SEMICONDUCTOR INDUSTRY
UPDATE
February 2018
McIlvaine Company
TABLE OF CONTENTS
Samsung Expands Xi'an Chip Facility to Build Global Semiconductor Base
Intel’s Rio Rancho Plant Develops New Tech
Niche
Frontken Ready for TSMC’s New Chip Foundry in Taiwan
Samsung to Expand DRAM/NAND Production
Chinese Dynex Parent to Set Up R&D Ops in the UK
Samsung Expands Xi'an Chip Facility to Build Global
Semiconductor Base
Construction of the second phase of Samsung's
memory chip facility in Northwest China's Shaanxi Province has started, and it
is expected to help Xi'an forge an industrial cluster worth billions of yuan and
cement the city's position as a global semiconductor industrial base.
Located within Samsung's factory in the Xi'an
Hi-tech Industries Development Zone, construction equipment is being erected for
the second phase of the facility.
"The new facility is scheduled to be put into
operation in 2019 and will be used for mass production of V-NAND flash memory,"
Samsung Electronics Co. told the Global Times.
Samsung announced in late August that it
would invest an additional $7 billion to build a second phase for its memory
chip plant in Xi'an, despite cooling economic activities between China and South
Korea following the deployment of the Terminal High-Altitude Area Defense
(THAAD) anti-missile system in South Korea.
In September, South Korean industry news site
etnews.com reported that the South Korean government was planning to stop the
country's semiconductor and display producers from establishing facilities in
China.
South Korea's Minister of Trade, Industry and
Energy Baek Woon-kyu asked Samsung Electronics to reconsider its investment plan
in Xi'an during a meeting with major executives from the country's semiconductor
and display industry on September 18, the report said.
Samsung's existing semiconductor production
lines in Xi'an are operating at full capacity but still can't meet the surging
demand, according to Samsung.
Data from Samsung showed that China's demand
for memory chips has accounted for 58 percent of the global total in 2017, and
it predicted the country's demand will continue to grow.
"Given China's growing demand for memory
chips along with the growing interest in areas such as artificial intelligence
(AI), smart phones and corporate-level memory chips, increasing investment in
China will help promote Samsung's semiconductor business," Liu Kun, vice general
manager of the IC Industry Research Center at CCID Consulting, told the Global
Times.
Samsung Electronics registered significant
earnings growth in the third quarter ended on September 30, with revenue of
19.91 trillion won ($17.89 billion), according to a statement on the company's
website in October.
As many electronic device manufacturers are
located in China, setting up facilities in the country will be convenient for
the company to serve its clients, according to Samsung China Semiconductor.
In fact, the semiconductors made by Samsung
also help improve the competitiveness of domestic high-end smart phones, which
generally use chips manufactured by Samsung, Liu said.
Meanwhile, the presence of top South Korean
semiconductor firms also has a positive influence on the formation of the
domestic semiconductor industry, said Wang Yanhui, head of the Shanghai-based
Mobile China Alliance.
In recent years, leading companies such as
Samsung, US firm Micron Technology, and domestic giants Huawei Technologies Inc.
and ZTE Corp have increased their investment in Xi'an.
Samsung's $7 billion deal further indicates
the region's international competiveness and will cement Xi'an's role as a
global semiconductor industry base, according to a statement on the website of
the Xi'an Comprehensive Free Trade Zone.
The second phase of the Samsung project in
Xi'an will drive the fast development of the information industry in western
China and boost the establishment of the national information industry base in
the area, according to Samsung.
Following Samsung's entry into Xi'an, the
project has drawn more than 100 supporting companies to the area. As Samsung's
manufacturing technology is globally recognized, it boosts the standing of the
related firms as well, thus helping the Xi'an semiconductor industry's
international development, Ju Meiru, an official with the Xi'an Comprehensive
Free Trade Zone, was quoted as saying in a document sent to the Global Times.
For example, the machines used by Samsung in
Xi'an were all imported when the company first started operating there, but now
they use domestic machines such as those from a semiconductor equipment firm in
Shanghai, according to Ju.
Samsung invested in the first phase of its
memory chip project in Xi'an in 2012. Worth $10 billion, it became the biggest
foreign-funded project in China's electronic information industry since the
country's reform and opening-up policy started in the late 1970s.
Intel’s Rio Rancho Plant Develops New Tech
Niche
Engineers at Intel Corp.’s Rio Rancho plant
have developed new methods to fuse lasers into traditional silicon-based
electronics circuits.
