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Analysis: Trouble in China foundry biz?

Posted: 23 Sep 2008 ?? ?Print Version ?Bookmark and Share

Keywords:China foundry? chip industry? market semiconductor?

Chinese companies entered the silicon foundry market in the early part of the decade with the support!financial and otherwise!of a government determined to make China a force in the global semiconductor industry. Now, a few years and billions of dollars later, at least one analyst wonders if being a top player in the global chip business is still a Chinese priority.

"China attacking the IC marketplace has kind of been a failure," said Bill McClean, president of market research firm IC Insights Inc. "You don't hear them talking about semiconductor manufacturing as much as they were five years ago."

Foundry losses
Semiconductor Manufacturing International Corp. (SMIC) is China's most successful foundry by far, on target for about $1.45 billion in revenue this year, down from $1.55 billion in 2007 and $1.46 billion in 2006, according to IC Insights.

SMIC has reported five consecutive quarterly losses and, despite a massive fab expansion plan, has failed to make a profit since its inception. The company has been trying, apparently without success, to bail out of its loss-ridden DRAM foundry business and expand into the logic business.

According to IC Insights, SMIC will fall to No. 4 in foundry revenue in 2008, slipping behind Singapore's Charted Semiconductor Manufacturing Pte Ltd, which is projected to post revenue of about $1.85 billion.

SMIC will have more than twice the revenue of fifth-ranked Texas Instruments Inc., according to the research firm, but trails significantly behind market-leading Taiwanese giants Taiwan Semiconductor Manufacturing Co. and United Microelectronics Corp., projected to post revenue of $11.68 billion and $3.75 billion, respectively.

McClean noted SMIC's sagging stock price!the company's American depositary shares, traded on the New York Stock Exchange, closed at $1.60 Sept. 19. "They are really going down quick and are looked at as being in trouble," McClean said.

China's second-, third- and fourth-ranked pure play foundries, Hua Hong NEC, HeJian Technology and Grace Semiconductor, are growing, but not as quickly as once hoped. According to data provided by IC Insights Hua Hong NEC and HeJian are both on track to grow about 7 percent this year, to reach $360 million and $355 million, respectively, while Grace is projected to grow 13 percent this year to $350 million.

All three are small time compared to TSMC, UMC and Chartered. Among the world's leading foundries, Hua Hong NEC, HeJian and Grace are ranked 13, 14 and 15 based on projected 2008 revenue, according to IC Insights.

Possible consolidation?
"SMIC is not doing well, and Grace never really got started," McClean said, adding that he wouldn't be surprised to see some consolidation of Chinese foundries.

Chinese companies will have a 12.5 percent share of the pure-play IC foundry market in 2008, down from 14 percent in 2007 and 13.2 percent in 2006, according to IC Insights. The firm projects that figure to rise to 16 percent in 2012.

IC Insights projects that 25 percent of the world's ICs will be shipped into China in 2008, a figure projected to grow to 34 percent in 2012.

SMIC, McClean said, may be putting a deal in place to band together with some other Chinese foundries. He said SMIC would be an attractive acquisition target for a non-Chinese company, but said it was unlikely that the Chinese government would allow that.

He suggested that a merger between SMIC and Hua Hong NEC could be a possibility, and said he wouldn't be surprised to see Grace merge with another Chinese foundry.

Rumors have been circulating that an investor would come along to provide more funding for SMIC. In July, it was widely reported that Chinese telecommunications provider Datang was considering buying 20 percent of SMIC, but that has not of yet come to fruition.

- Dylan McGrath
EE Times





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