Is it the destiny of semiconductor giants to "decline"?

On one side, the clamor of Wolfspeed falling from grace has not yet subsided; on the other side, Intel's consecutive crises continue to spread, with declining performance, massive layoffs, product deficiencies, asset sales, and outsourcing... Since the beginning of this year, Intel's stock price has fallen by nearly 60%, making it one of the worst-performing chip stocks.

Despite its long-standing leading position, Intel's future operations are shrouded in gloom, possibly facing a "life or death crisis."

In the numerous transformations and reshufflings of the semiconductor industry over the years, with the continuous changes in the market and technology, industry giants that once dominated may fade in an instant, while emerging forces rise like mushrooms after the rain.

The semiconductor industry is like an endless race, with fierce competition and rapid changes, making every participant feel like they are moving forward in turbulent waters, where a slight misstep could lead to being engulfed by the waves.

The vicissitudes of life are always unpredictable. How have those semiconductor giants that once shone on the historical stage gradually fallen from their peak during the process of renewal and replacement?

Today, Intel, which is showing signs of decline, and those industry giants in the semiconductor industry who have fallen from their peak, how have they gradually fallen behind from their heyday, and what are the connections and entanglements between corporate destiny and the times? In the ruthless changes of the technological tide, is the past glory destined to become history? We attempt to explore some experiences from the past.

Intel: From Dominance to Decline

Intel is a flagship company in Silicon Valley. In the early 1970s, the semiconductor industry, represented by Intel, rose to prominence, giving the southern bay area of San Francisco the name Silicon Valley.

In 1978, Intel created the x86 architecture instruction set and had absolute control over the evolution of this architecture. x86 processors dominated almost all high-performance fields such as computers and servers.

In the mid-1980s, Intel and Microsoft joined forces to usher in the PC era, making Intel the undisputed giant of the global chip industry. Over the past few decades, Intel's x86 architecture CPUs have occupied the vast majority of the market share in PCs and servers.

In the 1990s, Intel once again became the world's largest semiconductor company, achieving $10 billion in annual revenue in 1994, thereby establishing an unshakable dominant position in the chip industry.

Through continuous product iterations, Intel gradually achieved dominance in the processor market for personal computers and servers.

At its peak, Intel owned 85.2% of the global CPU market, with x86 being the undisputed king among the three mainstream architectures.

However, for any company, when it reaches its peak, decline is quietly waiting for it in the not too distant future, and Intel is no exception.

With the development of mobile internet, Intel fell behind. On one hand, PC sales reached a bottleneck, while mobile chips led by smartphones became mainstream, with ARM architecture chips seeing continuous growth in shipments. Intel failed to secure a ticket to the mobile internet era.

As ARM rose, it not only gained ground in the mobile sector but also gradually challenged the x86 architecture in the PC and server fields. More and more major players such as Apple, Microsoft, Google, and MediaTek joined the ARM camp Currently, many major PC brands have launched ARM architecture laptops.

To add insult to injury, Intel's flagship processors have been plagued by a serious quality crisis. The 13th and 14th generation Raptor Lake desktop processors from Intel have been experiencing frequent blue screen crashes, with even issues reported in laptop chips. Intel only recently released a patch to address this, further raising doubts about Intel's technological capabilities.

In addition to PCs, Intel's stronghold - the server chip market, is also facing challenges. Former allies such as Amazon and Google have started developing their own server chips, posing a significant threat to Intel.

Furthermore, in 2022, NVIDIA also released its self-developed ARM architecture CPU Grace. This means that NVIDIA, the absolute leader in AI servers, may no longer need Intel's x86 chips in servers in the future.

It can be seen that after missing out on the mobile side, both the PC processor and server chip businesses are gradually being eroded by competitors, leaving Intel in a difficult position.

According to research firm Mercury Research, data shows that in the desktop computer sector, Intel's market share has declined from 80.6% to 77%, while AMD has risen to 23%; in the laptop computer market, AMD's market share has increased from 16.5% to 20.3%; in the server sector, AMD's market share has surged from 18.6% to 24.1%, showing the most significant growth.

This once darling of the computer era is now struggling in the AI era.

Missing out on investing in OpenAI is one of Intel's series of strategic mistakes in the AI era; on the other hand, although this former industry giant is continuously expanding, it has yet to launch a heavyweight AI chip product that can make a significant impact on the market.

