Due to the previous issue of high inventory levels in consumer electronics, the semiconductor market entered a bearish phase in 2022, and it is expected to decline by another 10% to 20% in 2023, as anticipated by former foreign analysts and current Hong Kong Juxin Capital Management Partner Chen Huiming, as well as former UBS Asia-Pacific Semiconductor Chief Analyst and Tencent Xu Investment Investment Chief Cheng Zhenghua.

However, with the improvement in consumer electronics inventory levels, the bottom should be reached in the first quarter of next year, and there is hope for a rebound in the second half of the year.

In the current sluggish consumer electronics market, the emerging industry of smart automobiles presents an incredibly bright future.

Zhang Yongwei, Vice Chairman and Secretary-General of the China Electric Vehicle 100 People's Association, stated that the demand for automotive chips is increasing, and it is estimated that by 2030, the penetration rate of intelligentization in Chinese automobiles will reach 70%. This will lead to an explosive growth in chip demand, with traditional automobiles requiring 300-500 chips per vehicle, electric intelligent vehicles requiring over 1000 chips per vehicle, and high-level autonomous driving vehicles requiring over 3000 chips per vehicle.

Furthermore, it is projected that by 2030, the market size of automotive chips in China will reach $29 billion, with a quantity of 100 to 120 billion chips per year, indicating a growing demand and a widening gap for automotive chips.

Lin Zhenming, head of the Automotive and Microcontroller Business Development Department at TSMC, revealed that, according to internal estimates at TSMC, the global market size of automotive semiconductors is expected to increase from $41 billion in 2021 to $85 billion in 2026, and to surpass $135 billion by 2030.

For smart automobiles, chips are undoubtedly an indispensable component. However, approximately 80% of automotive chips are manufactured using mature processes of 28nm or above, with only 20% using advanced processes of 14nm or below. Common automotive components such as MCUs and CIS typically utilize mature processes of 28nm, 45nm, and 65nm. Only a few automotive chips, such as those for autonomous driving, require advanced processes.

It is worth noting that Renesas Electronics, a major automotive chip manufacturer, aims to increase its supply of automotive MCUs, which are currently facing severe shortages, by 50% by 2023. TSMC's Kumamoto plant, which primarily utilizes the 28nm process, is favored by Renesas for this purpose. Renesas President and CEO Chiba Hideyoshi pointed out that Renesas is striving to expand the capacity of 28nm MCUs, and the Kumamoto plant will play a significant role in this effort. He also believes that the shortage of automotive chips will continue under the development push of electric and autonomous vehicles.

The continued shortage of automotive chips implies that there will still be a supply-demand gap in the future, and the demand for foundry capacity from automotive chip manufacturers will naturally continue to rise, including TSMC and other wafer foundries.

On December 14, UMC's board of directors approved a capital budget execution proposal with an estimated investment amount of NT$32.417 billion, continuing to expand the 28nm process at the company's Fab 12A in Southern Taiwan and Fab P3 in Singapore. UMC's layout in the automotive chip field this year has also made rapid progress, with multiple automotive chips under its belt already certified for the 28nm process.

Of course, it's not just TSMC and UMC that are expanding their 28nm process production. SMIC is also in the process of expansion, with four major projects including SMIC Shenzhen, SMIC Beijing, SMIC Shanghai, and SMIC Qingdao focusing on 28nm and above processes. Over the next five to seven years, the capacity is expected to reach approximately 340,000 12-inch wafers.

The global market for 28nm chips was $22.1 billion in 2019 and grew rapidly to $31.3 billion in 2021, with a high annual growth rate of 17.5%. Due to the sluggish consumer market, the growth in demand for 28nm node chips in terminal applications worldwide is expected to slow down in 2022. It is projected to experience rapid growth again by 2024. By 2027, the global market for 28nm node chips is expected to grow to $44.9 billion, with an average annual growth rate of 6.7%.

In fact, compared to other mature processes, 28nm has always had the lowest single transistor cost and is the limit of DUV lithography. The technological difficulty is far less than that of advanced processes, but the application prospects are very extensive, meeting the needs of various consumer electronics-related chips such as smartphones, computers, IoT devices. Moreover, after years of mass production, the relevant equipment in wafer fabs has long been fully depreciated, making it the undisputed "top student" in process technology.

This is why domestic manufacturers tend to focus on mature 28nm process chips. As long as leading companies can continue to innovate, there is no need for everyone to rush into high-process chips. After all, the mature market for low-end products also has a large demand.

However, there are many risks involved in increasing production capacity for 28nm chips in China. For example, due to the broad range of consumables involved in the production of 28nm wafers and insufficient domestic supply, there is a risk of material and consumable shortages in the future. There are also other risks, which everyone can discuss in the comments section．