Intel Corp. in Rio Rancho has carved out a
new technology niche for itself that’s key to the global chip maker’s continuing
worldwide expansion, bringing an end to employee downsizing at the plant, at
least for now.
That’s welcome news for Rio Rancho, where the
company’s workforce has plummeted from about 3,300 in 2013 to 1,200 as of last
December.
Downsizing in recent years reflected the
plant’s aging chip technology compared with Intel facilities elsewhere that have
received huge corporate investments to move production into more advanced chips
with greater data-processing capabilities.
But even with the downsizing, engineering
teams in Rio Rancho over the last few years have managed to leapfrog ahead of
other Intel plants and the semiconductor industry in general by developing new
methods to fuse optics technology, or lasers, with traditional silicon-based
electronics circuits. It’s next-generation technology that uses light to
immensely speed data transfer, compared to traditional digital communications
that rely on electronics to transfer and process information.
The semiconductor industry is scrambling to
develop the new technology to manage high-speed data transfer in a
hyper-connected world that provides instant access for consumers using
everything from smart phones and computers to high-definition TV. And it’s key to
Intel’s efforts to maintain market dominance in the data center industry, where
the company provides most of the communications processing components used to
manage huge computer servers and networks.
That work could bring some needed stability
to Rio Rancho.
“We have no plans now for further staff
reductions,” said Katie Prouty, who took over last summer as site manager for
Intel in New Mexico. “We’ve even done some hiring on site this year.”
Any hiring will not replace the number of
employees laid off. In fact, the workforce may now be lower than it was last
December. The company won’t announce employment totals until it delivers its
annual report to the Sandoval County Commission in April.
With the new technology work now under way,
plus its traditional chip-making activities, the Rio Rancho site remains
critical.
“(It) continues to be a very important part
of our global manufacturing network,” Intel spokeswoman Linda Qian said.
Last year, Intel began incorporating Rio
Rancho’s new technology into new products for data centers, making the local
plant a critical cog in the company’s global manufacturing network as it
penetrates deeper into the data-processing industry.
Now, the new buzzword in Rio Rancho is
“silicon photonics,” Prouty said.
“We’ve been working for the past several
years to develop silicon photonics products for Intel, and the company just
moved into production of the first ones in mid-2016,” Prouty said. “Our vision
for the Rio Rancho site now is to keep pursuing opportunities for silicon
photonics, which we’ll make here in New Mexico, while we continue to manufacture
the traditional chips and microprocessors that Intel provides for many other
markets.”
Intel rolled out the first Made-in-New-Mexico
products last summer, packaging up Rio Rancho’s new components into transceivers
and receivers for data centers. But that may be just the beginning, as Rio
Rancho engineers continue to develop the technology for other data-center
products, and possibly for other markets as well, Prouty said.
“Optical connectivity is the next-generation
technology for moving data that everyone is seeking because of the immense
growth in data transfer and processing,” said Prouty.
Intel is not the first industry player to
fuse lasers into silicon for data processing. In fact, one Albuquerque startup,
Skorpios Technologies Inc., is marketing its own proprietary process for
silicon-photonics chips.
But Intel can rely on its own extensive
silicon manufacturing process to make new silicon photonics products with
greater efficiency and lower cost than competitors.
That’s critical for Intel’s broader strategy
of diversifying its markets beyond traditional central processing units for
personal computers and laptops.
The company has suffered in recent years as
use of smart phones, iPads, and other mobile devices and gadgets eclipse desktop
computers, leading to corporate restructuring that included the layoff of 12,000
people worldwide last year.
But the company has worked hard to develop
new chips and products for today’s markets, and it’s made particularly robust
inroads into the data processing industry, which now accounts for about 30
percent of company revenue.
That bodes well for Rio Rancho with its new
niche in silicon photonics.
The local workforce plunged in recent years
as corporate investment went to plants in other states and countries, largely
bypassing Rio Rancho. But the company is still investing in Rio Rancho, with $43
million in capital expenditures into 2016, much of it for the new silicon
photonics technology.
“We’re excited about the additional capital
investments at the plant,” said Mayor Greggory Hull. “This new technology
reflects their commitment to Rio Rancho and New Mexico. We’re excited about it
and stand ready to support Intel along with Sandoval County and the state of New
Mexico in any way we can.”
