Mobile phone RF PA has become the “hardest hit area” for destocking, and the gallium arsenide foundry capacity has been oversupplied – yqqlm

Jiwei.com reported that due to the early misestimation of the market’s crazy stocking, the inventory levels of upstream and downstream manufacturers in the overall mobile phone industry chain continued to rise. Since the fourth quarter of 2021,The mobile phone industry chain has entered the stage of inventory adjustment, and the downstream has moved from pulling goods to destocking, and RF PA manufacturers have also entered the stage of bargaining and shipping.and the capacity utilization rate of upstream GaAs foundries such as Wenmao and Hongjieke has also declined again and again, to the freezing point.

In fact, as early as January 2021, Jiwei.com pointed out in the article “Capacity Shortage Continues, When GaAs Foundries Expand Production” that when downstream customers irrationally stock up in large quantities, upstream GaAs foundries Significant expansion of production, if market demand has not kept up, the result may be the destocking of the entire industry.

The mobile phone market is less than expected, and PA has become a “hardest hit area” for destocking

Objectively speaking, in recent years, the overall mobile phone market has entered the competition of stock or even shrinking, and technological development has also reached the stage of “micro-innovation”. The expected 5G replacement wave has not driven smartphones to enter the incremental market, and consumers have changed phones. Willingness dropped significantly.

Of course, despite the weak demand in the general environment, there are still some opportunities, and the competition among the major manufacturers is also more intense.

As we all know, Huawei’s mobile phone business has plummeted after being sanctioned by the United States, which has released a huge market space. Among them, the market gap of high-end flagship phones has become a sweet spot in the eyes of other mobile phone brands. In order to seize this part of the market share, they have increased their investment. To the development of high-end flagship machines, and pull up parts inventory.

At that time, panic stocking flooded the entire semiconductor industry. Industry insiders have said that generally speaking, the first and second quarters are traditional off-seasons in the consumer electronics industry, but customer demand is relatively aggressive and irrational. Whether in communication products, gallium arsenide products or the entire consumer electronics market, the order volume in the first half of 2021 far exceeds normal demand.

However, the market demand did not appear as scheduled, so starting from the fourth quarter of 2021, the mobile phone industry chain has entered a stage of inventory adjustment, which has continued to this day. Chip products such as memory, display driver IC, TDDI, CIS, and radio frequency chips used in the field of smartphones have also entered the stage of destocking.

Among them, the RF PA chip market in a destocking state is even more brutal. Jiwei.com has learned from the industry that in recent years, there has been a wave of entrepreneurship in the domestic RF chip field, resulting in as many as 30 or 40 domestic PA manufacturers, and domestic manufacturers have already used higher cost performance as a breakthrough, and have given up by entering international manufacturers. The 2G, 3G, and 4G markets are competing in the 2G, 3G, and 4G markets. Only domestic top PA manufacturers can keep up with the 5G market trend, and most companies have gross profit margins below 20%, or even less than 10%.

Industry insiders pointed out that gross profit margins below 20% cannot make any money at all. Basically, the entire domestic PA manufacturers are burning investors’ money. A leading PA manufacturer basically covers domestic leading customers, and the market price and sales are the same. The highest, the lowest supply chain cost, but so far has not achieved profitability, let alone other manufacturers.

It is worth noting that with the continued sluggish demand in the domestic mobile phone market, domestic PA manufacturers are inevitably affected even if there is a huge space for domestic replacement, and most manufacturers’ sales are far below expectations.

At the same time, with the correction of the valuation of semiconductor companies in the secondary market, the investment strategy of the primary market has also changed, which will inevitably impact the financing process of domestic RF chip manufacturers.

Some RF chip practitioners bluntly said that the cold winter has come, and if the company fails to go public in recent years, it may be shuffled by the market.

Capacity Utilization Declines, GaAs Foundry Capacity Oversupply

Based on the optimism about the RF chip market, the upstream GaAs foundry market has set off a wave of factory construction in recent years, including Wenmao, Hongjieke, Huanyu, Sanan Integration, Hiway Huaxin, and Leon Micro. Gallium foundries have increased capital expenditures to build new production lines, and production capacity has gradually been opened, but the market has quickly cooled and forced to enter a state of oversupply.

