More Shortages Seen For Silicon Wafers

Silicon wafer shipments have been on a torrid and record breaking pace in the first half of 2021, where demand continues to outstrip supply.

So what’s in store for buyers of wafers for the remainder of 2021 and beyond? “Right now, the overall wafer pricing environment is becoming more favorable to wafer suppliers due to demand increase. Supply is getting tight and the average selling price is rising compared to 1H21,” said Sungho Yoon, senior research manager at SEMI.

Nonetheless, silicon wafers are a fundamental part of the semiconductor business. Every chipmaker needs to buy them in one size or another, such as 200mm, 300mm and others. Silicon wafer vendors produce and sell bare or raw silicon wafers to chipmakers, who in turn process them into chips.

Suppliers of silicon wafers make different types of wafers, including epitaxial, polished, among others. Used for logic devices, epitaxial wafers consist of a monocrystalline silicon layer grown on the substrate. Polished wafers are used for memory. These require ultrapure substrates with flat and clean surfaces.

Shin-Etsu is the world’s largest silicon wafer maker with 29.4% share, followed by Japan’s Sumco (21.9%), GlobalWafers (15.2%), Siltronic (11.5%), SK Siltron (11.4%) and Soitec (5.5%), according to GlobalWafers. Several players from China also compete in the silicon wafer business.

In 2020, Germany’s Wacker announced plans to sell its 30.8% stake in silicon wafer maker Siltronic to Taiwan’s GlobalWafers. In effect, GlobalWafers will assume control of Siltronic. The deal must still be approved by various regulators.

The silicon wafer business is cyclical. During downturns, suppliers experience overcapacity, falling ASPs and red ink. Suppliers certainly enjoy the upturns, but these cycles are also challenging.

After a downturn in 2019, the silicon wafer market rebounded in 2020. Shortages appeared for certain wafers, namely epi. “In 2020, silicon wafer shipments grew 5% over 2019; however, silicon market revenue remained flat from 2019 due to soft pricing in the first half of 2020,” said Inna Skvortsova, an analyst at SEMI.

In early 2020, the overall semiconductor business looked bright, but the IC market dropped amid the Covid-19 pandemic outbreak. Throughout 2020, different countries implemented a number of measures to mitigate the outbreak, such as stay-at-home orders and business closures. But by mid-2020, the IC market bounced back, as the stay-at-home economy drove demand for computers, tablets, and TVs. And as a result, demand for chips skyrocketed. Demand for silicon wafers also increased.

Chip demand carried over to 2021. And chip shortages began to appear, which impacted the automotive, PC and the smartphone markets.

Silicon wafer demand is booming. Worldwide silicon wafer area shipments increased 4% to 3,337 million square inches in the first quarter of 2021 compared to the fourth quarter of 2020, topping the previous historical high set in the third quarter of 2018, according to the SEMI Silicon Manufacturers Group (SMG). First-quarter 2021 silicon wafer shipments saw 14% growth from the 2,920 million square inches logged during the same quarter last year, according to SMG.

Then, silicon wafer area shipments increased 6% to 3,534 million square inches in the second quarter of 2021, surpassing the historical high set in the first quarter, according to SMG. Second quarter 2021 silicon wafer shipments grew 12% from the 3,152 million square inches recorded during the same quarter last year.

In the first half of 2021, the silicon wafer market was a mixed picture. “The 300mm epitaxial wafer market was in a situation where the supply capacity remained insufficient. 300mm polished wafer demand has increased even though there was no shortage of supply,” SEMI’s Yoon said. “As for 200mm products, the total 200mm wafer shipments sharply increased in 1H21. This was driven by both strong foundry demand and inventory build-up. There was additional demand compared to the contract volume.”

Today, buyers of silicon wafers of many types face tight supply with rising average selling prices. “Moreover, major wafer suppliers cannot significantly increase the wafer supply due to limited cleanroom space, which could further support the 2022 wafer price trends,” Yoon said. “Also, additional LTA (long-term agreement) prices are needed for new foundry and memory fabs that will come online in the next two years.”

In the silicon wafer business, especially during boom times, customers sign LTAs to ensure they have a long-term stable supply of wafers.

Still, the question is clear: Are suppliers expanding their capacity to meet demand? “Major wafer companies have begun to seriously consider 300mm greenfield investments in order to cope with growing future demands, as shown in their earnings announcements by wafer makers such as Shin-Etsu and Sumco,” Yoon said. “Also, Siltronic officially said that they decided on the greenfield investment in Singapore last July. The bottom line is that top 5 wafer suppliers will expand 300mm epitaxial wafer capacity this year as part of brownfield investments. In the meantime, some suppliers besides Siltronic would start preparing for new cleanroom space, which is made possible by greenfield projects.”

Building new wafer capacity is risky. If vendors build too much capacity, they end up in a nightmarish position of having overcapacity and falling prices. But not building capacity is also problematic—a vendor could lose business.

Silicon wafer vendors have faced these and other challenges for decades. That won’t change anytime soon. It’s always been a demanding and difficult business.

By: Mark LaPedus