China’s imports of integrated circuits have plummeted, who will benefit from the loss?

According to the latest data released by the General Administration of Customs, in the first four months of this year, China’s total integrated circuit imports fell by 21% year-on-year to 146.8 billion.

Before and after, Samsung Electronics announced the lowest profit financial report data in the past ten years, the operating performance of Qualcomm and MediaTek fell sharply, and the alarm of semiconductor product price cuts came one after another in the market.

As China is an important semiconductor consumer market and producer in the world, what happened behind the sharp drop in semiconductor imports? Will the market structure change significantly?

Domestic substitution is in the ascendant

In 2022, China’s imports of integrated circuits (ICs) will fall by 15.3% year-on-year, which is in stark contrast to the strong growth in the previous two years. In the data for the first four months of this year, imported integrated circuits totaled 146.8 billion pieces, a year-on-year decrease of 21.1%, and the total import value was US$105.6 billion, a year-on-year decrease of 25.6%, showing that semiconductor imports continued to slump.

There are many reasons for the decline in China’s chip imports. The first thing worth noting is the US export ban.

“In the control bill previously promulgated by the United States, the end-use control of China’s semiconductor manufacturing industry is implemented, including the prohibition of exporting any items under the jurisdiction of the EAR to entities in China that produce chips with specific performance parameters.” Zhao Xiaoma, partner of CIC Consulting, said The first financial reporter said that there are three types of performance parameters used in this rule, two of which (NAND, DRAM) are memory chips, which does bring a certain degree of short-term pain.

Dai Hui, a veteran in the chip industry, told reporters that although there are still some problems, overall, China’s chip industry has made great progress in the past few years, and breakthroughs have been made in some areas.

The United States and other countries have imposed import sanctions on China’s high-end chips, reducing import demand, and various domestic alternatives are in the ascendant.

“External restrictions are forcing my country’s semiconductor manufacturers to accelerate the process of localization, accelerate innovation and research and development in various segments, and drive the growth of my country’s semiconductor industry.” Zhao Xiaoma said that China has turned to the production of more traditional chips to meet the needs of automobiles. The needs of manufacturers and home appliance manufacturers.

For example, in the field of central processing units (CPUs), companies such as Loongson, Phytium, and GigaDevice have launched a variety of products based on independent architectures or open source architectures, and have been applied in educational institutions, Internet companies, and other fields. In the field of memory, Yangtze Memory has successfully mass-produced 64-layer 3D NAND flash memory and started supplying it. In the field of analog/mixed signals, companies such as Hua Hong Semiconductor and Ziguang Zhanrui have also achieved self-sufficiency in some product lines.

In addition, in the automotive field, the localization rate of car-level MCUs was about 5% before, but at present, the products of Chinese chip design companies have quickly entered the automotive electronics market, and there have emerged GigaDevice, Guoxin Technology, BYD Semiconductor, NavInfo (Jiefa Technology), Chipsea Technology, Zhongying Electronics, Ziguang Guowei, Fudan Microelectronics and other automotive-grade MCU companies have launched a variety of new products in the past year, covering IGBT, MOSFET, Power IC, MCU to ADAS SoC and other chip fields.

From the perspective of domestic chip types, discrete devices, logic chips, Power ICs and MCUs are in the forefront. In downstream applications, the communication market and the automotive electronics market have a large demand for chips.

According to statistics from Xinmou Research, in 2022, the total sales of the chip design industry (including Fabless and IDM) in mainland China will be US$54.3 billion, a year-on-year increase of 5.3%. With the global economic growth slowing down and the global semiconductor industry entering a downward cycle, the growth rate of China’s semiconductor industry will still maintain positive growth in 2022. In 2027, it is estimated that the scale of China’s chip design industry will exceed US$100 billion.

At the same time as the domestic chips are increasing, overseas manufacturers are also feeling the pressure.

For example, in the field of storage, with the efforts of Yangtze River Storage and Changxin Storage, my country’s technical level in the field of storage chips has reached the level of international manufacturers, breaking the monopoly of overseas companies such as Samsung and Micron.

