# Will there be overcapacity in the semiconductor market? By [Gregory](https://paragraph.com/@gregory-3) · 2022-05-13 --- Welcome to the wechat subscription number of “Sina Technology”: techsina Since the outbreak of the epidemic, the housing economy has developed rapidly, 5g, artificial intelligence and electric vehicle markets have expanded rapidly, and the demand for chips has further soared. In order to cope with the global chip shortage, chip manufacturing enterprises such as TSMC, Samsung, Intel, lattice core and SMIC have built factories and expanded one after another. Semi counted in the world Wafer Factory forecast report last June that global semiconductor manufacturers will start building 19 new high-capacity wafer factories by the end of 2021 and start building 10 more in 2022. By the end of 2022, it is equivalent to the global production capacity of 2.6 million Wafers / month (converted by 8-inch wafers). The crazy expansion of chip manufacturers has brought strong demand to the upstream silicon wafer and equipment market, resulting in increased sales and capacity expansion of the silicon wafer and equipment industry. According to the incomplete statistics of the core idea, in the past year, there were 40 chip related expansion or new projects, not just the crazy expansion of production lines by chip manufacturers. The upstream silicon wafer manufacturers also built factories under strong demand. Everyone wants to make a lot of money by relying on “lack of core”. At the same time, the governments of the United States, the European Union, Japan and other countries have also introduced chip bills and plans in recent years to attract head wafer foundries to build factories locally. Akira minamikawa, senior Consulting Director of omdia, said: “I have never seen so many governments invest in the semiconductor industry. This is a rare situation that has not happened for a long time, and now they are happening at the same time.” Under the trend of large-scale expansion of global wafer factories, concerns about overcapacity have always existed. On the one hand, combined with the historical experience of the global semiconductor industry, there are cyclical and structural reasons for the sharp increase in semiconductor demand, and it fluctuates periodically for a long time. At present, the challenge of capacity shortage in the semiconductor market is mainly the structural imbalance between supply and demand in the short term. In addition, Sheng Linghai, vice president of Gartner research, said that in the development of semiconductors, there will be a cycle in about two or three years, and now it is in a peak cycle of short supply. On the other hand, it takes a long time for the new capacity to be put into operation. The current new capacity can not alleviate the problem of chip shortage in a short time. Generally speaking, most of the wafer plants expanded in the past two years will be put into operation from 2023 to 2025. The industry expects that the supply-demand relationship of semiconductors will reach a tight balance by the end of 2022, and the chip shortage is expected to be alleviated in 2023. This means that after the demand slows down, large-scale capacity increase will increase the possibility of semiconductor overcapacity. When the expansion of production becomes the main theme of the industry, the surplus doubt will always float over the industry. 1、 On the trend of expanding production from the OEM market The expansion of wafer manufacturers is not difficult to understand from the market data. According to the forecast report data of Gartner analyst Sam Wang, in 2021, the industrial income increased by 31.3% to $100.2 billion (an increase of 22.5% in 2020), of which the wafer ASP (average selling price) increased by 11.5% and the wafer shipment increased by 17.8%. In 2022, it is predicted that the wafer utilization rate of the OEM industry will remain above 95%, among which the supply of 200mm (8-inch) wafers such as power management IC, drive IC and fingerprint sensor is particularly tight. In this case, the wafer foundry is confident to sign a long-term contract with the customer and guarantee it with the advance wafer payment. Gartner expects industry revenue to grow 18.3% to $118.5 billion in 2022. 2017-2026 wafer foundry industry revenue forecast (Figure source: Gartner) 2017-2026 wafer foundry industry revenue forecast (Figure source: Gartner) In addition, many countries have also concentrated resources to promote the localization of the supply chain of the semiconductor industry. For example, China, Europe, America and Japan have introduced new chip development strategies to provide financial incentives and promote the localization of wafer manufacturing. Driven by multiple factors, it has added impetus to the expansion of OEM production. It is understood that many wafer foundries will also increase capital expenditure on new 300mm (12 inch) wafer plants this year. The overall expenditure is expected to reach US $71.4 billion, a year-on-year increase of 40.1%. Wafer foundry capex data for 2020-2022 (semiconductor industry observation drawing; data source: Gartner) wafer foundry capex data for 2020-2022 (semiconductor industry observation drawing; data source: Gartner) The most obvious example is TSMC, the world’s largest OEM, whose capital expenditure will increase from US $30 billion in 2021 to US $42 billion this year. Although TSMC is increasingly focused on advanced manufacturing, the company will allocate up to 20% (about $9 billion) of expanded capital expenditure to chips with mature processes. Combined with the new production expansion plan of the foundry last year, the production expansion targets of most wafer foundry and IDM manufacturers focus on the 28nm and 40nm processes. Since most of the output will be used for mature node semiconductors. Obviously, with the implementation of more investment plans, the manufacturing capacity of mature process semiconductors will grow rapidly from next year. However, from the perspective of OEM income divided by process nodes, compared with advanced processes, the growth of mature nodes is slow, and the proportion of process income of 20nm and above will decline year by year. At present, 5g smart phones, WiFi, enterprise PCs and data center chips are still the demand drivers. The demand for 5nm will continue to increase in 2022 and 2023. The climbing rate of 3nm process in the OEM is lower than expected, and there will be explosive demand after next year. OEM income of different process nodes (data source: Gartner) OEM income of different process nodes (data source: Gartner) Therefore, with the launch of the new factory, the chip supply of mature processes will increase significantly, which may face the situation of oversupply, but there may be a shortage of high-end chip production capacity. 2、 Fall into the “overcapacity” cycle In January this year, liandian said that the 28nm market may face oversupply after 2023. IC insights pre --- *Originally published on [Gregory](https://paragraph.com/@gregory-3/will-there-be-overcapacity-in-the-semiconductor-market)*