Buyers at integrated device manufacturers (IDMs) and semiconductor foundries can expect silicon wafer prices to increase over the next four quarters because of constrained supply of 6-in., 8-in., and 12-in. wafers.
In fact, wafer supply has been tight for more than a year and prices have risen. “Prices have continuously increased over the last year six quarters, and prices will continue to be strong,” said Len Jelinek, director and chief analyst for researcher IHS Markit. “About a year-and-a-half-ago, we saw quarters when wafer prices jumped as high as 20%. In recent quarters most companies saw prices go up around 5%.”
While wafer price increases have moderated, “I expect to see pricing through 2019 to grow modestly 3-5% every quarter,” Jelinek added.
There are several reasons for tight supply and increasing prices for silicon wafers, including robust demand for semiconductors, more Chinese fabs coming on line, and a lack of investment in capacity by silicon wafer manufacturers.
Major wafer manufacturers such as Shin-Etsu Handotai, SUMCO, Global Wafers, and SK Siltron have not invested a lot in new capacity because of the decline in wafer prices until recently.
“Procurement agents from the big houses like Intel and Samsung have been able to extract fairly aggressive cost reductions from silicon suppliers over the last seven years,” said Jelinek. “To maintain profitability, silicon wafer manufacturers did not spend tremendous amount of capital for expansion.”
The average selling price per inch of silicon wafers declined from $1.40 in 2007 to $.74 in 2017, said Lara Chamness, senior market analyst, industry research and statistics for electronics industry trade association SEMI. With prices declining, “there was not a lot of incentive to add capacity,” she explained. “Silicon manufacturers have basically endured multiple years of severe downward price pressure and their aggregate average selling prices are well below their levels from 10 years ago.”
Subhead: Wafer Overproduction
One reason why prices declined was that wafer manufacturers overproduced. Brent Wilson, vice president of global supply chain for ON Semiconductor, based in Phoenix, Ariz., said that until recently, wafer companies had “been pretty aggressive about adding capacity.”
Wilson elaborated: “They frankly overshot the market, had an excess of supply, and created a little bit of a pricing war amongst themselves and drove down prices to the point where it would no longer economically make sense for them to do any investment.
“They stopped any meaningful investment and capacity expansion and waited for the time when supply was in balance with demand, and that happened last year,” he added.
While prices for silicon wafers are now increasing, the good news for semiconductor buyers at OEMs and electronics manufacturing services (EMS) providers is that chip prices have not increased because of higher silicon wafer tags.
“IDMs have not been able to pass price increases [on to customers],” said Jelinek. “Both IDMs and foundries have been forced to what I call efficient manufacturing. They look at their processes to improve the yield, improve efficiency and uptime of their tools to compensate for these increased prices.”
Wilson said ON is managing tight wafer supply by working with customers to “let them know that lead times are extended” because of constrained wafer supply. “We’re trying to get them to understand that we need more lead time from them,” he explained. “On the supply side we are signing long-term agreements and we are coming in with longer forecasts, commitments to make sure we fulfill capacity.”
ON is unique among IDMs because it has internal wafer production capability and produces about half of the 150 mm wafers that it needs. “We can also produce 200 mm wafers,” he said.
Subhead: Order More Wafers
Another way some IDMS and foundries are managing constrained wafer supply is by ordering more wafers than they need for production. “I won’t call it double-ordering,” said Jelinek, “but over the span of the last year, if a chipmaker needed a run rate of 1,000 wafers per month, it might place an order for 1,100 or 1,200 wafers per month [resulting in buffer inventory].”
Jelinek added that while supply is tight, wafers are not on allocation. “I have not heard of any component or fab manufacturer that has not been able to make a wafer start at the appropriate time,” he said. “[Wafer manufacturers are] optimizing their manufacturing and adding small amounts of affordable capacity to maintain good profitability.”
Jelinek said constrained supply will loosen up a bit in late 2019 because semiconductor demand will not be as strong in 2018 and 2019 as it was in 2017. Semiconductor industry revenue should grow about 7.1% in 2018 and growth will be flat in 2019, he predicted. At the same time, he said, silicon wafer manufacturers will be able to “slowly increase their capacity” to maintain the supply/demand balance “without driving the whole market into oversupply again.”