China's share of the global semiconductor market continues to rise.

According to the statistics of China Semiconductor Industry Association and others, in 2017, driven by the impact of memory price increase and the demand of the Internet of things, the global semiconductor revenue was about 412.221 billion US dollars, a year-on-year growth of 16%.

Global semiconductor revenue is expected to reach $477.936 billion in 2018, achieving three consecutive years of steady growth.

Among them, China is the world's fastest growing demand region. Domestic semiconductor sales in 2017 amounted to $110.202 million, up 19.9% year on year.

With the further rise of 5G, consumer electronics, automotive electronics and other downstream industries, and the transfer of the global semiconductor industry to the mainland, China will continue to become the world's largest and most active semiconductor market. Semiconductor sales are expected to grow another 20 percent to 132.2 billion U.S. dollars in 2018.

Chinese integrated circuit market growth rate is the first in the world.

In 2016, the sales volume of Chinese IC was $62.498 billion, and in 2017, it was $82.815 billion, with a year-on-year growth of 32%, which is the fastest growing region in the global IC industry. It is expected to grow another 20% to $99.31 billion in 2018.

Statistics show that the average annual growth rate of IC industry sales scale in the 18 years since 2000 is 20.6% in China and 4.8% in the world. China's IC industry continues to expand, its share in the global market continues to rise, and it has become a major global consumer market.

The growth rate of China's semiconductor market was briefly lower than that of the world from 17Q3 to 18Q1, mainly because the domestic memory industry was still in the early stage of breakthrough, and the current round of semiconductor business was mainly driven by the memory industry, so the growth rate of the domestic industry was briefly lower than that of the world, but in the long run, the general trend of the increase of the proportion of China's semiconductor industry in the world did not change. Long-term growth will remain at a relatively high level.

The third industrial transfer, China's share of the increase. From the perspective of the history of semiconductor industry migration in China, each segment has experienced three stages: technology breakthrough, share increase and international leadership. After years of development, photovoltaic, display panel, LED and other pan-semiconductor industries have all reached the international leading level.

At present, semiconductor packaging and testing, IC design and other industries have a firm foothold and entered the period of share increase. In terms of semiconductor manufacturing, equipment and materials, we are making breakthroughs in related technologies, which is expected to repeat the road of industrial migration under the attribute of regional agglomeration.

We accelerated progress in spending on important instruments of the state

The demand for localization is rising rapidly, and breakthroughs are being made in various fields

Domestic situation: The self-supply rate is in urgent need of improvement, and the industrial chain layout is perfect

The growth rate of China's integrated circuit market is the highest in the world, and the development of the three industries is increasingly balanced. Although the self-supply rate of core chips is still low, the industrial chain layout is complete.

According to the China Semiconductor Industry Association, the sales volume of China's IC industry doubled from 250.85 billion yuan in 2013 to 541.13 billion yuan in 2017, making it the fastest growing region in the world.

But the core chip (such as computer system CPU/MPU, FPGA/EPLD/DSP, communication equipment embedded MPU/DSP, storage, display and video drivers) self-sufficiency rate is low.

According to the data of the Forward-looking Industry Research Institute, the self-supply rate of chips in 2017 is about 11.2%, and it is expected that 15% will be localized in 2020.

From the four aspects of design, wafer foundry, sealed test and equipment:

Fabless is the fastest growing among the three industries, and the gap of high-end products needs to be filled.

The sales scale of Chinese design industry increased from 300 million yuan in 1999 to 257.6 billion yuan in 2018, GAGR~ 42%. Memory, logic, analog, radio frequency, sensing, power semiconductor and other product lines and their subdivisions have layout, but high-end chips such as WIFI chip, Bluetooth chip, switch chip, FPGA chip and so on, the localization rate is close to zero.

To transform to high-performance and high-end products, to lead the upgrading of industry standards, and to obtain the most profitable key period in the product life cycle, is the future direction of IC design localization breakthrough direction.

Wafer foundry localization rate is the highest among the three industries. China's wafer foundries, represented by SMIC and Huahong Semiconductor, are gradually emerging. In the first half of 2018, SMIC and Huahong ranked fifth and ninth among the world's top 10 foundry companies with revenues of $1.728 billion and $433 million, respectively.

The new demand comes from the Internet of Things, automotive electronics, cloud computing, artificial intelligence, consumer electronics and other terminals, as well as the rise of local Fabless to promote the increased demand for wafer foundry services.

The local sealing and testing industry is growing rapidly and expanding its scale further.

According to the statistics of the Packaging Branch of China Semiconductor Industry Association, the sales volume of domestic integrated circuit testing industry increased to 181.66 billion yuan in 2017 from 152.32 billion yuan in 2016, with a year-on-year growth of 19.3%.

