraviolet lithography), and has loose review standards for other parts;
2) As an important customer of SMIC, it is easy to obtain support from American suppliers (such as Applied Materials, Fanlin, Kelei, etc.);
3) SMIC has a relatively high proportion of American customers, reaching 27.7% in 2020Q4. It is an important supplier to customers such as Qualcomm and Broadcom. The industry chain is interdependent and difficult to replace. If the company obtains the license, it means that the operation is sustainable and the expansion is expected to be carried out normally, which will catalyze the recovery of valuation.
In the case that advanced technology is hindered, SMIC’s strategy may turn to mature technology.
The data in the fourth quarter of last year has also revealed this trend: SMIC’s mature process revenue has increased, while advanced technology has declined. Among them, 55/65 nanometer process revenue has increased from 25.8 in the third quarter. % Increased to 34.0%, and 14/28 nanometers decreased from 14.6% to 5.0%.
According to EIA data, SMIC plans to build a new 12-inch wafer capacity of at least 200,000 wafers/month in Beijing in the next ten years. The first P1 plant in Beijing’s new plant (SMIC Capital) is expected to start production in 2022. The P2 plant is expected to be put into operation in 2025. The new Beijing factory (SMIC Capital) will focus on the 12-inch mature technology, which will focus on the 14nm~65nm technology, focusing on the development of six platforms: logic, Internet of Things, storage, image sensors, high-voltage displays, and power management.
As of press time, SMIC has not issued an official statement on the news of the restrictions.