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Year of writing: 2020
Author: Donny
"A Book to Understand the Chip Industry" Book Review
Comprehensive analysis of the semiconductor industry
Short comment: This book talks about many difficult technologies, but readers who want to invest in the semiconductor industry can learn about the industry through this book.
This book was written by Xie Zhifeng and Chen Daming, who have been in the chip industry for many years. It tells the past and present of the chip. It has reached comprehensiveness in terms of time and geographical location (although some are still introduced in the Chinese world view). At the beginning, Shockley Labs to Fairchild Semiconductor, and then from Fairchild Semiconductor to Intel, which can almost become synonymous with chips; from the United States, Japan, to Europe, South Korea and China. This book also describes many process technologies of wafers, including photolithography, deposition, diffusion, etc., and explains the technology and the technological development of various companies. The technology used is becoming more and more complicated with the evolution of Moore’s Law. Therefore, I chose to read this book from the perspective of investment industry research. After all, Taiwan has a place in the semiconductor industry, and I hope to have a deeper understanding of the mystery of the semiconductor industry. This article will also be written based on the knowledge and experience gained after reading the book combined with the past experience in researching the semiconductor industry.
Nowadays, we use chips everywhere, from mobile phone SoC (system-on-chip), notebook processor chip (CPU), analog chip, display driver chip, and graphics processing unit (GPU) for image processing. , The future can be expected for self-driving car chips, IoT chips, etc. In the era of IoT combined with AI, chips will only be used more and more, and the required performance will become stronger.
Big industry
In this part, we will write another article in the future to introduce the chip industry and the types of chips, but we must know that the chips are related to our learning, and there are many types, and the industrial chain covered is also very large. Starting from the upstream IC design There are the well-known CPU manufacturers Intel, communication chip Qualcomm, MediaTek, HiSilicon, GPU leader NVIDIA, the re-emergence of AMD, Netcom chip Realtek, display driver IC Novatek...There are many IC design houses in the world, IC The design company also requires less capital, so the threshold is lower than that of foundry. Such industrial characteristics have created a hundred schools of thought; the industries surrounding IC design include ARM, IC design service company Creative, Faraday, and chips. Design Tools (EDA) Synopsys...: Midstream foundry industries include TSMC, Samsung, UMC, SMIC, GlobalFoundries... The foundry industry requires extremely high technical thresholds and huge capital needs Therefore, currently only TSMC and Samsung have successfully entered the advanced process, and others have not been able to catch up with the evolution of Moore's Law; there are many corresponding industries around the foundry, such as the foundry equipment manufacturer Applied Materials, ASML (ASML) , Photomask Dainippon Printing (DNP), Taiwan Photomask, Silicon Fab Global Crystal, Shin-Etsu, Seco...; ASE, Silicon Products, Jiangsu Changdian... The technical threshold of the testing field is relatively low, and it is also a relatively labor-intensive industry. Therefore, when China entered the chip industry in the early days, packaging and testing was its primary area. The chip industry is very large, and there are many related companies, which have contributed a lot to the global and Taiwan’s GDP. For example, semiconductor analyst Lu Xingzhi once said that rather than saying that "one Apple saves Taiwan" is actually "one TSMC saves Taiwan", it is also because The huge competition for business opportunities is also fierce. Every company tries its best to survive in the complex chip industry.
The fate of the chip industry is very different
In the same IC industry, there are great differences in various fields. The professional foundry field initiated by TSMC and the IC design field where MediaTek is located. Although the two are upstream and downstream, foundry is a heavy capital industry. TSMC used to In the past few years, most of the annual capital expenditures have been around 10 billion U.S. dollars, and even increased to 14 billion U.S. dollars in 2019. It is estimated that 15-16 billion U.S. dollars in 2020. The reason is that most of the equipment and plants required for advanced manufacturing processes are very expensive. For example, Esmol ( A EUV lithography machine from ASML has an asking price of more than NT$3 billion; on the other hand, IC design is a light-asset industry and a people-oriented company. We have compiled the 2019 balance sheets of Taiwan’s representative companies TSMC and MediaTek in two major areas. The figure below shows that the total assets of the two companies are nearly 5 times different, and real estate, plant and equipment account for 51% of TSMC. However, MediaTek has only 8.58%, so when observing the IC industry, the key indicators that need to be paid attention to in different fields are also different. The next paragraph will sort out the most important indicators of each sub-industry, so that all investors can effectively measure a company when paying attention to the IC industry.
Observation Index of Chip Sub-industry Investment
1. Chip design
1. Market demand
IC design companies will need to face the market directly, so it is very important for the market to grasp whether the chip meets market demand will be directly tested. For example, in the early MediaTek, because of the huge business opportunities in China’s white-brand mobile phone market, it also used it in smart phones. The chip has a place. The market demand for this type of chip will of course directly affect revenue, so having forward-looking products will be very beneficial to the company. If you can effectively master a chip for a huge terminal application, it will be enough to gain a foothold in the field of IC design.
2. The number of product lines / market share
In the niche chip market, there will be fewer competitors, and the product line naturally only needs to focus on the improvement of the niche market. However, if it is in a huge market, a wider product line can become a company’s advantage and use more diversified tactics. For example, when MediaTek rises due to lower-level products, Qualcomm uses the advantages of a wider product line. Reduce the price of low-end products to directly compete with MediaTek, while high-end products still maintain their high gross profit margins. Therefore, when the product line is broad, the gross profit margin will not be sacrificed significantly, and the market share can also be obtained.