However, there is still a considerable gap in the level of advanced packaging technology and comprehensive technology, and the ability of independent innovation is still insufficient.

The domestic closed test industry chain is not very sound, the dependence on equipment and materials, equipment and materials to improve the level of localization.

In terms of equipment, global equipment sales exceeded $60 billion in 2018, with China ranking second only to South Korea with a market of $11.8 billion and a growth rate of 43.5%, according to SEMI.

The semiconductor equipment market is expected to reach 66.396 billion yuan in 2020.

At present, the semiconductor equipment market is still very dependent on imports, but from the perspective of industrial layout, the layout of domestic manufacturers is extremely perfect, covering almost all the major equipment needed in every link of semiconductor production and manufacturing process.

Drawing, lithography, deposition, etching, cleaning, testing, packaging and other links are covered by a number of domestic manufacturers.

Storage: The depth of major markets breeds key product breakthroughs

The tacit alliance of oligarchs

Under the oligarchic pattern, rational competition is expected to be maintained for a long time.

Taking DRAM as an example, Samsung, Hynix and Micron share more than 95% of the DRAM market. Considering the eight factors of market share, manufacturing process, cost, moat, market growth, downstream stability, capacity to expand production, and company caliber, we believe that the current oligarchy is still firm. The large probability of supply side will continue the current rational competition pattern, the possibility of blind expansion is less, and the relationship between supply and demand is expected to maintain a healthy structure for a long time.

The DRAM market is still dominated by Samsung, Hynix and Micron, with Taiwan manufacturers taking a niche route.

The market share of Samsung, Hynix and Micron was 43.6%, 29.9% and 21.6% in 18Q2. In terms of supply and demand, the supply and demand of DRAM industrial chain are excellent, and inventory replenishment is synchronized in Q2 off-season. For example, Nanya, a pure DRAM manufacturer, inventory replenishment is synchronized with revenue growth.

In terms of capacity, we estimate that the global average DRAM capacity will be 1250kWPM in 2018, up 7% year on year, based on regular reports and statistics from Gartner and other research institutions.

Samsung's production capacity of 460kWPM was increased by product mix optimization and the second floor of Pyeongtaek Plant 1. Hynix will increase its production capacity by 10% to 350kWPM on the basis of 325kWPM in M10/14 and Xi 'an plants by the end of 2017. However, due to the backward manufacturing process, Micron lacks the power to expand production, with a monthly production capacity of 345kWPM, increasing by 4%.

The bit growth rate of DRAM is slowing down. It is estimated that the bit growth rate of DRAM is ~20% in the whole year of 2018. The migration of 18Q2 value process is tackled. The progress of each storage leading manufacturer is slowing down to different degrees. The new factory is under construction.

Micron expects annual per-unit growth to hit a 12-year low. However, considering the release of new downstream smartphone functions in Q3 and the demand for cloud server DRAM, it is estimated that DRAM bits will grow by ~20% in the whole year of 2018.

In terms of CapEx, Micron calculates the annual digit growth rate over a decade. The CapEx required by unit bit growth rate continues to rise, and the gap between CapEx and bit output widens.

In 18Q2, Micron, Samsung and other CapEx strategies favored process migration and new product research and development, while Hynix and Nanya favored new plant construction and capacity expansion. Samsung spent $7.8 billion on DRAM in 2017, mainly on DRAM process transfer and capacity consumption to make up for the loss of process transfer, with a record amount and year-over-year growth.

DRAM makers are expanding at a slower pace, aiming to maintain profitability. Samsung had planned to use part of its production capacity in Hwaseong for DRAM and to build a new production capacity of ynmDRAm on the second floor of Pyeongtaek, but the expansion plan was never implemented.

Hynix's M14 capacity plan is focused on NAND production, with the additional DRAM mainly supplied by the Wuxi plant, which is not expected to provide revenue contribution until 2019.

Micron has not planned wafer expansion, instead focusing on bit growth and cost reductions as a result of technological advances.

Nanya also said in its corporate briefing that it would "continue to observe the increase of production capacity based on the increase of DRAM application demand," reaffirming the industry's focus on profitability.

In terms of manufacturing process, Samsung is still in an absolute leading position. The yield of 18nm, the main process, has exceeded 85%, and it is estimated that Samsung's internal proportion will be close to 50%, moving towards 70%. In December 2017, Samsung announced the official mass production of the second generation of 10nm 1Ynm8GbDDR4 chips, which improve performance by 10% and reduce power consumption by 15%, and reduce DieSize by about 30%.

At present, SK Hynix mainly uses 21nm process, which is estimated to account for about 70%, and the rest is 25nm process.

Due to limited factory space in 17 years, the 21nm process has no plans to increase the proportion again.

