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China faces bumpy road to 300mm

Posted: 16 Jan 2007 ?? ?Print Version ?Bookmark and Share

Keywords:300mm fab? wafer? China's chip industry? semiconductor? IC?

The outlook for China's chip industry clouded after a Hua Hong NEC affiliate announced in December it would shelve plans for a 300mm wafer fab and instead build a 200mm line. The announcement, ending months of speculation, further deflated expectations for expanded China chipmaking.

The change in plan is a minor setback for China's hopes of rapidly expanding 300mm wafer manufacturing. With the Hua Hong pullback, China must bet on existing fabs to build an advanced chipmaking base. Those fabs can do it, but their moves will be peppered with caution as IC growth moderates.

"Hua Hong's decision is evidence of the difficulty indigenous China IC suppliers are facing in trying to become large players," said analyst Bill McClean of IC Insights, who has tracked the industry's growth. "The bloom is off the rose, and now these companies need to really compete, a real change from the startup phase."

Look no further than the Q3 results from Shanghai-based Semiconductor Manufacturing International Corp. (SMIC). It had slid back into the red, losing $35 million despite a slight (2.1 percent) rise in sales, to $368 million. While sales are expected to have gone higher in Q4, the foundry has likely lost money again.

In August, McClean noted "explosive" growth from 2002 through 2004 but said China's foundries would increase market share only slightly in 2006, from 12.4 to 12.6 percent. In recent years, trade group Semiconductor Equipment and Materials International (SEMI) has also downgraded its equipment-spending forecasts.

The real-world results of China fabs like SMIC are exerting a strong gravitational pull on China's once high-flying expectations. The current 300mm landscape in China has one operational 300mm wafer fab in Beijing, run by SMIC. In Wuxi, Hynix-ST Semiconductora joint venture between Hynix Semiconductor and STMicroelectronicsis ramping a 300mm fab.

After that, pickings are slim. Sure, some projects are planned. But, as many China observers have learned, it's a long way from concept to real chips rolling out of these multibillion-dollar megafactories.

Next 300mm bets

Still, it's not all gloom and doom. SMIC is building another 300mm line in Shanghai, and Hynix-ST may add another next year. Suzhou-based He Jian Technology may be the best bet for China's third 300mm foray. It has technology and management links to United Microelectronics Corp. (the two also share clients), and it has expressed interest in 300mm.

But He Jian's executive team has been cautious so far. In a research note from SEMI, Jann Hwa Shyu, president of He Jian, said, "Operating performance is the index and key factor for continuous capital investment. Furthermore, after years of rapid capacity growth, performance improvement is more important in the next stage."

At this stage, it's debatable whether China's 300mm wafer fabs perform well enough to justify the investment. For SMIC, a foundry underdog, maybe not. For Hynix-ST, which runs a few high-volume products, probably so.

Hua Hong's pullback offers a snapshot of a debate emerging in China about the immediate need for more 300mm fabs. Of course they'd be nice to havebut are they worth the billions needed, and could that money be put to better use?

Hua Hong's pullback is a minor hump for China's 300mm wafer manufacturing plans.

Zhu Yiwei, an official at the China Semiconductor Industry Association, said there had been internal debate at Hua Hong about whether the money should be spent on so expensive a project. "For now, Hua Hong would rather focus their limited funds on a 200mm wafer fab, since the market demand for it is higher than 300 mm. They have to do projects within their current capabilities," he said.

The apparent circumstances surrounding Hua Hong's change of heart also indicate the debate may have been heated. Hua Hong had planned to set up a pilot line running 3,000 to 5,000 wafers per month by the end of 2006. The 300mm fab was part of a larger vision of transforming Hua Hong Group into an international-caliber IDM, a task that had been given to Hua Hong chief executive David Wang, a 25-year veteran of Applied Materials.

Some suggest Wang will be leaving soon, in part because of the failed bid for 300mm. A Hua Hong employee close to the CEO said it is a "sensitive time," with "internal changes" expected soon. Hua Hong declined an official interview.

Tried-and-true formula
Expect to see more 200mm lines soon. Lower in cost, they are easier to drive to profitability. That's the tried-and-true formula in China. Taiwan Semiconductor Manufacturing Co. is preparing to expand its 200mm wafer capacity, including a move to 0.18?m, and Taiwan memory makers Promos Technology and Powerchip Semiconductor also have plans for China expansion in 200mm.

SEMI analyst Samuel Ni said foreign companies may look to 300mm but not rush in.

McClean agreed. "Many will watch the Hynix-ST venture, and we will most likely see a couple of joint ventures spring up over the next few years. However, our stance has always been one of putting Chinese IC production into perspective."

Some perspective: McClean's forecast is already down substantially from the start of the year. In January 2006, IC Insights predicted that China-based IC production would hit $12.1 billion in 2010.

About the only certainty in China is that it will still be the world's largest IC consumer. That will continue to drive interest no matter what happens on the fab front. Those who have already bet on China are crossing their fingers, hoping local consumption will steadily drive more demand for local production. For those with a long-term view, it's not a bad bet.

- Mike Clendenin
EE Times

Cai Yan in Shanghai contributed to this report.

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