2. Foundry
1. Product portfolio
The first observation is technology, because foundry requires technical capabilities, such as when 3nm manufacturing is expected to be launched, and the current launch of a few nanometer-generation manufacturing processes will directly affect the strength of a foundry and the customer’s After all, customers are pursuing more advanced processes. The more advanced processes on the chip can improve performance or reduce energy consumption. The manufacturing process will also affect the product mix, which is also the focus of many investors. The more advanced the process, the better the gross profit margin. Therefore, every time the annual report of the foundry is released, the editor Tony will pay special attention to the proportion of products in the advanced process. .
2. Capacity utilization
Whether to invest in production capacity is always a dilemma for foundries. Production capacity is a key factor in determining performance. It will also affect industry supply and demand and capacity utilization. Capacity utilization indirectly affects the average selling price (ASP), and production capacity. Affects the yield rate. When the output is larger, the yield rate can be effectively improved. On the contrary, when the production capacity is not as good as other factories, the competition will often be lost. In the downturn of the industry, various manufacturers made poor profits, but Samsung has made countercyclical investments so that it can have sufficient production capacity during the industry's upward cycle. However, this investment poses a great challenge to the use of funds. The fixed cost of the circular foundry industry is huge. If the sales volume is insufficient, it will affect the gross profit margin or can only reduce the price. However, at the peak of the industry, TSMC and other companies will face a difficult problem. Whether to increase investment or not, knowing that the continued expansion of production capacity will cause Oversupply and overcapacity, but if the opponent does not increase the investment and the opponent increases the investment, it will lag behind the competition. These problems test the wisdom of the leader. Capacity utilization is critical to gross profit margin, so most investors are also very concerned.
3. Yield
Yield rate affects whether a company’s production capacity can be used effectively, and indirectly affects gross profit margin. Yield rate is a demonstration of a company’s technical strength. Some companies in the market will claim to enter the XX generation process. Investors should not believe it easily. Remember to pay attention to the yield rate of this nano process. Sometimes the yield rate is too low and no customer will place an order. At this time, it is useless to have this process technology. But what is the good yield? This is inconclusive. It is still to be compared with other companies, but generally speaking, the products just launched may be about 50%, but in the mass production stage, it will generally reach 80%, and TSMC has more than 90% of its 7-nanometer manufacturing processes. In contrast, Samsung’s yield rate of about 60% at 7nm is rumored to be about 60%. This is why TSMC has a great advantage in 7nm.
Three, packaging and testing
1. Cost/Gross Margin
Although the technical capabilities of packaging and testing have become increasingly important recently, cost is still an important factor for packaging and testing plants. As packaging and testing plants are more labor-oriented than other areas of the chip industry, most manufacturers tend to set up factories in places with lower labor costs. The gross profit margin shows the competitiveness of a packaging and testing plant. However, recently, because wafer manufacturing plants such as TSMC have begun to develop more advanced packaging technologies, this will inevitably erode the original packaging and testing plant market. Therefore, packaging and testing plants have to attack lower-level EMS plants, but this is bound to reduce their own gross profit margin. It can also bring market growth.
Chips are more than just chips
The impact of the chip is profound. It affects not only the upstream, midstream, and downstream manufacturers of the chip industry, but also changes the outlook of the world.
1. Venture Capital
In the 1950s when global entrepreneurship was not prevalent, if an aggressive and thoughtful boy wanted to start a business, he would often give up because he had a passion but no funds. The rebellious Gang of Eight who left Shockley Labs at that time also faced When it came to the problem of insufficient venture capital, fortunately, at that time, Fairchild Photographic Equipment Company was willing to invest in the Gang of Eight and set up Fairchild Semiconductor, a company that shakes up the semiconductor industry. At that time, the investment banker Locke, who helped the Gang of Eight obtain funds, also became a pioneer. Pioneer of the cast. Since then, the venture capital atmosphere has gradually developed in Silicon Valley, and a large number of talents cultivated by Fairchild Semiconductor have also established themselves one by one. Including Noyce and Moore among the eight-member gang, Intel, which can have these flourishing companies rely on The mechanism of venture capital.
2. Cultural differences
In the early days of the United States, the technological and industrial towns were concentrated on Highway 128 on the east coast. It was a technological town with top talents and government support. It was close to the top academic institution MIT and the commercial center Boston. The major industries were military industry and military-related industries such as computers. Research, the overall development is much earlier than Silicon Valley. However, nowadays, when we mention the US technology industry, most of us mentioned Silicon Valley first, and almost forgotten Route 128. Looking back on the history of Route 128, we can find that the key to the success or failure of the US East and West Science and Technology Corridor lies in the culture. It is mainly military industry, guided by government policies, and tends to act in a more conservative and conservative style. On the other hand, Silicon Valley can be seen from the rebellious personality of the Gang of Eight. This is a place where freedom and creativity can be fully utilized, and there is no fear of adventurous spirit. It is more deeply rooted in people's hearts, and this has also created Silicon Valley, a city where global technology companies converge. Cultural differences not only affect the United States, but also the changes in the global semiconductor industry. The book mentions a sentence "Compared with Americans who are born to simplify complex things, Japanese have a tendency to complicate simple things." Therefore, Japan’s memory chip products that can be mass-produced have lost their competitive advantage with the rising star South Korea, and they have to switch to their niche high-end products, such as Sony’s CMOS image sensors .
Summarize
Chip is a comprehensive industry that combines talents, technology, capital, policies, etc. It is also a tripartite cooperation between industry, government and academia. Innovative thinking and indomitable tenacity can create a powerful chip company. Chips and modern life are inseparable, and the Internet of Everything in the future will only increase unabated. Therefore, this book allows us to understand the historical evolution of chips to the future development prospects. Those who want to understand the technical level can use this to know the process technology. Those who wish to invest in the chip industry can know the upstream and downstream relationships of the chip industry, the strengths of various companies, and global changes.