Frontken Ready for TSMC’s New Chip Foundry in Taiwan
Hee: The service standards that we have to
meet are very high. We have to be able to meet the turnaround time and also the
quality.
AS chips get smaller with the narrowing of
the distance between nodes, high-precision cleaning services providers have to
keep up and adopt more advanced technology to serve the semiconductor industry.
This is what Frontken Corp Bhd has been doing
over the last two years, investing up to RM40 million in new high-precision
cleaning equipment.
“We invest in new technology. As you go to
smaller nodes (and) more complex processes, the equipment that they use become
more sophisticated. Therefore, the way to service the equipment is a lot more
difficult,” said chief financial officer Eric Hee in an interview. “We spent
about RM40 million over the past two years renovating our existing facility. We
added new lines to cater for new processes. We have a Class 10 cleanroom in our
facility,” he adds.
The air in a Class 10 cleanroom has 10,000
particles of more than 0.1 micrometer per cu m, compared with a Class 100
cleanroom, which might have 100,000 particles of more than 0.1 micrometer per cu
m.
Frontken has an 84.6%-owned subsidiary in
Taiwan, Ares Green Technology Corp Ltd, which provides semiconductor foundries
such as Taiwan Semiconductor Manufacturing Co Ltd (TSMC) with high-precision
cleaning and maintenance services.
Recently, TSMC announced that it is investing
in a new foundry in Tainan Science Park in Taiwan. The new foundry, which is
estimated to cost US$16 billion, will be able to produce chips with a node
distance of just three nanometers (nm).
The foundry, which is expected to start
production in 2022, will be the first in the world to produce 3nm chips as TSMC
works towards maintaining its leading position in the global pure play contract
chip manufacturing industry.
As for Ares Green, it has been keeping up
with the foundries by employing new technology equipment. “We just expanded our
facilities last year, putting in new equipment and lines. We are now equipped to
meet the next phase of TSMC’s production,” says Hee. TSMC is targeting to start
the mass production of 7nm chips next year.
“You can see that from our revenue as well.
The increase was surely coming from the additional capacity by TSMC,” he adds.
TSMC started mass producing 10nm chips — the smallest in circulation — in the
fourth quarter last year.
In the fourth quarter ended Dec 31, 2016
(4QFY2016), Frontken’s Taiwan operating revenue came in at RM36.8 million, up
from RM33.8 million in the preceding quarter and RM30.1 million in the previous
corresponding quarter.
In 2QFY2017, Frontken’s Taiwan operations
recorded a top line of RM41.05 million compared with RM35.4 million 1QFY2017 and
RM30.6 million in 2QFY2016. The Taiwan operations contributed over 58% to
Frontken’s revenue and almost 90% of its operating profit in 2QFY2017. Frontken
also has operations in Malaysia, Singapore, Indonesia and the Philippines.
However, competition for high-precision
cleaning jobs in Taiwan — where the semiconductor industry contributes
substantially to the country’s economy — can be fierce. And Ares Green is not
the only service provider in the country.
“The service standards that we have to meet
are very high. We have to be able to meet the turnaround time and also the
quality. When you refurbish and clean a particular tool, the deposition cannot
be seen with naked eyes.
“You put the tools through a microscope to
see how many times of deposition is permissible. It cannot be perfectly clean,
there is an acceptable level of how many depositions that are still allowed to
be seen. At the end of the day, we are able to meet our clients’ requirements,”
explains Hee.
Frontken’s Indonesia operations contributes
the least profit as it mostly serves the oil and gas (O&G) industry, which has
seen a reduction in the number of jobs. In 2QFY2017, it recorded an operating
loss of RM341,000 on revenue of RM296,000. This is a drop from the tiny
operating profit of RM1,000 in 2QFY2016 and revenue of RM855,000.
Hee admits the market is tough but says
Frontken will not throw in the towel. Frontken also serves the O&G industry in
Malaysia and Singapore.
Year to date, Frontken’s share price has
rallied 138.43% to close at 40 sen per share last Thursday. It is trading at 21
times FY2016 earnings per share of two sen, and 15.38 times based on Kenanga
Research’s estimated EPS of 2.6 sen for FY2017.
In a July 20 report, Kenanga Research says
Frontken’s higher exposure to the semiconductor industry now compared with three
years ago makes the group a proxy for the current semiconductor industry
upcycle.
“In a span of three years, the group has
switched from its focus on heavy O&G-related services to higher-margin
semiconductor services, which contributed 70% of revenue to the group in FY2016.