Taking Wenmao, a leading global gallium arsenide foundry company as an example, affected by the adjustment of China’s mobile phone inventory, Wenmao’s revenue in the first quarter was NT$5.597 billion (total RMB 1.278 billion), a quarterly decrease of 22% and an annual decrease of 7%. Its utilization rate also fell from 100% in the fourth quarter of 2021 to 70%, and the gross profit margin was 30.6%, the lowest in a single quarter since the second quarter of 2019.

For Hongjieke, the situation is even less optimistic. In the first quarter, the revenue was 611 million yuan (total RMB 140 million), a quarterly decrease of 49.88% and an annual decrease of 42.67%, hitting a low of nearly 11 quarters, and the gross profit margin fell to 22.73%. The net profit after tax was 48.027 million yuan, a quarterly decrease of 77.51% and an annual decrease of 72.65%. According to estimates by Taiwanese media, its utilization rate in the first quarter was only about 40%.

Major domestic manufacturers have not separately disclosed the operation of their GaAs foundries, but it is well known in the industry that GaAs foundries are difficult to make profits. Wenmao only became profitable from its establishment in 1999 to 2010, after 11 years; Since its establishment in 1998, Jieke started to make a profit in 2008. After 10 years, the domestic GaAs foundries are also facing profitability problems.

Up to now, Leon Dongxin, a subsidiary of Leon Micro, is still in the stage of continuous loss, achieving a net profit of RMB 67.2926 million in 2021 and a net loss of RMB 66.9932 million.

The same is true for Changzhou Chengxin. According to Huanyu, Changzhou Chengxin Semiconductor (formerly Changzhou Xinjingyu Optoelectronics), which holds about 19.65% of its shares, caused it to lose about NT$30.63 million (approximately RMB 6.99 million) in the first quarter. ), that is to say, Changzhou Chengxin lost about 35.57 million yuan in the first quarter.

In terms of Sanan integration, through the filter business of Sanan Optoelectronics, which is also a radio frequency chip product, it is also evident that the sales revenue in the first quarter was only 16 million yuan. In this regard, Sanan Optoelectronics explained that due to the impact of the epidemic, some customers could not successfully complete the factory inspection, and shipments were affected.

It is worth noting that, according to the inquiries previously disclosed by Sanan Optoelectronics, in the first three quarters of 2021, because the equipment has not been fully certified by downstream customers after being transferred to solid state, the designed production capacity of its RF segment is 90,000 pieces, and the actual production capacity is 46,065 pieces. The utilization rate is only 51.18%, and the production capacity has increased significantly compared with the 28,406 pieces in 2020, but the capacity utilization rate has dropped significantly.

When the market boom is high, the capacity utilization rate is not high, and it is difficult to turn losses. When the market demand is not good, how to fill the capacity and achieve profitability?

Taiwanese factories take the lead in delaying the pace of production expansion, while mainland Chinese manufacturers still increase investment

Today, the weak demand in the mobile phone market is still intensifying. Although domestic mobile phone brands have turned to increase their efforts to invest in low-end mobile phones after the failure of high-end mobile phones, it is still difficult to rely on the sales of low-end mobile phones. The market has recovered.

Therefore, the inventory adjustment of PA manufacturers continues, and the capacity utilization rate of GaAs foundries also declines further.

Chen Shunping, general manager of Wenmao General Management Service Department, said that at present, the smartphone market in mainland China is facing a downturn in the second quarter, and there is no doubt that the inventory will continue to adjust. PA design companies account for about 30% to 40% of our PA customers, and although we haven’t seen a clear situation in Q3, we’re basically conservative.

Wenmao estimates that the consolidated revenue in the second quarter of this year will decline by about 6% to 9% compared with the first quarter. Due to the decline in revenue, the capacity utilization rate in the second quarter is expected to be slightly worse than the 70% in the first quarter. As for the difference It depends on the actual shipment and casting conditions.

