CEO of Huirong Technology talks about the shortage of master control and is optimistic about the development of storage market in 2022. "The shortage of flash master chips will continue next year. Because all wafer foundries, whether TSMC or UMC, will not put into production until the second half of next year or 2023. In fact, the degree of out-of-stock next year will be even more tense than this year. " During the CFMS 2021 Summit, Wallace C. Kou, the general manager of Huirong Technology, was interviewed by the International Electronic Commerce and other media. He positively responded to the problems such as the shortage of main control chips and the cost increase caused by the price increase of TSMC, and predicted the storage market trend next year. Flash master out of stock status At the end of July this year, the news that the flash memory master chip is out of stock began to spread in the storage market. Among them, the capacity of 28nm flash memory master products is the most tight. Up to now, what is the supply of flash memory master chip? Gou Zhang said that since the third quarter of last year, the semiconductor industry has been on the verge of supply chain breakage and shortage crisis, and major manufacturers are also facing capacity crisis. With the increasing demand, some distributors and traditional product agents began to hoard goods in order to speed up profits, which finally brought huge impact to the whole industry. "Although Huirong Technology has TSMC's OEM support, some of our products have also been out of stock due to the strong and rapid global market demand. We are deeply sorry for the customers and partners in the affected global and Chinese regions!" He went on to say that the demand began to slow down in the second quarter of this year, and the market was constantly adjusting. Specifically, since June this year, due to the global delta virus, the terminal demand has gradually slowed down. However, no company has reduced its orders to TSMC, so the problem of IC shortage still cannot be solved in a short time. And this year, the demand for flash memory in the Chinese market is very strong, and the annual growth rate is expected to be around 20%. The growth rate of the SSD master in consumer clients of Huirong Technology is even higher than the market average, with annual shipments exceeding about 16 billion, accounting for about 38% of the world. Due to the better control of the epidemic situation in China and the early recovery of its global industrial chain, the demand of Chinese industry customers continues to heat up this year. However, the channel demand is slightly weak, but many large SSD storage manufacturers in Shenzhen have entered the European, American and Japanese markets, which have significantly improved their quality and efficiency, and at the same time, their products are more diverse. This year, eMMC and UFS products continue to grow, with customers increasing by about 30%, mainly used in mid-to high-end smartphones. In the past, UFS products were mainly dominated by foreign countries, but now some manufacturers in Shenzhen have begun to import UFS2.2 products, and they have begun to increase their volume. In the future, eMMC and UFS products will be mainly used in smart TV, smart watch, multimedia, car navigation system, monitoring system and emerging IoT products. Because the original NAND factory is also facing the problem of chip shortage, many manufacturers also give up small-capacity eMMC products. Gou Zhang lamented: "These are all business opportunities for Shenzhen manufacturers, because the industrial chain is here, and we hope to expand the shipment of eMMC controllers in 2022 to meet the needs of customers." When will this shortage last, and how to maintain a stable supply? Gou Zhang predicted that the shortage of this flash memory master chip will continue until next year. Because all wafer foundries, whether TSMC or UMC, will not put into production until the second half of next year or 2023. In fact, next year's shortage will be even more tense than this year's, so it will be relatively easier for large companies, but for small companies, TSMC does not have enough production capacity to meet everyone's needs, which will lead to more squeeze, which is an unfavorable factor for some start-ups. It is worth noting that the net sales of Huirong Technology in Q1 and Q2 this year reached record highs, which were 182.4 million US dollars and 221 million US dollars respectively. According to Gou Zhang, the main growth of Huirong Technology in the first half of the year came from the main control of consumer client SSD, which increased by 110% compared with the same period of last year, and eMMC and UFS also increased by 30% compared with the same period of last year. "The market share of our main customer groups has increased, and at the same time, the number of our own customers has also increased. Under the superposition of dual factors, the market share of various projects has also increased. In addition, our growth this year is expected to be around 70%, and the performance in the second half will exceed that in the first half. " How does Huirong Technology adjust its product structure and supply under the situation of tight supply of semiconductor production capacity? First of all, we need to solve the supply problem of major customers. For some major OEM customers' needs, Huirong Technology must really implement and meet the needs, and make the best treatment of the Wafer it owns, including ensuring that customers' products are put into production. Especially this year, Huirong Technology attaches great importance to the automobile industry chain. It is understood that Huirong Technology entered the industrial chain of Honda Automobile in Japan last year, and is currently mass-producing the main control products for this automobile factory. In the fourth quarter of this year, Huirong Technology will also provide mass production products for Toyota cars. "We can't make such customers out of stock." In some important fields, such as PC OEM and other important industries, if Huirong Technology is an exclusive supplier, it must ensure that it can supply enough goods to manufacturers. Gou Zhang added that there is a big gap in the supply of master control chips. The performance of major customers in Shenzhen this year has increased by 50%-100% compared with last year, and the demand of Huirong Technology customers has also increased. Because the epidemic situation in mainland China is well controlled and the Chinese market is recovering rapidly, the products of Chinese memory module manufacturers are not only sold to China, but also to the whole world, which causes the demand this year to be significantly larger than that of the past few years. Due to the limited Wafer of Huirong Technology, the supply can only meet the sales growth of 50%-100% of these manufacturers at most. "We are very sorry for the customers in Shenzhen, but we will at least guarantee the original planned basic demand." The impact of TSMC's Q4 price increase will appear at the terminal early next year. In late August of this year, TSMC officially announced that it would raise the foundry price of wafers, with all mature processes (above 12nm) going up by 20%, and the foundry service fee of 7nm/5nm/3nm chips going up by 10% to 15%. Gou Zhang said frankly that the rising cost of TSMC's wafer foundry has a huge impact on the whole world. TSMC has not adjusted the price of wafers in the past ten years. What is the motivation for this price increase? In his view, TSMC's price increase is mainly to plan for the tight production capacity next year, hoping to reduce some repeated orders and make the market closer to the real situation. "Because 96% of our Wafers are provided by TSMC, a 20% increase in wafer price will definitely have an impact on us. However, the degree of influence varies with different products. For example, eMMC and UFS, we sell Wafer to customers, so it will directly increase the cost by 20%. However, if it is an SSD product, it also includes other costs such as packaging, and its impact will be relatively less in the range of 10%-20%. More than a thousand TSMC customers will see the increase of Wafer cost in the fourth quarter, and our cost increase will begin to show from December this year to early next year. " Gou Zhang also frankly said that the increase of cost will indeed lead to the price increase of some products. Such as mobile phones, notebook computers and some commercial electronic products. At present, notebook computer manufacturers, including Lenovo and HP, have made price adjustments. TSMC started the price increase in the fourth quarter of this year, and it is expected that the price increase will be seen in the downstream terminals in the first quarter of next year. Finally, Gou Jiazhang also pointed out that the semiconductor market as a whole is out of stock this year, but in fact this year is a bumper harvest year for storage enterprises. Medium and large storage manufacturers all over the world are growing, either DRAM or NAND, because the demand of the whole market is far greater than what we have seen. 5G, AI and emerging industries in the future have brought many new applications, and every electronic product needs to be stored. For example, the market of mobile SSD was not big six months ago, but now there are many products. In 2022, the whole semiconductor industry and the whole storage industry are quite optimistic.
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