By the end of 2017, Hynix 18nm process will enter the mass production stage, and it is expected that 18nm process will be used to expand the production volume and proportion in 2018. Because the M10 factory is old, it will cause a large loss of wafer to switch to the 18nm manufacturing process. We think that the current focus is on the progress of Wuxi Phase II and the specific product and manufacturing process planning.

At present, the main process of Micron is still 20nm and 25nm. In 2017, Micron devoted itself to the conversion of 17nm process. However, in terms of the output particles of wafer, its 17nm process is only equivalent to Samsung's 20nm process, so it is relatively backward among the three big companies in terms of technology.

In terms of production capacity, it is basically full. The only plant with room left is the A2 plant of Taiwan Micron (formerly Ruijing). Although some machines have been stationed in this plant area due to the conversion of 17nm process, it is estimated that some space is still available.

Dachang's investment in plant expansion seems to be relatively conservative, and capacity expansion and even technology transfer will slow down.

Equipment: China will become the world's largest semiconductor equipment market

China will become the world's largest semiconductor equipment market, while the etching, deposition, cleaning, testing equipment to achieve domestic breakthroughs.

Compared with the quarterly decline of the global semiconductor market, the semiconductor equipment market in mainland China showed a booming trend. The sales volume increased quarter by quarter in the first three quarters, and the sales scale reached $2.6 billion, $3.8 billion and $4 billion respectively, with a corresponding year-on-year growth rate of 31%, 51% and 106%.

China's semiconductor equipment market is expected to maintain a growth rate of around 50% in 2019, corresponding to annual sales of over $17 billion, according to SEMI data.

The transfer of semiconductor industry to the east drives the rapid growth of China's equipment market

The global semiconductor equipment market is slowing down.

Global sales of semiconductor equipment reached $56.6 billion in 2017, up 37 percent from a year earlier, according to the Japan Semiconductor Manufacturing Devices Association.

However, since 2018, the global semiconductor equipment market sales have been declining quarter by quarter, the first three quarters of the total sales of $49.5 billion, Zhiyan forecast full-year sales of $60.1 billion, corresponding to a year-on-year growth of only 6%.

Mainland wafer factory construction wave driven equipment demand continues to grow.

According to the Forward Industry Research Institute, there are 12 companies and 15 projects with a total investment of 439.99 billion yuan, and more than 810,000 yuan per month of fabs under construction.

It is expected to contribute about 500,000 tablets per month in 2018.

Meanwhile, the Chinese mainland is expected to have 26 fabs up and running between 2017 and 2020, accounting for 42% of the global total, according to SEMI. The expansion and production of a large number of fabs will drive the demand for upstream semiconductor equipment, and is expected to open up development space for domestic equipment.

Comprehensive and complete layout, a number of equipment have achieved domestic breakthrough

We will introduce the equipment requirements from the semiconductor manufacturing process one by one, and analyze the localization situation. From the perspective of production process, chip production can be roughly divided into three parts: silicon wafer manufacturing, chip manufacturing, packaging and testing. Among them, silicon wafer manufacturing and chip manufacturing have higher technical barriers.

Semiconductor equipment market concentration is high, and most of the overseas leaders occupy the main share.

At present, the semiconductor equipment market is still very dependent on imports. From the perspective of the market pattern, there is a high concentration of market segments. There are generally no more than 5 major participating manufacturers, and the share of top3 is often higher than 90%.

Domestic manufacturers in all links required equipment field have a layout.

Although domestic semiconductor equipment is still relatively dependent on imports, but from the perspective of industrial layout, the layout of domestic manufacturers is extremely perfect, covering almost all the major equipment needed in each link of semiconductor production and manufacturing process.

Drawing, lithography, deposition, etching, cleaning, testing, packaging and other links are covered by a number of domestic manufacturers.

Etching equipment: China Micro Semiconductor and Naura have achieved domestic breakthrough. In 2017, the global etching equipment market scale was 4.2 billion US dollars, and the market space is expected to reach 5 billion US dollars in 2022, with a compound annual growth rate of 3.77%.

Lamm Research and Tokyo Electronics currently dominate the etching equipment market with 43% and 34%, respectively.

In terms of localization, NaURA and SMIC have developed etching equipment below 65nm, and some technologies are close to or even better than the international level, which is expected to fully benefit from the increased demand for etching equipment driven by process evolution.

In 2017, the global film preparation market was $12.5 billion, of which $8 billion was the deposition equipment market. The film preparation market is expected to reach $36 billion in 2025, with a compound annual growth rate of 14%. In terms of market pattern, AMAT occupies a dominant position with its CVD equipment

Market share of nearly 60%, PVD equipment market share of 76%.

In terms of localization, Naura has made breakthroughs in PVD, LPCVD, APCVD and PECVD equipment