Compared to the opponent NVIDIA with a market value of $2.6 trillion, Intel has been left far behind. NVIDIA's business has shifted from GPUs to AI chips needed to build, train, and run large generative AI models. Meanwhile, Intel, with a market value of less than $900 billion, lags far behind AMD, which exceeds $220 billion.

With the shift in market share, the profits of NVIDIA and AMD have far surpassed Intel. In 2021, Intel's revenue was three times that of NVIDIA; but by 2024, NVIDIA is expected to be twice that of Intel.

One of the main reasons for this situation of one rising while the other falls is the global wave of generative AI.

Due to starting late in the AI market, Intel failed to capture market demand, leading to disappointing performance. In early August, Intel's stock price recorded its largest drop in 50 years. This semiconductor leader that once led the world with the "Intel Inside" logo, despite seeking to revitalize its operations through layoffs, seems to face a challenging road ahead At the same time, under the influence of AI, the offensive of ARM and RISC-V architecture chips is very fierce, posing a new challenge to x86.

Betting on IDM 2.0, where is Intel's turning point?

On the other hand, after entering the 28nm process node, Intel started to struggle, staying stagnant in the process technology, moving forward too slowly. Meanwhile, TSMC and Samsung made rapid progress after 28nm, leaving Intel far behind.

At that time, with the rise of smartphone chipsets, Intel failed to seize the opportunity and handed over a large market share to Qualcomm, MediaTek, and others. At the 28nm process node, Intel was surpassed by TSMC, losing a large number of orders.

Due to its outdated chip technology, in the PC processor market, AMD's Zen architecture, using TSMC's advanced process technology, gained a significant advantage over Intel, leaving Intel almost powerless to fight back.

Realizing the problem, Intel finally couldn't sit still and started to focus on process technology. With the return of Gelsinger, Intel launched the IDM 2.0 transformation strategy, setting a goal of crossing five process nodes within four years. While rapidly improving its process technology, Intel also started manufacturing chips for other companies.

With ambitious plans, Gelsinger plans to invest a total of hundreds of billions of dollars over the next ten years to build chip manufacturing plants, adopt the latest industry process technology, revitalize Intel's technological advantage in the chip field, and become the world's second-largest chip foundry after TSMC by 2030.

However, the IDM 2.0 strategy is not an overnight success. After three and a half years in office, Gelsinger has invested nearly $60 billion in upgrading chip manufacturing equipment and building factories, but the foundry business has not yielded significant results, making minimal contribution to Intel's financial reports. In the global chip foundry rankings for the fourth quarter of last year, Intel did not even enter the top ten in the industry.

Industry experts believe that Intel's pace of expansion in wafer foundry may be too aggressive.

During this process, due to fierce competition in the PC and server chip markets, Intel's revenue actually decreased by $24 billion in 2023 compared to 2020 before Gelsinger took office. With a significant decline in revenue, Intel needs to invest nearly $20 billion annually to advance Gelsinger's transformation strategy. Even for the chip giant Intel, it is difficult to bear such a heavy financial burden, leading to huge losses.

According to financial data, after successfully launching products at the two key nodes of Intel 7 and Intel 4, Intel reported a net loss of $1.6 billion in the second quarter; by the end of the second quarter, Intel had $11.3 billion in cash and cash equivalents, with debts as high as $32 billion. In the eyes of Wall Street investors, Intel may already be a fading star in the chip industry, as major global investment banks quickly lower their expectations for Intel In short, Intel's performance in the second quarter is not just a simple case of poor financial results, but reflects the challenges this chip giant is facing in multiple business areas.

To continue advancing its transformation strategy, Intel has announced significant cost-saving measures, aiming to save $10 billion in costs by 2025. In order to reduce costs, Intel has stopped dividend payments for the first time in thirty years and plans to globally lay off 15% of its workforce, resulting in at least 15,000 job losses.

It is evident that Intel has no way out and needs to cut all unnecessary expenses to continue investing its valuable operating funds into its core chip business, in order to make Intel's chip factories truly competitive and win customers from competitors.

In this cash-burning battle, Intel is deeply tied to the U.S. government's chip security strategy. In other words, the U.S. government will not stand by and watch Intel's IDM 2.0 strategy fail.

