After experiencing inventory adjustments and a downturn in demand in the semiconductor market from the second half of 2022 to the end of 2023, Fang Leuh, the Chairman of Vanguard International Semiconductor Corp., stated on the 22nd that there would be no problem achieving performance targets for the first quarter of 2024. With inventory adjustments in the smartphone, PC, automotive, and industrial markets ending and demand rebounding, Vanguard International's operations will gradually warm up from the second quarter onwards, presenting a moderate recovery trend, with a slight growth expected for 2024 compared to 2023.
Fang indicated that there are still many uncertainties in the overall market conditions for 2024, including political and economic turmoil, inflation, and inventory adjustments in the industry chain. However, these impacts have begun to diminish, and with GDP similar to that of 2023, the consumer electronics market, after experiencing intense inventory adjustments throughout 2023, has gradually resumed seasonal growth. Additionally, inventory destocking in the automotive and industrial sectors is expected to be completed over the next 1-2 quarters. Vanguard International's first-quarter financial forecast is achievable, with moderate growth expected for the next three years.
Regarding the increase in electricity prices, Fang stated that if the electricity price increases by 15%, Vanguard International, as a major electricity consumer, would be significantly affected. The increase in electricity costs would approximately be 12%, resulting in a reduction in gross profit margin of about 0.5 to 1 percentage point.
It is understood that Vanguard International's electricity cost for 2023 was approximately NT$3 billion. Based on this estimation, after the electricity price hike in April 2024, the annual electricity cost would increase by around NT$200-300 million. Vanguard International will face challenges together with its customers and suppliers.
Currently, the demand from IDM customers remains stable, and the development of new Power Management ICs (PMICs) meets expectations, with products gradually passing verification since the end of 2023. This momentum will continue into the second half of 2024. In terms of IC design customers, orders have been received from international giants, mainly for applications in mobile phones, notebooks, servers, and other power management ICs.
Regarding the speculation that Vanguard International's first 12-inch new fab will be in Singapore, Fang stated that many countries invited the company to invest and set up fabs. Vanguard International is currently actively and cautiously evaluating these offers. The decision to initiate the construction of a 12-inch fab will be based on customer demand and capacity planning. However, there is still long-term and stable demand for 8-inch fabs.
According to sources from the supply chain, Vanguard International's choice to build a 12-inch fab in Singapore is mainly due to geopolitical considerations and customer requirements. It is necessary to set up fabs outside of Taiwan. Currently, regions such as Japan and Singapore are permitted by the United States. Vanguard International already has an 8-inch fab in Singapore, and the local government has shown sincere intentions in various subsidies. Therefore, Singapore is almost certain to be the chosen location.
Regarding price negotiations for mature processes, Fang also pointed out that competition in mature processes comes from China. Over the past two years, price competition has arisen from tensions and competition between the US and China. However, China's investment in mature processes does not comply with regular commercial investment practices and has resulted in excessive investment.
Vanguard International will not engage in price wars but will focus on competitive technologies and capacities. Importantly, gaining high trust from customers for wafer foundries is crucial for long-term success.
Vanguard International expects shipments in the first quarter of 2024 will decrease by approximately 6-8% compared to the previous quarter. With an optimized product mix, the average selling price (ASP) is expected to remain roughly stable, while the gross profit margin is forecasted to decrease to 21-23%. Capital expenditure is estimated to decrease to NT$3.8 billion, and capacity utilization is expected to gradually increase from 50% in the first quarter.
