Credit: Visual China

BEIJING, December 12 (TMTOST) – About 10,900 chip-related companies were shut down as of Monday, representing an 89.7% increase from the 5,746 companies closed in 2022,according to Qichacha., 65,700 new chip-related companies were registered, a 9.5% increase year-on-year.

On average, more than 31 chip companies are deregistered or revoked from business registration each day. Additionally, according to the TMTPost App editorial team's review, over the past five years, the number of domestic chip-related companies that have been revoked or deregistered has already exceeded 22,000.

The data only includes companies whose names, business scopes, or product names contain the keyword "chip."

Amid factors such as U.S. interest rate hikes, the continuous decline of the consumer electronics market, the economic decoupling, and the industry downturn, the domestic chip industry also finds it difficult to remain unaffected in the face of a major upheaval not seen in a century. According to the latest forecast by the World Semiconductor Trade Statistics (WSTS), the global semiconductor market size is estimated to reach $520 billion in 2023, a year-on-year decrease of 9.4%.

This means that the global chip industry is still in a downturn cycle, and companies are still facing significant challenges.

On December 8, 2023, TSMC (NYSE: TSM), the world’s leading foundry, released its monthly performance results, showing that in November this year, the company's consolidated revenue was about $6.539 billion, a month-on-month decrease of 15.3% and a year-on-year decrease of 7.5%. From January to November 2023, TSMC's total revenue was about $63.019 billion, a year-on-year decrease of 4.1%. TSMC expects that its sales for the fourth quarter will be between $18.8 billion and $19.6 billion, an increase of about 9%-13% from the previous quarter.

TSMC President Wei Zhejia recently said that 2023 is a period of inventory adjustment. Given external factors such as inflation and rising costs, there is still uncertainty in 2024. However, thanks to the rapid development of AI applications, 2024 will also be a year full of opportunities.

It is reported that TSMC's capital expenditure in 2024 may drop to $28 billion to $30 billion, a year-on-year decrease of more than 6.3%, potentially reaching a low point not seen in nearly four years.

Looking at the domestic market, according to Choice data from East Money, as of November 1st, 151 semiconductor listed companies have disclosed their third-quarter reports for 2023, achieving a total operating revenue of about RMB 352.3 billion, almost flat compared to the same period last year; the total net profit attributable to the parent company was about RMB 19.3 billion, a decrease of about 54% compared to the same period last year. Among these 151 semiconductor listed companies, 111 saw a year-on-year decrease in net profit attributable to the parent company, accounting for about 74% of the total number.

Take the AI chip design company Cambricon (688256.SH) as an example. According to its third-quarter financial report published in October, it achieved operating revenue of 31.3428 million yuan, a year-on-year decrease of 66.15%; the net loss attributable to shareholders of the listed company was 263 million yuan, compared to a loss of 322 million yuan in the same period last year. From January to September 2023, Cambricon's revenue was 146 million yuan, a year-on-year decrease of 44.84%; the net loss attributable to the parent company was 808 million yuan.

At the same time, the secondary market is also not optimistic, with intensified "involution" in the chip industry. Taking chip design as an example, according to data shared by Wei Shaojun, a professor at Tsinghua University and the chairman of the Integrated Circuit Design Branch of the China Semiconductor Industry Association, at ICCAD 2023, there are a total of 3,243 chip design companies in China this year, of which 1,910 companies have sales revenue of less than 10 million yuan, meaning that 55% of Chinese chip design companies have revenue of less than 10 million yuan.

Overall, although there are many domestic chip companies, they are all "small and scattered". Some analyses point out that among domestic semiconductor listed companies, 70% of them are profitable, the remaining 30% are at a loss, with overall net profit decreasing by about 54%, and 74% of the companies have seen a decrease in net profit.

Wei Shaojun stated that in 2023, most Chinese chip design companies will experience widespread losses. Inventory backlog is serious, and industry supply is saturated. Currently, some inventories are facing the risk of impairment, and as time goes on, the competitiveness of inventory products gradually diminishes, leading to inevitable losses.