The data shows that Samsung Electronics’ operating profit in the first quarter of 2023 will drop by 95.5%, and its net profit will drop by 86% year-on-year. Among them, the chip manufacturing business recorded a loss of 4.58 trillion won, compared with a profit of 8.45 trillion won in the same period in 2022. Ben Suh, executive vice president of Samsung Electronics, said on the earnings conference call that the continued decline in memory chip prices and inventory declines were the main reasons for the pressure on the company’s profits in the quarter.

In addition, chip giant Qualcomm has also experienced pains that have been rare in recent years.

In early May, Qualcomm released the second fiscal quarter of fiscal year 2023 ending March 26, 2023. Revenue for the quarter was US$9.275 billion, a year-on-year decrease of 16.92%; net profit was US$1.704 billion, a year-on-year decrease of 41.92%. Among them, the revenue of the mobile phone chip business was US$6.105 billion, down 17%, and the revenue of the technology licensing business was US$1.290 billion, down 18%.

Since 2021, many domestic technology companies have announced the progress of self-developed chips, and released products such as imaging chips, AI control chips, server chips, etc., which have further improved the self-sufficiency rate of domestic chips, leading to domestic companies’ demand for imported chips. The demand is further reduced.

Although domestic substitution has achieved many successes, the problems it faces cannot be ignored.

The restriction of the U.S. Chip Act has led to insufficient supply of advanced process chips in China for applications such as 5G, cloud computing, and artificial intelligence, which has had a certain negative impact on downstream application companies of such chips. Industry insiders said: “Since 2020, the United States has increasingly restricted China’s high-end chip imports. However, the domestic self-sufficiency rate of this type of chip is less than 5%, which has affected the research and development progress of related domestic companies to a certain extent.”

The whole world is hot and cold

Another important reason for the sharp drop in China’s integrated circuit imports is that the entire global market, including China, is sluggish.

Specifically, the biggest factor affecting import data comes from the shrinking demand side. At present, the chip industry is transitioning from the “shortage” in the past few years to the “flooding” stage, and the global semiconductor inventory level is high.

According to wind data statistics, in the first quarter of this year, the average inventory turnover months of the world’s major semiconductor manufacturers was about 7 months, reaching a historical peak in two years, far exceeding the conventional inventory level of about 3 months. According to the latest data released by the US Semiconductor Industry Association (SIA), global semiconductor sales in the first quarter of 2023 will be US$119.5 billion, down 8.7% month-on-month and 21.3% year-on-year, indicating that the global semiconductor industry is still in a downturn.

In the past 20 years, the sales of the global semiconductor industry have always cycled between peaks and troughs, and there will be a cycle every 4-5 years. Looking back at the nearly three rounds of the global semiconductor cycle, it generally takes 3-6 quarters for the industry to bottom out. The first round peaked in the third quarter of 2010 and bottomed out in the first quarter of 2012, which lasted for six quarters. The second round peaked in the fourth quarter of 2014 and bottomed out in the second quarter of 2016, lasting six quarters. The third round peaked in the third quarter of 2018 and bottomed out in the second quarter of 2019, which lasted for three quarters.

Zhao Xiaoma told reporters that Samsung Electronics announced the lowest profit financial report data in the past ten years, and the operating performance of Qualcomm and MediaTek has fallen sharply. This actually reflects that semiconductors have entered a downward stage after the “core shortage”.

The downturn in the global semiconductor market has lasted for a long period of time, and there are different opinions on when it will bottom out and rebound, but the Chinese market is showing signs of recovery.

According to data released by the National Bureau of Statistics on May 16, IC production data covering companies with an annual turnover of more than 20 million yuan ($2.9 million) showed a year-on-year increase of 3.8% to 28.1 billion units in April, the highest since 2022. The first monthly increase since January. In addition, in April, the output value of enterprises with an annual turnover of more than 20 million yuan increased by 5.6% year-on-year, the largest monthly increase since October last year.

In addition, the chip financing market is gradually picking up. On May 25, according to the data provided by Qichacha to China Business News, as of late May, in 2023, 5,770 (chip)-related companies in my country were canceled and revoked, but 51,000 chip-related companies were newly registered during the same period. , The chip track has completed a total of 424 financing events, a decrease of 16.2% compared to the same period in 2022, but an increase of 14.6% compared to the same period in 2021.