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Asian market: No longer the dark horse

Posted: 03 Jan 2005 ?? ?Print Version ?Bookmark and Share

Keywords:growth? trend? outlook? market? demand?

With much optimism, the year 2004 was considered as a defining year for the asia.com/ART_8800454080_480100_NT_5f6a1f7e.HTM" title="India design industry to grow 20% until 2010" target=_blank>semiconductor industry. The increasing penetration of wireless services, the consistent growth in electronic content per household and the upsurge in electronic consumption in automobiles, to name a few, are positive indicators signaling the start of a promising period for the global semiconductor industry. Not alien to this trend, the Asian semiconductor industry is riding on a strong wave with a multitude of factors contributing to the upswing in the market and economy.

Asia has evidently risen from being a wild card to a strong contender. In 2004, we witnessed heightened foundry activities in the move to next-generation process technologies. For example, TSMC and UMC made significant developments in their transition to 90nm technology. These foundries have inked some important fab contracts with leading ASIC and FPGA companies such as Altera Corp. and Xilinx Inc. Clearly, these foundries have helped in enhancing the Asian economy.

Tsunami in the East

The growth witnessed by China markets is every statistician's dream graph, a consistent uptrend in the past three to four years. China is dubbed as the fastest growing semiconductor economy in the world today, the world's single largest mobile phone market, the second largest PC market, one of the top three economies of largest electronics consumption globallythe list goes on. The country's semiconductor demand that was a mere 4 percent of the global demand in 1999 has risen to well above 10 percent in 2003, a manifestation that a new player in the global semiconductor market has emerged.

China has enjoyed significant inflow of investments, being the world's largest recipient of foreign direct investment, though a less impressive fact is that only a small fraction of this investment reaches the capital-sensitive semiconductor industry. Most investments in semiconductors are directed toward manufacturing fabs such as SMIC, depriving startups of the much-needed capital. While local IC manufacturing volumes in the mainland have increased in the past three to four years, they still cater to only about 65 percent of demand from consumer electronics, less than 30 percent of the demand from communications and less than 10 percent for storage ICs.

The country has announced certain policies to attract foreign companies, but its differential VAT scheme still remains a prime restriction that needs reconsideration. Also noticed last year was the increased protection of intellectual property through the enactment of numerous laws. This will further propel foreign entry into China's semiconductor market.

As mainland foundries continue to advance their technology toward 90nm and 65nm manufacturing on 12-inch fabs, they also continue to attract many customers of Taiwan foundries. Mainland's growth has pushed Taiwan to the back seat of semiconductor manufacturing.

What drives demand?

There is a global perspective that the semiconductor industry, despite the upswing in recent years, shall witness a flat growth in 2005. An impeding recession in 2006 is also speculated, though not to the extent of the one in 2001. These speculations are fueled by the high-volume capacities of ICs globally, demanding consolidation among IC firms and corrective inventory procedures. Having mentioned these observations, it is interesting to note that the trends in the communications and consumer electronics sectors show that the Asian semiconductor market is well poised for a more promising future.

Asia is positioned for a wireless revolution of great impact in the next couple of years. China has the world's largest handset market; India has the largest penetration rates for mobile phones; and wireless personal area networks (WPANs) are growing rapidly in China, Japan and South Korea. There is also a widening penetration of WLANs in Asia.

Another huge market is consumer electronics. The presence of big names like Samsung, LG, Hitachi, Sony, Sanyo and Panasonic has made Asia a major player in the global consumer electronics market. The rising sales of DVR players, camcorders and digital cameras, plus the growing impetus on home networking, digital home entertainment and home control, bear out the increasing growth for this sector.

It is evident that communications and consumer electronics will drive the demandand hence the revenuesin Asia in the next few years. The current healthy state of the region's semiconductor market makes clear that Asia holds a promising 2005.

- Deepa Doraiswamy

Research Analyst, Semiconductors Group

Frost & Sullivan




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