Compound Semiconductor

Since 2017, the National Development and Reform Commission has included compound semiconductor materials in the list of key products for strategic emerging industries. In January 2022, the '14th Five-Year Plan' for the development of the digital economy issued by the State Council further promoted the vigorous development of industries related to integrated circuits. With multi-dimensional support at the national strategic level, tax levels, and other dimensions, as preparation technology and equipment continue to be iteratively upgraded, and downstream demand continues to expand, compound semiconductor epitaxial wafers, as one of the core materials for semiconductor wafer manufacturing, are facing a long-term favorable development trend.

01

Definition and Classification of Semiconductor Materials

Semiconductor materials are the core materials for semiconductor wafer manufacturing, and according to their chronological appearance, they are divided into first-generation, second-generation, and third-generation semiconductor materials.

The first-generation semiconductor materials are single-element semiconductors, represented by silicon (Si), germanium (Ge), etc., mainly used in fields such as memory, CPUs, and solar cells.

The second-generation semiconductor materials are III-V compound semiconductors, represented by gallium arsenide (GaAs), indium phosphide (InP), etc., and also include ternary compound semiconductors such as GaAsAl and GaAsP. They are excellent materials for manufacturing radio frequency devices, lasers, detectors, and mini/micro LEDs.

The third-generation semiconductor materials are wide-bandgap semiconductor materials, represented by gallium nitride (GaN) and silicon carbide (SiC). They have broad application prospects in fields such as semiconductor lighting, charger chips, energy internet, high-speed rail chips, new energy vehicles, and consumer electronics. Different semiconductor materials have their specific characteristics and uses, and their common development drives the significant growth of the entire semiconductor industry. Among them, the second-generation III-V compound semiconductors have broad application prospects in fields such as consumer electronics, communications, data centers, new-generation displays, radar, and lidar, and are also one of the cores of semiconductor industry development.

02

Compound Semiconductor Industry Industrial Chain

The III-V compound semiconductor industry chain includes upstream substrate manufacturing, epitaxial processing, midstream wafer manufacturing, and downstream application fields such as radio frequency, LED, optoelectronics, and photovoltaics.

Substrate processing and epitaxy are key basic processes in the III-V compound semiconductor industry. As the foundation for compound semiconductor epitaxial layer production, substrates play a supporting and fixing role in wafers. After purchasing raw materials such as metallic gallium and high-purity arsenic, substrate factories use the LEC method, HB method, VB method, or VGF method to grow compound semiconductor crystals. After slicing, grinding, and polishing, the compound semiconductor substrates are formed and sold to epitaxy factories. III-V compound semiconductor epitaxy involves growing a single crystal epitaxial layer on a precisely processed single crystal substrate using MOCVD or BHE technology. This layer can be made of the same material as the substrate or different materials, thereby helping to enhance the flexibility and performance of device design.

In the midstream, wafer production operates under two models: foundry and IDM. In the radio frequency and optoelectronics fields, epitaxial wafer foundry is mainly used, while in the LED field, IDM mode is more commonly adopted.

At the downstream application level, III-V compound semiconductors possess good electronic mobility and saturation electron velocity, and are mainly used in fields such as radio frequency (RF) and optoelectronics. However, due to slight differences in operating frequencies and output power suitable for gallium arsenide and indium phosphide, gallium arsenide materials are currently mainly used in three fields including RF and optoelectronics, which are primarily LED-based. Currently, its application in the LED field exceeds 40% of the total. With the gradual maturity of Mini LED and Micro LED technology in the display panel field, it is expected that this proportion will increase significantly in the future. Indium phosphide is currently mainly used in the optoelectronics field, accounting for about 80% of the overall market. However, with the growth in demand for high-frequency RF devices in wireless transmission networks, indium phosphide is expected to further penetrate into RF device materials in the future.

Analysis of the industrial chain in compound semiconductor industry

Source: Analysis by Frost & Sullivan

03

Market scale of compound semiconductor epitaxial wafers in China

Looking at the market for epitaxial wafers of III-V compound semiconductors, represented by gallium arsenide and indium phosphide, the market size has been growing continuously due to the continuous expansion of gallium arsenide devices in downstream consumer electronics, imaging, lidar, and other terminal application fields. From 2018 to 2022, the market size for gallium arsenide epitaxial wafers in China increased from about 1.5 billion yuan to about 3 billion yuan, with a compound annual growth rate exceeding that of the global market, exceeding 15%.

According to Frost & Sullivan's forecast, driven by factors such as the construction of 5G base stations, the popularization of VCSELs in automotive lidar and mobile phone 3D facial recognition technology, and the expansion of application scenarios for Mini LED and Micro LED, the market size of gallium arsenide epitaxial wafers in China will continue to expand to nearly 8 billion RMB from 2023 to 2027, with a compound annual growth rate of about 20%.