In view of the prosperity of the mobile phone market this year, most manufacturers in the industry are not optimistic. Hongjieke said that the overall market situation in the first half of the year is still weak. It is estimated that after the traditional peak season in June and July, the demand momentum in the second half of the year is expected to recover.

Zhao Yi, research director of Jiwei Consulting, also said that it is optimistic to estimate that the smartphone market will recover in Q3 this year, but it may not improve until next year.

Under this circumstance, Wenmao and Hongjieke have delayed their own production expansion. Wenmao pointed out that the maximum production capacity of Guishan C factory can be increased to 4,000 pieces/month. Currently, it is planned to increase 2,000 pieces/month before the end of the year, and the other half of the production capacity can be increased to 4,000 pieces/month. It depends on market changes.

As for the Kaohsiung Road Bamboo Factory, Wen Mao said that mass production is expected in 2024-2025. Civil engineering is currently underway, and equipment procurement has not yet begun. At present, the company is inclined to maintain a civil engineering maintenance plan. It can be observed for half a year to a year.

In terms of Hongjieke, the production capacity of Hongjieke in the first half of the year was about 18,000 pieces/month. It was originally planned to expand to 25,000 pieces/month this year. Due to the reduced visibility of terminal demand, the production capacity is expected to open to about 22,000-23,000 pieces/month this year. .

Compared with the conservative expansion schedule of Taiwanese factories, Sanan Optoelectronics, Leon Microelectronics, Huanyu, etc. have not changed their determination to increase investment and continue to expand production.

As can be seen from the previous article, as of the end of the third quarter of 2021, the production capacity of Sanan Optoelectronics RF segment is 10,000 pieces/month. In the annual report, Sanan Optoelectronics clearly stated that the next 2-3 years will be a critical period for the company’s development. The company will focus on the rapid expansion of the integrated circuit business. It is expected that the production capacity of GaAs RF will be expanded to 30,000 pieces/month. .

Regarding the issue of operating performance, Sanan Optoelectronics stated that due to the large amount of depreciation and amortization expenses of fixed assets added to the production line, it will take a certain period of time to release the production capacity of the project and realize the income, resulting in a large loss in the short term. In the follow-up, with the continuous release of production capacity and the continuous realization of sales revenue, the operating performance will continue to improve.

In terms of Leon Dongxin, it has built a production capacity of 70,000 pieces per year and has achieved mass shipments. At the same time, the company has 360,000 pieces/year of RF chip products in Haining base (including 180,000 pieces/year of GaAs RF chips, 60,000 pieces/year of SiC-based GaN chips, and 120,000 pieces/year of VCSEL chips). ) planning and layout, which has been approved by relevant departments and will enter the construction phase.

In terms of Changzhou Chengxin, according to Huanyu, the production capacity of Changzhou Chengxin in the fourth quarter of 2021 is about 2-3,000 pieces per month, and it is expected that the production capacity will increase by 2-3 times in 2022.

Huanyu bluntly stated that in 2022, the joint venture company is still in the early stage of production increase, and it is expected that the joint venture company will still be difficult to make profits, but the goal is to achieve a balance of profit and loss or make a small profit in 2023.

write at the end

Jiwei.com has reported that, whether it is a new enterprise in the field of gallium arsenide, or a long-standing manufacturer in the field, such as Wenmao, Hongjieke, and Sanan Integration, the expansion plans disclosed in recent years are relatively aggressive. The expanded production capacity is basically more than double the original production capacity.

Regardless of whether new entrants can successfully open production capacity and whether they can be recognized by downstream customers, whether the industry can digest the new production capacity of established GaAs foundries is also a problem.

Indeed, due to the current poor market demand, the production capacity that has been released by manufacturers with mature processes such as Wenmao and Hongjieke cannot be filled. The market competition is becoming increasingly fierce, and the capacity utilization rate is also declining. However, the market demand has not erupted, the performance loss will be further widened, and the industry reshuffle will also come quietly.