Uncertainty has gripped the silicon wafer market as the COVID-19 pandemic threatens to upend growth projections for 2020. Declines in both shipments and revenue plagued the silicon wafer market in 2019, a downturn that had given way to optimism for 2020 with rising expectations for normalizing inventory levels, memory market improvements, data center market growth and the 5G market takeoff.
Over the past three months, silicon wafer shipments leveled off and the year-over-year (YoY) growth rate had started to rebound, SEMI reported in Silicon Wafer Market Monitor, a new quarterly report that tracks wafer shipment dynamics including historical shipments, supply and demand shifts, and pricing trends and forecasts.
Monthly shipments of 300mm polished wafers had been on the upswing since November 2019. Epitaxial wafer shipments had jumped sharply since the third quarter of 2019. And 200mm epitaxial wafer shipments were on the brink of recovering in February 2020 even as 200mm polished wafer shipments were stabilizing.
Then the COVID-19 outbreak struck.
The pandemic extended a decline in total silicon wafer area shipments (3-month average) that began after their October 2018 peak. In 2019, overall wafer shipments dropped 6.9 percent compared to 2018 after eking out 0.4 percent growth from 2017 to 2019. With the world continuing to combat the novel coronavirus, we expect a drop in silicon wafer sales in the second half of 2020 with possible ripple effects on price negotiations in 2021.
On the supply side, China’s small-diameter silicon wafer facilities were the first to suffer repercussions from the domestic spread of the virus as utilization dropped between 30 percent and 50 percent in February. As of the end of March, the utilization rate at Chinese silicon wafer manufacturers had recovered to around 80 percent.
As COVID-19 took hold in other regions, utilization at wafer facilities in Italy, Singapore, and Malaysia began to falter. Singapore and Malaysia have since restored normal operations at all of their silicon wafer manufacturing sites, and Italy facilities are now resuming production. Chipmakers have responded by diversifying their 200mm wafer supply lines in light of short term supply disruption.
In the 300mm silicon wafer space, manufacturers in all but the small-diameter industry are beefing up inventory to mitigate wafer supply chain risks, as Micron reported in its recent earnings call. Other semiconductor manufacturers and some silicon wafer manufacturers have revised down their earnings guidance or even withdrawn previous forecasts. The question remains whether the uncertainty sowed by COVID-19 will lead to a plunge in demand in the second half of this year or if the heavy impact will be confined to a few months.
To hedge their bets, chipmakers in the second quarter of 2020 are expected to increase silicon wafer orders to build up safety stock for future demand, a move that should soften the impact on sales for the quarter. If the pandemic erodes semiconductor demand well into the second half of 2020, silicon wafer shipments growth could continue through the second quarter before dipping in the third quarter. In this downbeat scenario, 300mm silicon wafer shipments in 2020 would be flat or see a slight decline despite the sizable jump in the second quarter, and 200mm and 150mm shipments would drop by 5 percent and 13 percent, respectively.
The bullish view is that the global semiconductor market could see a V-shaped recovery toward the end of 2020 if massive stimulus packages planned by governments around the world soften the economic blow – a scenario the semiconductor supply chain needs to prepare for by building up inventory to meet the potential surge in demand.
If a robust semiconductor industry recovery begins in the second half of 2020, the second quarter inventory buildup will help drive silicon wafer shipment growth and that uptrend will continue through the rest of 2020 as expectations rise that the chip industry will rebound to meet pent-up demand.
Sungho Yoon is senior research manager in the Industry Research & Statistics Group at SEMI.