In 2022, the U.S. government plans to invest over $39 billion through the "Chip Act," encouraging chip companies to establish chip factories in the U.S., rebuilding America's leading position in the chip industry, and considering it as one of the U.S. national security strategies. Intel is a major driver of this act and stands to benefit the most.

Kissinger believes that the IDM 2.0 strategy is Intel's only way to restore its former glory. This path will deplete almost all of its resources, but Intel seems to have no other choice.

Intel's current precarious situation is not the result of a day, but the culmination of years of strategic mistakes.

Intel's management has to admit that after missing the mobile era, they did not fully benefit from the AI wave, with core business continuing to decline, requiring constant investment in new chip manufacturing businesses, leading to huge losses.

In the midst of financial difficulties and a competitive crisis, Intel is currently discussing various solutions with investment banks, with the main goal of divesting non-core businesses and adjusting capital expenditures to revive the company's leadership position in chip manufacturing.

It is rumored that Intel may split/suspend its wafer foundry business unit and sell the Altera FPGA division, as well as significantly reduce unnecessary capital expenditures.

The rumored division to be sold, Altera, was acquired by Intel in 2015 for $16.7 billion and became Intel's Programmable Solutions Business Unit. However, in March of this year, the division was renamed as Altera as a new company.

At that time, Intel envisioned introducing new investments while maintaining absolute control over Altera, expecting to drive the company to an IPO in two to three years. However, this move may have already laid the groundwork for Intel's financial resource constraints.

At the same time, this plan also exposes Intel's shortcomings in the field of AI. The acquisition of Altera was once the largest in Intel's history and was seen as an important department in the FPGA field to boost the company's artificial intelligence development From the perspective of the FPGA market, Altera and Xilinx together account for 90% of the market share. The latter was acquired by AMD in 2020, and its valuation soared to $50 billion in 2022. However, Intel and AMD have yet to compete in the FPGA field, and Altera is facing the risk of a change in ownership.

On the other hand, analysts believe that the decision to split or divest Intel's semiconductor foundry business unit will not be realized in the near future. Before making this major decision, Intel will first make some more moderate adjustments to reduce expenses. This business has always been considered a key business for Intel by Kissinger, crucial for Intel to regain its position in the chip manufacturing industry, and hopes to eventually compete with companies like TSMC.

During this turbulent period, Intel's semiconductor veteran Chen Liwu unexpectedly resigned, casting a shadow over Intel's future.

However, regardless of the various measures and rumors mentioned above, Intel may have to accept a thorough restructuring from architecture to concept.

Intel is unable to catch up with NVIDIA and AMD in the AI field, and its traditional areas of strength are facing encirclement by new competitors. Currently, Intel is hoping to regain market share through semiconductor foundry and AI chip dual-line combat. In addition to "cutting back" to buy time, it is unknown whether they will seek more assistance or cooperation plans in the future.

In short, this veteran chip company in the midst of a major transformation still has many tough battles to fight.

ADAS leader Mobileye: Early bird catches the late bus

Founded in Israel in 1999, Mobileye went public in New York in 2014 and is undoubtedly a global "elder" in autonomous driving chips.

In 2017, Intel showed sincerity by offering $15.3 billion to acquire this autonomous driving company, subsequently triggering a global craze for "servers on wheels."

Over the past 20 years, based on visual perception technology, Mobileye has launched a series of solutions composed of algorithms + EyeQ series chips. Undoubtedly, Mobileye can be said to be a major pioneer and leader in the era of automotive ADAS. Data shows that around 2019, Mobileye's ADAS business once accounted for up to 90% of the global market.

However, expanding territory is easy, but defending the city is extremely difficult.

Being an early bird did not allow this "big brother" to take full advantage of the first-mover advantage and absolute dominance. Instead, over time, it has become more and more replaceable.

In recent years, as the market has upgraded from assisted driving to autonomous driving, Mobileye has gradually fallen behind. Its original "chip + algorithm" solution can no longer meet the needs of car manufacturers and autonomous driving companies. Its computing power is inferior to competitors like NVIDIA, and its closed algorithm cannot meet customers' differentiated requirements. Problems such as slow algorithm iteration, long update cycles, and falling behind in single-chip computing power have pushed car manufacturers into the arms of its competitors Many OEMs have changed their suppliers to NVIDIA, Qualcomm, Horizon Robotics, Black Sesame Intelligence, etc., and the L2 systems installed in mass-produced vehicles are increasingly aligning with the L4 autonomous driving technology architecture. The era belonging to Mobileye is coming to an end.