“Consequently, the group achieved its highest
core net profit margin of 7.8% over the past five years. This was (achieved) on
the back of stronger revenue, predominantly driven by higher-margin services to
semiconductor customers,” says analyst Desmond Chong in the report.
Kenanga Research assigned a “trading buy”
rating to Frontken, with a target price of 43 sen per share. The company’s share
price was 36.5 sen per share then.
Now that Frontken’s share price has almost
realized its full value as ascribed by Kenanga Research, can it breach that
level and continue its upward trajectory? Or is the stock too expensive?
Based on US-based Semiconductor Industry
Association’s data, semiconductor sales in August reached US$35 billion globally
for the first time, an increase of 23.9% from August 2016 and 4% from the
previous month’s US$33.6 billion.
Meanwhile, the World Semiconductor Trade
Statistics has revised its 2017/2018 growth forecasts to 11.5% and 2.7%, from
6.5% and 2.3% respectively, with higher growth forecasts mainly for sensors and
integrated circuits, says Chong.
“Based on our correlation study on the
group’s year-on-year semiconductor business growth, as well as the global
semiconductor sales’ growth, the correlation is as high as 85.5% over the span
of the last five years, with multipliers between 2.8 times and 12.8 times,” he
adds.
“As the group’s customers are mainly from the
front-end semiconductor value chain that are now focusing on leading-edge
foundry technology, we believe the group will continue to enjoy better sales and
high margins amid the booming semiconductor sector.”
Samsung to Expand DRAM/NAND Production
DRAM/NAND prices set to remain high during
2018, production boost incoming.
Samsung has greenlit the expansion of its
Pyeongtak memory chip production line in its native South Korea, Yonhap News
reported.
With memory chips in short supply, the South
Korean semiconductor giant is set to invest approximately $27 billion USD in its
DRAM and NAND business. The Pyeongtak memory production facility opened its
gates in July 2017, with the current production line set to operate at 70
percent capacity as a result this year's scheduled investments. “The investment
is aimed at better preparing for future market demand. Any details related to
production will be determined after taking market situations into account,”
Samsung commented in an email to Reuters.
News of the company's plans to expand its
memory business comes after a strong 2017 which saw the company make a record
$14 billion profit driven primarily by its component business. In addition to
investments in the existing facility, a second Pyeongtak production facility is
also being planned. Exact ground breaking dates have not been announced, but
mass production of chips in Pyeongtak's second production unit could be set for
2020.
In the meantime, DRAM and NAND flash memory
prices are set to increase further during 2018 due to strong market demand,
according to Gartner.
Chinese Dynex Parent to Set Up R&D Ops in the UK
Dynex and Soil Machine Dynamics parent
organization plans to employ up to 200 R&D engineers in Lincoln, England.
The China-based parent company of Dynex
Semiconductor is establishing a semiconductor R&D center in the UK. The center
will employ up to 200 engineers over the next three years and provide additional
research capability for its CRRC's two UK subsidiaries, Dynex and Soil Machine
Dynamics.
CRRC Times Electric, a Chinese developer of
rail and electric vehicle control systems, said it plans to establish the Times
Electric Innovation Centre (TEIC) in the first half of 2018 in Birmingham,
England. It will focus on cutting-edge research and development of
semiconductor-based products and technology across a wide power range. This
research will be applicable to key growth markets, including electric vehicles,
rail traction, aerospace, power distribution and renewable energy, the firm
said.
The TEIC is part of the strategy for a
combined CRRC Times Electric and Dynex partnership to become a major global
player in semiconductor technology. Dynex and Soil Machine Dynamics will have
full, royalty-free, access to relevant semiconductor-related outputs of the new
TEIC.
Dynex is headquartered in the city of
Lincoln, in England's East Midlands region, where it plans to continue
conducting R&D. In the last 12 months, Dynex has been heavily focused on new
product such as its trench gate and DMOS high-power IGBT modules, press-pack
IGBTs, new HVDC products, and the launch of its new foundry services business.
The Lincoln R&D center expects to have more new product releases in the coming
months from Dynex.
"The TEIC will have significant capabilities
in semiconductor innovation, as well as other power electronics and related
systems," said Clive Vacher, Dynex president and CEO. "It will support Dynex,
SMD, and all CRRC entities. Over time, its capabilities will develop in several
different directions and will not be limited to high-power semiconductors."
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