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Semiconductor Value Chain

Global Silicon Demand to Slow Down as Year Finishes

14 October 2013

Semiconductor manufacturers confronting slowing orders will see demand for silicon taper off as the year comes to a close, according to a new Global Silicon report from IHS Inc.

Worldwide silicon shipments representing the raw material used to make chips are projected to total 2.47 million square inches during the fourth quarter, down from 2.54 million square inches in the third quarter. Prior to the downshift, silicon shipments had been rising, climbing from 2.12 million square inches in the first quarter to 2.43 million square inches in the second quarter.

Silicon shipments traditionally slacken as the end of a year approaches, but the slowdown in activity this year is also the result of missed projections coupled with continuing economic inertia in the markets.

Both silicon manufacturers as well as chip customers have a hand in the current stasis.

For silicon suppliers, production in the first half was more than what their customers ultimately needed. Meanwhile, chip buyers did not see the consumer sales they had hoped for, which left them with unused semiconductor stockpiles. And with existing chip inventory to spare, buyers are not about to acquire additional silicon.

The continuing economic uncertainty is likewise taking a toll. Silicon suppliers are loathe to commit to production unless they have firm orders. But buyers are choosing to take a wait-and-see approach, themselves unsure of how the retail markets will respond for the remaining part of the year, resulting in slowing orders for chip makers.

The upcoming holidays won’t be making a difference, it appears, because the semiconductors that were needed for devices to be sold during the season have likely been used. This means that any remaining chip inventory represents unused, leftover stockpiles.

Semiconductor suppliers appear to have made a course correction by cutting manufacturing run rates in the third quarter. This will allow them in order to determine which products are not needed or which require replenishment.

In all, silicon orders are not anticipated to increase in the fourth quarter, with demand expected to have fallen midway through the third quarter once final figures are in place. No further increases are anticipated until midway through 2014, IHS predicts.

Even so, total silicon growth in 2013 will be in the range of 3.5 percent—much better than the marginal 0.8 percent uptick seen last year.

The new frontier: 12-inch manufacturing

The chip-making industry is also continuing to transition to 12-inch wafer manufacturing. In particular, demand for 12-inch wafers will be driven by wireless applications. Total demand for mobile dynamic random access memory (DRAM) and flash should improve this year, due to increased shipments of mobile handsets and ultrathin PCs.

In contrast, demand for older 8-inch and 6-inch silicon wafers will continue to be negatively impacted by the transition to 12-inch manufacturing.

The 8-inch manufacturing sector is now forecast to grow by a five-year compound annual growth rate (CAGR) of just 2.3 percent from 2012 to 2017. Prospects for 6-inch manufacturing are worse, with the CAGR for the sector falling to -2.4 percent during the same period.

Beyond the 12-inch space, efforts are moving forward with even more advanced lithography—to 18-inch manufacturing or 450-nanometer wafers. Those able to make this move will be the chip makers that enjoy sufficient volume to engineer the transition while also successfully aggregating demand.

Foremost among such manufacturers will be TSMC from Taiwan, the world’s largest chipmaker, projected to become the key driver in the adoption of 18-inch wafer manufacturing.

Read more >> Manufacturing run rates diminish second-half outlook



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