Wei Shaojun pointed out, "The external suppression and containment of China's high-end chips are clear. The U.S. export control measures have listed the export of high-end chips as restricted items. They not only refuse to sell high-end chips to China but also restrict the production of high-end chips in China. On one hand, this has caused some trouble for China's supercomputers and artificial intelligence, which require high computing power chips, but on the other hand, it has also given Chinese chip design companies a rare opportunity to fill the market vacated by the voluntary withdrawal of foreign products. Many companies have realized this and have made great efforts, but their achievements in high-end chips are still modest."

"This reveals that our companies still need to further hone their skills in the market tide, improve their control over the market and demand, avoid blindly following trends, and reduce risks," Wei Shaojun said. It is necessary to calmly view the opportunities brought by domestic substitution and to encourage companies to seize these opportunities to reach a higher level, which is a serious issue. In fact, domestic substitution is not synonymous with low level but requires a high level of standards. For decades, a large number of electronic devices have mainly relied on imported chips. Now, suddenly switching to domestic chips presents a variety of challenges.

As one of the segments with the lowest rate of semiconductor localization, according to VLSI Research data, the Chinese semiconductor inspection equipment market is mostly occupied by manufacturers such as KLA, Applied Materials, and Hitachi, with market shares of 54.8%, 9.0%, and 7.1% respectively. According to estimates by Soochow Securities, in 2022, the combined sales revenue of domestic semiconductor inspection equipment manufacturers, including Micro-Tech Nanjing, Shanghai Micro Electronics Equipment, and Shanghai Ruiheng, was about 746 million yuan, corresponding to a market share of less than 3% in China, which is far lower than that of other segments such as stripping equipment, etching equipment, and film deposition equipment.

Furthermore, looking at import and export data, the domestic chip industry still faces uncertainties. On the import side, according to the General Administration of Customs, from January to November this year, China imported 437.6 billion integrated circuits (IC), a year-on-year decrease of 12.1%. In comparison, the import volume decreased by 13.1% in the first ten months, and the total import value decreased by 16.5% to 316.6 billion USD; on the export side, according to the National Bureau of Statistics, China exported 31.3 billion IC products in October this year, and from January to October, China's IC exports reached 276.5 billion pieces, a year-on-year increase of only 0.9%.

But "a flaw cannot obscure the splendor of the jade." Recently, the concentrated release of domestic chip products such as the Huawei Mate 60 series phones with domestic chips, the Loongson 3A6000 general-purpose processor, and ChangXin Memory's LPDDR5 memory chips are powerful examples. Relying on the support of the local supply chain will continue to drive the development of China's chip industry in the long term.

Currently, the chip industry is hoping for a "recovery" by 2024. According to Gartner data, global semiconductor industry sales are expected to increase by 16.8% to $624 billion by 2024. Among them, the storage chip industry is expected to grow by 66.3%. Additionally, with the demand for generative AI technology, it is projected that by 2027, the deployment of AI acceleration chips in data centers will increase by more than 20%.

Research firm IDC even predicts that the global semiconductor sales market will grow by as much as 20% in 2024.

IDC senior research manager Zeng Guanwei stated that the recent increase in storage chip prices and the demand for AI applications will drive the recovery of the overall global semiconductor sales market in 2024, and the semiconductor supply chain is also about to bid farewell to the sluggish 2023.

Lenovo Group Chairman and CEO Yang Yuanqing stated at the financial report meeting in late November that there are clear signs of recovery in the technology industry, and he expects the PC (computer) industry to return to single-digit growth in 2024, with an increase of less than 5% being definitely possible.

With the accelerated development of domestic chips, Hu Weiwu, chairman of Loongson Technology, predicts that by 2027, China's chip industry chain "bottleneck" issues should be fundamentally resolved.

(This article was first published on TMTPost App. Author | Lin Zhijia)