In summary, it is roughly a story of a former ADAS leader who missed the first-mover advantage at the beginning of intelligent driving, continuously lost customers, and struggled to break through under the siege of new players. From the earliest Tesla to later BMW, Li Auto, etc., new names continue to be added to Mobileye's list of lost customers. Looking at it now, whether it is high-end supervision or basic ADAS, Mobileye's decline has not been truly curbed.

Computing power, black box mode, product iteration cycle, etc., all have become straws that overwhelm Mobileye.

Even though they have now realized the problem, the slow steps of Mobileye will only make it increasingly difficult in the autonomous driving market. On one hand, in terms of high-end products, NVIDIA, with its hardware and open ecosystem advantages, is becoming a common choice for domestic car manufacturers, and the development model based on NVIDIA's underlying software and hardware is gradually solidifying; on the other hand, local players represented by Horizon Robotics are also expanding their territory, squeezing Mobileye's living space. In addition, there are strong players like Huawei, who are expanding aggressively in a new posture. There is not much cake left for Mobileye.

Although Mobileye has long been spun off from Intel and listed independently, its heyday is a thing of the past and is not enough to sustain the market's long-term confidence in it.

Mobileye disclosed a series of worrying data in its Q2 2024 financial report. Mobileye's revenue in Q2 2024 was $439 million, a 3% year-on-year decrease. It increased compared to Q1 but the overall trend is not optimistic. The net loss reached $86 million, more than double compared to the same period last year, and the adjusted net profit was $76 million, a 44% year-on-year decrease.

In the past few months, Mobileye's stock price has fallen by nearly 50%, and since the beginning of this year, it has fallen by nearly 65%.

As the former automotive ADAS leader, Mobileye has not been able to thrive in the market, but instead has experienced a series of devaluations in the face of wolves, which is inevitably lamentable.

Toshiba, a microcosm of the decline of Japan's semiconductor industry

Toshiba is not only a household appliance giant in Japan but also one of Japan's largest semiconductor manufacturers.

Founded in 1875, from the earliest incandescent lamps to later home appliances, Toshiba's business gradually expanded to include consumer products, information communication, semiconductors, etc., and it was listed on the Tokyo Stock Exchange in 1949. It has long been an important member of the world's chip manufacturers.

From a behemoth with absolute dominance in industries such as home appliances, semiconductors, and computers, to being "dismembered" and sold off, from a behemoth to struggling operations, what has Toshiba experienced in between? The decline of Toshiba can also be seen as a microcosm of the decline of Japanese manufacturing.

After World War II, with the support of the United States, Japan quickly rose to power. The United States handed over a large number of technology orders to Japan to help the country rapidly recover its economic level.

At the beginning of the 1980s, Japan surpassed the United States to become the world's largest semiconductor producer. Companies like NEC, Toshiba, and Hitachi monopolized the top three positions in the global semiconductor industry. Especially in the DRAM memory field, Japan held an 80% market share globally.

On the other hand, American companies led by Intel suffered losses year after year and had to close many factories. The United States would not allow its technological leadership to be surpassed, so it began anti-dumping lawsuits against major Japanese semiconductor manufacturers and signed semiconductor cooperation agreements with Japan, increasing tariffs in its own country.

By the end of the 1980s, Japan entered a 30-year period of economic decline, exacerbated by multiple pressures on the semiconductor industry from the United States. Eventually, in the 1990s, Japan lost its position as the global leader in semiconductor sales to Intel.

However, even so, Toshiba remained in the top 5 globally after the 1990s. In 2000, Toshiba's semiconductor sales were second only to Intel, ranking second in the world.

But this also marked the end of Toshiba's glory. Since the 21st century, as the global semiconductor industry shifted production to low-cost countries like China and South Korea, Japan's competitive advantage gradually weakened. Meanwhile, under pressure from companies like TSMC and Samsung, Toshiba's market share continued to decline.

With poor business performance, Toshiba resorted to financial fraud to maintain a facade of prosperity.

In 2015, Toshiba was exposed for financial fraud over the past eight years, plunging into a crisis of public opinion and finance. This led to a collapse in reputation, a sharp drop in the stock market, and subsequently recorded an annual loss of 8.8 billion yen. To cover the losses, Toshiba had to sell off its businesses directly, leading to the collapse of the once mighty enterprise.