Market scale of gallium arsenide epitaxial wafers in China, 2018 - 2027E

Source: Analysis by Frost & Sullivan

As indium phosphide epitaxial wafers continue to expand their applications in downstream fields such as 5G communications, data centers, and satellite communications, the market scale of indium phosphide epitaxial wafers in China has grown from about 300 million RMB in 2018 to over 500 million RMB, with a compound annual growth rate of about 15%, also exceeding the global overall growth level.

According to Frost & Sullivan's forecast, with the accelerated development of fields such as mobile communications, data centers, lidar, security surveillance, and smart grids, the market demand for indium phosphide optoelectronic and radio frequency devices is intensifying. The market scale of indium phosphide epitaxial wafers in China is expected to further expand by more than 15% annually to exceed 1.2 billion yuan between 2023 and 2027.

Market scale of indium phosphide epitaxial wafers in China, 2018 - 2027E

Source: Analysis by Frost & Sullivan

04

Opportunities for the Future Development of Compound Semiconductors in China

(1) 5G, military functionalization, and space industry drive demand in the RF domain

In the field of radio frequency (RF), the demand for RF front-end devices by 5G base stations and 5G mobile phones continues to drive the development of gallium arsenide RF components. Gallium arsenide has characteristics such as high frequency, radiation resistance, and high voltage tolerance, making it widely used in mainstream commercial wireless communications, optical communications, as well as advanced defense, aviation, and satellite applications. With the continuous evolution of mobile communication towards 5G, the application of gallium arsenide materials in RF devices will become even more widespread.

At the same time, indium phosphide has strong competitiveness in fields such as satellite communication, radar, optical fiber communication, wireless transmission, millimeter-wave, and radio astronomy due to its high-frequency low-noise characteristics and breakdown voltage. With the country's advancement in military intelligence and aerospace, the penetration rate of indium phosphide in high-frequency radio frequency devices will further deepen.

(2) Multi-faceted efforts in optoelectronic field applications

In the field of optoelectronics, the market for Vertical Cavity Surface-Emitting Lasers (VCSELs) has driven a surge in the production scale of gallium arsenide wafers and epitaxial wafers. Infrared lasers and sensors made of gallium arsenide feature high power density, low energy consumption, resistance to high temperatures, high luminous efficiency, and high breakdown voltage. With the development of 3D sensing technology, VCSELs have great potential in automotive LiDAR technology applications. Currently, VCSELs have entered large consumer markets such as mobile phones and automobiles, which is conducive to the sustained growth of the gallium arsenide market in the future.

At the same time, due to the high saturation electron drift rate and low light-emitting loss of indium phosphide epitaxial wafers, with the popularization of 5G technology and the development of data centers in the future, market demand for related fields such as optoelectronics and high-frequency devices will intensify, which also provides more application scenarios for indium phosphide epitaxial wafers. In addition, indium phosphide-based lidar will be deeply integrated into emerging high-speed development areas such as autonomous driving, smart infrastructure, and automated logistics chains. Sensors made from indium phosphide will also have ample development space in wearable devices such as health care and entertainment, as well as consumer electronics.

(3) Facilitating the expansion of LED display technology

In the field of LEDs, the emergence of Mini LED and Micro LED has also brought new demand growth opportunities for gallium arsenide. Mini LED and Micro LED are a new generation of LED display technology. Mini LED can significantly improve the existing liquid crystal picture quality while its cost is relatively easy to control. Micro LED, on the other hand, will bring about a qualitative improvement in image quality. It is expected that in the future, both will be more widely used in consumer electronics, wearable devices, automotive displays, and other fields.

(4) Gradually achieve import substitution

With strong support from Chinese policies and continuous accumulation by domestic enterprises in software and hardware technology, downstream customers, R&D innovation, etc., the localization rate is gradually increasing, leading them towards the international market. Although currently, the global III-V compound semiconductor epitaxial wafer market is mainly dominated by overseas manufacturers including IQE and Intertek, Chinese enterprises will further enhance their competitiveness and market share in the international market through methods such as increasing production capacity, product performance, strengthening brand building, and expanding product application fields. It is expected that by 2027, the proportion of gallium arsenide epitaxial wafers in the global market scale in China is expected to reach about 40%, while the proportion of indium phosphide epitaxial wafers in the global market scale is expected to reach about 20%.

(5) Continuous iteration of domestic equipment and technologies

The epitaxial methods for compound semiconductor wafers are typically based on Chemical Vapor Deposition (MOCVD) and Molecular Beam Epitaxy (MBE). The equipment used is mainly from foreign-funded manufacturers. However, with the gradual breakthroughs of Chinese enterprises in the field of epitaxial equipment and continuous improvement in preparation technology, a solid foundation has been laid for the development of the compound semiconductor epitaxial wafer industry. Among them, epitaxial wafers grown using MBE technology have significantly improved precision in controlling thickness and impurities. It is expected that in the future, they will further develop in the field of high-end chips.

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