Top 10 Foundries Report Nearly 20% QoQ Revenue Decline in 1Q23, Continued Slide Expected in Q2, Says TrendForce

June 12, 2023 -- TrendForce reports that the global top 10 foundries witnessed a significant 18.6% QoQ decline in revenue during the first quarter of 2023. This decline—amounting to approximately US$27.3 billion—can be attributed to sustained weak end-market demand and the compounded effects of the off-peak season. The rankings also underwent notable changes, with GlobalFoundries surpassing UMC to secure the third position, and Tower Semiconductor surpassing PSMC and VIS to claim the seventh spot.

Declining capacity utilization rate and shipment volume contribute to widened revenue decline

The revenue decline in Q1 was primarily influenced by declining capacity utilization rates and shipment volume across the top 10 foundries. For instance, TSMC generated US$16.74 billion in revenue—marking a 16.2% QoQ drop in revenue. Weakened demand for mainstream applications such as laptops and smartphones led to a significant decline in the utilization rates and revenue of the 7/6 nm and 5/4 nm processes, falling over 20% and 17%, respectively. While the second quarter may see temporary relief coming from rush orders, the persistently low capacity utilization rate indicates that revenue is likely to continue declining, albeit at a slower pace compared to Q1.

Samsung witnessed a decline in both 8-inch and 12-inch wafer capacity utilization rates, leading to a staggering 36.1% Q1 revenue decline— the highest among industry players in the first quarter—down to US$3.45 billion. While there are sporadic orders for certain components in Q2, it is important to note that most of these orders are driven by short-term inventory replenishment rather than a strong signal of improved end-market demand. However, the introduction of new 3 nm products is expected to contribute to revenue in Q2, which will likely alleviate the rate of decline. GlobalFoundries reported Q1 revenue of US$1.84 billion, down 12.4% QoQ. Since the market turnaround in the second half of last year, Global Foundries has maintained stable operations due to strong demand from various sectors such as automotive, defense, industrial equipment, and government applications in the US. This consistent performance has allowed GlobalFoundries to surpass UMC and secure the third position in terms of revenue in Q1. Looking ahead to Q2, the company is expected to benefit from stable orders in industrial IoT, aerospace and defense, and automotive sectors, supporting capacity utilization and resulting in revenue levels similar to those in the first quarter.

UMC reported a Q1 revenue decline of 17.6%, amounting to approximately US$1.78 billion in the first quarter. This decline was particularly notable for 28/22 nm and 40 nm processes, both decreasing by at least 20%. The company’s capacity utilization rate for 8-inch wafers is projected to fall below 60% in 2Q23 due to a reduction in customer orders for PMIC and MCU. However, its 12-inch capacity utilization rate will benefit from urgent orders for 28/22 nm products such as Tcon and TV SoC—resulting in an estimated 80% utilization rate. UMC’s revenue is expected to remain steady or experience a slight increase next quarter given the stable ASP. SMIC posted US$1.46 billion in first-quarter revenue—a 9.8% QoQ revenue decline. Revenue from 8-inch wafers fell nearly 30%, while revenue from 12-inch wafers saw a slight increase of 1–2% due to a diverse product portfolio and support from domestic demand in China. SMIC is expected to benefit from the recovery of orders for particular products such as Driver IC and Nor Flash and will continue to reap the benefits of Chinese demand. Both shipment volume and capacity utilization rate are anticipated to improve, resulting in revenue growth.

Weak consumer product demand hits PSMC and VIS revenue hard

The foundry industry has been following a downward trend since the second half of 2022. Second and third-tier foundries, constrained by process technology limitations and high product overlap, face intense competition and lack bargaining power. As a result, their operating performance is more volatile in a declining market. In Q1, the most notable change from 6th place to 10th place rankings was Tower Semiconductor’s ascent to seventh place. The company, supported by demand from the European market, only experienced a relatively modest—in comparison to many other second and third-tier foundries—a quarterly drop of 11.7% (down to approximately US$360 million).

PSMC benefited from the replenishment of television-related LDDI inventory and experienced a 26% increase in revenue in its HV processes. Nevertheless, its other platform products such as PMIC and Power discrete continue to undergo inventory adjustments, and customer willingness to place orders remain cautious. The company’s Q1 revenue reached approximately $332 million, representing a quarterly decline of 18.7%. Similarly, VIS witnessed a recovery in wafer orders from both large and small-sized DDI customers as inventory levels approached healthy levels. However, PMIC wafer orders remained weak. VIS recorded a Q1 revenue of approximately US$269 million, reflecting an 11.8% quarterly decline. Other companies, including HuaHong Group, reported a Q1 revenue of around $845 million—down 4.2% compared to the previous quarter. DB Hitek’s revenue stood at US$234 million, experiencing a 20% QoQ decline.

TrendForce expects a continued decline in revenue for the top 10 foundries in Q2, although at a slower rate than in the first quarter. While supply chains are expected to gradually build inventory in response to peak season demand in the second half of the year, the accumulation of inventory and slow consumption have currently dampened customer attitudes toward stockpiling. Consequently, the overall production cycle of foundries in Q2 is expected to be more relaxed, with limited growth in capacity utilization rates. Only sporadic rush orders for products such as TV SoC, WiFi 6/6E, and TDDI are expected to drive any notable increase in utilization rates.

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