In 2016, Toshiba sold its white goods business to Midea Group; in 2017, Toshiba transferred 95% of its stake in its Imaging Solutions Company (TVS) to Hisense Group.

In 2018, the beleaguered Toshiba shifted its focus to its only profitable semiconductor business at the time. It sold 49.9% of its core memory business to a consortium of companies, including Bain Capital from the United States, for approximately 2 trillion yen. Renamed Kioxia in 2019, it is now one of the major producers of NAND Flash memory globally.

However, due to the downturn in the global memory market, Kioxia has experienced significant losses for three consecutive quarters in 2023, resulting in a financial deficit. Merger talks between Kioxia and Western Digital have also ended in failure.

Nevertheless, Toshiba, which has been selling off assets for many years, has still not been able to solve its problems As a giant in the Japanese corporate world, Toshiba has always been a globally renowned electronics manufacturer, with significant influence in areas such as home appliances, electrical equipment, energy, infrastructure, and semiconductors. It has once created many "Japanese firsts", and its products are even considered synonymous with high-quality products in the market.

However, after a period of stumbling blindly, what remains is endless sighs.

After experiencing a series of events such as the collapse of the Japanese electronics industry, intense market competition, financial fraud, losses in nuclear power, and the sale of core businesses, Toshiba's management became increasingly inept and chaotic. In 2023, it accepted an acquisition invitation from the JIP consortium, ultimately embarking on the path of delisting for "redemption".

Now, after going through a series of capital market maneuvers and nearing completion of privatization, Toshiba will uphold the principle of "doing the right thing" and shift its focus to infrastructure, motors, and semiconductor fields.

Qimonda AG, the Rise and Fall of European Storage

When it comes to companies that rapidly declined from their peak, there is one name that is familiar to many - Qimonda AG, a new memory company spun off from Infineon on May 1, 2006.

On August 9 of the same year it separated from its parent company Infineon, Qimonda was listed on the New York Stock Exchange, becoming the fastest memory product company to go public in the wave of memory company separations.

After going public, Qimonda embarked on a two-year frenzy.

In 2006, Qimonda was a global leader in DRAM, a leader in 300mm wafer industry, and one of the largest suppliers of DRAM products for personal computers and server markets. At the same time, it had global partners and foundry partners such as Nanya and Winbond.

In September 2006, Qimonda collaborated with Nanya to launch 75nm DRAM trench technology, further reducing chip size.

In 2007, as a global DRAM giant, Qimonda's business focused on DRAM memory modules, memory chips for computer graphics cards, consumer-grade DRAM memory, and high-speed DRAM cache in mobile storage devices - these businesses once accounted for 90% of Qimonda's revenue. At that time, Qimonda had five 300mm wafer production bases in Europe, Asia, and North America, operating five global research centers including the Qimonda Xi'an R&D Center, enjoying unparalleled success.

In November 2007, Qimonda released the GDDR5 white paper, and its GDDR5 memory production equipment had been mass-produced - at a time when the world's mainstream memory chips were GDDR4, this was a significant advancement for Qimonda, which was determined to skip GDDR4 and directly adopt GDDR5.

In February 2008, Qimonda became the first in the world to announce a breakthrough in 30nm process memory, introducing embedded technology. This technology was also a crucial milestone in the history of DRAM development, as Qimonda redefined DRAM technology as "embedded" and "stacked" However, the world is ever-changing.

According to data, in the first half of 2008, Qimengda's revenue was 925 million euros, a year-on-year decrease of 57%, with a net loss as high as 1.058 billion euros. In the first half of the 2007 fiscal year, Qimengda still had a considerable net profit of 335 million euros.

In other words, within a short year, Qimengda transformed from a company with a semi-annual profit of over 300 million euros to a company with a net loss of over 1 billion euros, a profit decline of over 300%.

Looking back now, Qimengda's collapse began with "internal and external troubles".

In terms of the era background, in 2008, the United States experienced a financial crisis, and its huge impact quickly spread from the U.S. stock market to European companies listed in the United States, among which Qimengda was a German company listed on the NYSE.

