The industry community is aware that Huawei has been hoarding components so as to secure supply to sustain its production line, especially high-end parts. On top of that, China is also actively trying to purchase semiconductor production equipment globally. On the other hand, the US, Japan and Germany hope to collaborate with Taiwan in the semiconductor sector. In the long term, oversupply may be a concern; but in the short term, who can benefit from the supply-demand imbalance?
Samsung Electronics' profit reached KRW9.6 trillion (US$8.4 billion) in the second quarter of 2021, with most of it coming from the semiconductor business, rather than handsets. As the global handset market is becoming saturated, Samsung has begun to adopt a more active outsourcing policy, mainly relying on Chinese manufacturers. It is estimated Samsung's smartphone shipments should reach 280 million units in 2021, with 60 million units of them made by outside manufacturing partners. Originally a greater number of 80 million units should go to outsourcing, but the COVID-19 pandemic is prompting Samsung to reduce the outsourcing size to 60 million units to make the best use of its in-house capacity.
There are two different scenarios where outsourcing is needed: one to reduce production cost and the other to meet expanding demand. We are at a very different time from around year 2000 when Taiwanese firms expanded factories to fulfill OEM shipments. The golden age is over for industry sectors to rely on volume production alone to keep their momentum going. The future key to success lies in "mass-customization" - production systems that can handle massive and diverse productions, which have to be sustained by years of experience.
What's more, Samsung is purchasing more and more application processors possibly because of insufficient capacity and poor yield rate of its own 5nm and 8nm node processes, which is even impacting Qualcomm's shipments. Consequently, it has expanded its outside procurement, with MediaTek APs estimated to penetrate 37% of Samsung's smartphones in 2021, up from 16% in 2020. Samsung is also expanding procurement of audio ICs and driver ICs from Taiwan. Samsung has become Taiwan's major customers, reversing their buyer-seller relationships.
Impact from the pandemic in 2021 on Taiwan's manufacturing sector seems negligible other than that on KYEC, a major semiconductor packaging and testing firm. But KYEC made all-out efforts to support its biggest customer, MediaTek, who also received timely assistance from ASE. MediaTek's shipments were unaffected by KYEC's COVID scare. All these are blessed with the advantage of a small-sized Taiwan and its perfect industrial clusters. Market demand is surging. Foundry quotes at TSMC, UMC and PSMC have been rising. TSMC's price increase has not been as aggressive as its peers'. UMC raised prices sharply in the second quarter, and again in July. It has already told clients its foundry quotes will rise further in September. UMC deserves the higher quotes. The foundry sector is capital- and technology-intensive. It is difficult to uphold long-term investments without reasonable profits. They deserve a decent return from their past hefty investments.
The tablet PC sector sees a similar scenario, since the supply strategy of Taiwanese fabs has affected supply and demand in the market. MediaTek is focused on satisfying demand for processors and power management ICs from the 5G segment, resulting in inadequate chip supply for 4G models. Supply-demand of TDDI stays in an equilibrium due to sluggish demand in the handset market. All of the information comes from Taiwanese makers working at the core of the supply chain. They have been always the first to discover the changes in the supply chain.
(Editor's note: This is part of a series of analysis by DIGITIMES Asia president Colley Hwang about the global IT supply chain.)
