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China flexes chipmaking
muscles
By Tony Sitathan
Overall demand for semiconductors in China
is set to grow almost 11% to US$34.3 billion by
2005, making it the largest regional integrated
circuit (IC) market in the world. ICs, also known
as computer chips, silicon chips or just "chips",
are solid-state electronic devices with at least
two interconnected semiconductor devices, mainly
transistors, embedded on them. The most advanced
ICs are microprocessors, which drive everything
from computers and cellular phones to digital
microwave ovens and personal digital assistants
(PDAs).
In China, IC production has not
been able to keep pace with supply, creating a
shortfall worth almost $20 billion, according to a
report from PricewaterhouseCoopers Global
Technology Center based in New York. According to
IC Insights' latest report, the 11% increase would
be well below China's recent annual IC market
growth rates, but it is still much greater than
the 2% decline forecast for the worldwide IC
industry this year.
From 2001 through
2004, the Chinese IC market registered a compound
annual growth rate (CAGR) of 46% as compared to a
14% CAGR for the IC market in the US during the
same time period. And in 2005, China is expected
to account for 20% of the world's $175.4 billion
IC consumption, up from only 8% in 2001. The
growth rate of Chinese IC production is predicted
to be very strong until at least 2010, when it is
expected to peak at $14.5 billion annually.
Despite this high growth rate, China-based IC
production would only represent 5% of the total
worldwide IC production forecast for 2010.
This has, however, not put a dampener on
the development of pure-play IC foundries in
China, which have been expanding at a 31% annual
rate, double the recent IC consumption growth rate
in China. What is catalyzing this growth in the IC
industry? The surge in sales of cell phones,
networking systems, PDAs, and other consumer
electronic devices, including digital TV sets, and
personal computers is the main driver.
In
absolute terms, IC foundries sold communications
ICs worth $4.2 billion globally in 2003. ICs going
into computers rose from $3.4 billion in 2002 to
$4 billion (up 18% year-on-year), and ICs in
consumer devices rose from $2.1 billion to $2.5
billion (up 17%) in 2003.
Although Chinese
technologies currently are two generations behind
the leading edge, by 2005 the leading
semiconductor foundries will have closed that gap
to just one generation, according to a report from
iSuppli, a market research firm covering the
electronics industry. In the first nine months of
2003, three new 200mm "fabs", or IC factories,
entered pilot production in China, built by
Advanced Semiconductor Manufacturing Co (ASMC),
Grace Semiconductor, and He Jian Technologies. Two
others are scheduled to begin production by the
end of 2005. While China has no 300 mm fabs in
operation, several analysts expect four to be
operational by 2007.
Who are benefiting
from China's rush to build ICs? Intel, for one,
has invested heavily in China. More than 10% of
Intel's yearly revenue of $30 billion comes from
China, the company's biggest customer base outside
the United States. Much of the chip industry
activity is taking place in the Pudong New Area in
Shanghai. The Shanghai government has invested
about $13 billion in Pudong's infrastructure.
China has also said that it plans to invest $10
billion in the semiconductor sector this year
alone.
Professor Zou Shichang, a
distinguished scientist, member of the Chinese
Academy of Sciences and chairman of Grace
Semiconductor Manufacturing Corporation, did not
mince words, saying that China would become the
epicenter of world IC manufacturing by 2010.
According to Prof Zou, due to the potentially huge
domestic market for IC design, manufacturing,
packaging and testing, China is seen as an
excellent choice for foreign companies looking to
establish a beachhead into the vibrant Asian
economy. And there is no better place to start
operations than Shanghai, considered the economic
center of China for many years. "Shanghai is home
to various supporting IC industries, and it has
good human resources support, because most of the
top universities are located there. The
development of the city has been seen recently as
top priority for China. Beijing, although the
political center, is not really suitable for the
semiconductor industry since there are problems
with water supply and the harsh climate," he said.
"I see great potential in all areas. For
instance, China is switching from analog TV to
digital TV. This will be a huge market; China is
estimated to have close to 300 million TV sets,
and most of them are making this switch from
analog to digital. The mobile phone market is
another hot market where China has to develop
chips for mobile phones," Prof Zou said. Handset
production was around 170 million in 2004, with
another 100 million or so units for the export
market. Domestic producers, such as Bird, Konka
and TCL, are looking to grab a larger percentage
of those exports. The mobile phone penetration
rate in China is around 24.5%, which is more than
the fixed-line phone penetration rate in the
country.
According to Prof Zou, China has
to break away from its model of being just another
low-cost manufacturing or assembly hub for foreign
companies setting up their operations to tap the
local market. "China has to cooperate with
international technology vendors and partners in
the use of core technology as well. There has to
be viable technology transfer if China is to
collaborate with technology partners in the long
term. Some countries are only looking at the
market share of their products in China, and they
do not want to export their core technologies," he
argued.
The IC market in China is
considered very stable and has been increasing
steadily year by year. Zou noted that China,
unlike developed-country markets which have
experienced sudden collapses in IC demand several
times in the last 20 years, has not experienced
any recessionary forecasts or dips in demand for
ICs, and none are expected either.
(Copyright 2005 Asia Times Online Ltd. All
rights reserved. Please contact us for information
on sales, syndication and republishing.) |
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