Storage price collapse: Secondly, the underperformance of Windows Vista. In November 2006, Windows Vista was officially launched. In Qimengda's 2006 financial report, it was expected that the launch of Vista would drive 20% growth in DRAM. However, due to the vulnerability issues of the Vista operating system, sales fell short of expectations, causing an oversupply in the DRAM memory market, leading to a significant price decline.

By the end of 2007, the price of DRAM had dropped to only one-fourth of the same period in 2006. In 2008, with the outbreak of the financial crisis, the price of DRAM plummeted even further. The price of DRAM chips dropped from $2.25 to $0.31, while the material cost for DRAM manufacturers was $0.6-0.7, and the cash cost was around $1.4. Coupled with Qimengda's already high costs, leading to high market prices, the first to be affected by the market price collapse were Qimengda with high production costs and high market prices.

Intensified market competition: Represented by Samsung, Korean memory manufacturers have had three famous countercyclical investments in the memory development process, with the most severe one in 2007.

In 2007, Samsung used 118% of its total profit for DRAM expansion, increasing the supply chain of the CRAM market, and initiating a price war by increasing capacity to deliberately cause industry losses. The price of DRAM fell below cash cost in mid-2008 and even below material cost by the end of the year.

With the market plummeting and the support of the Korean government, Samsung's countercyclical large-scale investment and expansion further worsened Qimengda, which was already in a supply-demand imbalance.

Total collapse: The final straw that crushed Qimengda came from the German government's abandonment. Compared to South Korea, Germany chose to abandon Qimengda in dealing with its dilemma.

Public information shows that in March 2008, Qimengda was negotiating with Nanya Technology about their joint venture DRAM factory, JV Inotera Memories Inc., with Nanya hoping to take over 35% of Qimengda's shares. However, just a few days before this, Nanya reached an agreement with Micron to establish a joint venture, leading to the breakdown of negotiations with Qimengda In October, Qimonda officially broke up with Nanya Technology, and Micron acquired Qimonda's entire stake in Inotera for $400 million, making Inotera a joint venture between Nanya Technology and Micron.

After the breakup, Qimonda applied for a loan from relevant German authorities for the first time to renovate its wafer fab in Dresden to enable it to produce chips with the latest process technology, as well as to pay off debts to Inotera. At this point, Qimonda had been losing money for several months but still publicly stated that the company's cash flow was good.

Subsequently, Qimonda announced a plan to lay off 3,000 employees, which undoubtedly heightened investors' concerns about Qimonda's market performance and expanded to concerns about the imminent shrinkage of the German job market.

On November 26, unable to sustain itself, Qimonda once again applied to the German government, Infineon, and the State Bank of Portugal for €325 million to weather this wave of economic crisis and the DRAM industry downturn.

Just when almost everyone believed that the German government would contribute to saving this last remaining European memory company, Infineon, as the parent company and major shareholder, rejected the German government's funding plan. Subsequently, the German government chose to abandon Qimonda at the last moment.

On January 23, 2009, without the awaited financial assistance, Qimonda had no choice but to declare bankruptcy. The once shining star of European memory, Qimonda, came to an end in just 3 years.

At that time, the global monthly average DRAM wafer input was about 920,000 wafers, with Qimonda's 12-inch wafer fabs in Germany and the United States producing about 60,000-70,000 wafers, plus Powerchip's foundry capacity. Qimonda's global monthly production capacity was about 80,000-90,000 wafers, estimating Qimonda's global market share to be close to 10%, ranking fifth in the world.

On April 1, 2009, Qimonda officially entered bankruptcy liquidation proceedings.

The decline of Qimonda cannot be simply attributed to operational and technical issues alone.

According to the information disclosed by Powerchip, the foundry for Qimonda, the 65nm process left by Qimonda was competitive for 2-3 years at that time, meaning it could support two generations of process updates. Qimonda also had a more advanced 46nm process technology ready, but Qimonda did not wait for the construction and operation of the new production line.

The main reason for this was actually more about financial difficulties and the government's refusal to provide assistance.

In contrast, Samsung and SK Hynix, in 2008, with government support, invested 118% of their total profits to expand production; SK Hynix also followed Samsung's counter-cyclical large investment, spending $26 billion to build two new memory factories in South Korea, with funding led by the South Korean government and loans from the state-owned bank KEB Bank.

It can be seen that Samsung and SK Hynix's "counter-cyclical investment" was a result of South Korea's national efforts to develop the memory industry, which led to both companies having a market share of over 70% in the memory market.

The decline of Qimonda left Europe without a major memory manufacturer. Recently, Infineon settled with Qimonda for $840 million, ending a 14-year compensation dispute. With everything settled, there may be no more news of Qimonda in the future.

UMC/Globalfoundries, the downfall of wafer foundry giants

UMC and Globalfoundries are the fallen giants in the wafer foundry industry.

UMC is the second largest wafer foundry in Taiwan, while Globalfoundries, established in 2009 after the spin-off of AMD's wafer manufacturing department, is the world's second largest pure wafer foundry. Both companies are among the second-tier wafer manufacturers globally, following only TSMC.

However, as Moore's Law reaches its limits, advanced processes have become a game only the wealthy can afford to play. The investment required for advanced processes is huge, and the risks are also exceptionally high, leaving few players in the industry.

In August 2018, UMC announced the abandonment of R&D for processes below 12nm, no longer pursuing market leadership but focusing on improving the company's return on investment. Around the same time, Globalfoundries also announced the abandonment of 7nm LP process development, reallocating resources to 12nm and 14nm.

Since then, there are only three companies globally developing and producing 10/7/5/3nm processes: TSMC, Samsung, and Intel.

However, UMC and Globalfoundries, which gave up advanced processes, continue to see their market share squeezed. For example, AMD, which was once part of the Globalfoundries family, has now fully switched to TSMC. Both UMC and Globalfoundries have acknowledged that the speed at which customers are transitioning to processes below 10nm has exceeded expectations, leading to unfavorable company situations and prospects.

A recent report by research firm Counterpoint stated that the global wafer foundry industry revenue has grown due to strong AI demand. According to Counterpoint Research's "Wafer Foundry Quarterly Tracker" report, global wafer foundry industry revenue in the second quarter of 2024 increased by approximately 9% quarter-on-quarter and 23% year-on-year.

According to the report, in the second quarter of this year, TSMC ranked first in the global chip foundry industry with a market share of 62%, Samsung with 13%, SMIC and UMC tied for third with 6% market share each, Globalfoundries with 5%, and Hua Hong with 2%.

It is worth noting that the recovery speed of wafer foundries and semiconductor markets in mainland China is faster than that of global peers. Counterpoint stated that Chinese mainland wafer foundry companies such as SMIC and Hua Hong have announced strong quarterly performance and positive guidance, as customers without wafer fabs in mainland China entered the inventory adjustment phase earlier than their global counterparts.

SMIC's quarterly performance is strong. For the third quarter, SMIC has given revenue guidance of 13%-15% quarter-on-quarter growth, mainly driven by the recovery in demand in the Chinese market, as well as the rebound in CIS, PMIC, IoT, TDDI, and LDDIC demand SMIC's 12-inch wafer demand has also improved, with an increase in average selling price (ASP) after semiconductor customers replenished wafers. SMIC maintains a cautious optimism towards the full-year revenue growth, and capacity utilization will further increase.

In contrast, UMC and GlobalFoundries both saw a 1 percentage point year-on-year decline in market share in the second quarter.

At that time, UMC and GlobalFoundries' decision to give up advanced processes may have been correct, but looking at the current market situation, they still miscalculated and are now beginning to taste the consequences of their abandonment.

In the future, as process technology continues to shrink, more and more customers will choose to shift to more advanced processes to obtain higher performance, lower power consumption products, reduce chip size, and lower costs. In the mature process market in China, there is a strong impact from local wafer foundries.

In conclusion, UMC and GlobalFoundries are starting to feel the loss of customers, with market share gradually being squeezed by SMIC.

Final Thoughts

Behind the decline of any giant, there are multiple reasons.

From the transition of the above-mentioned companies from prosperity to decline, we faintly sense that once the era changes, technological innovations occur, and industries undergo sudden changes, some business giants will quickly fall.

Emerging markets are always evolving, industry demands are constantly emerging, and the business world is ever-changing. The cycle of rise and fall fate continues to replay on the giants.

However, one thing is clear, whoever can firmly grasp the two key keys of technology and innovation is more likely to stand out in fierce competition, establish a foothold in the tide of the times, and become a winner in that phase.

But, no one should think they are secure.

Author: Semiconductor Industry Observer, Source: Semiconductor Industry Observer, Original Title: The Fate of Semiconductor Giants?