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Dreams can come true: China to rise as IC powerhouse

Posted: 19 Nov 2014 ?? ?Print Version ?Bookmark and Share

Keywords:China? manufacturing? chip industry?

China may soon be harvesting the fruits of its two-decade efforts to make semiconductor manufacturing one of its pillar industries. Analysts and executives surveyed by EE Times believe that the country's dream for an IC powerhouse may come true in the next 10 years.

China's initiative comes as the nation imports more than 90 per cent of the semiconductors it uses to assemble mobile devices such as Apple's iPhone and iPad. The nation's chip imports, exceeding $160 billion in value, cost more than its oil imports.

China is targeting a CAGR for the domestic chip industry of 20 per cent between now and 2020, with potential financial support from the government of up to $170 billion over the next five to 10 years, according to a report this year by market consulting firm McKinsey & Co. After years of failed attempts, China's industry is poised to lead global production growth.

"China's chip production will grow much faster than the overall IC market," said IC Insights president Bill McClean. "Government programmes and incentives are going to help."

China made the headlines in the recent months for seemingly unrelated investment moves within the semiconductor industry. But an executive from Taiwan noted that such manoeuvres are closely tied to China's national IC industry framework, which is driven by a desire to gain instant access to the global market. (Read entire story here: China plots global chip domination)

The expectation has been a hot-button issue for the chip industry in Taiwan, which accounts for nearly a third of the world's production and which shares language and cultural ties with China. Taiwan, which China considers a renegade province, has restricted investment in China by its domestic chip companies on fears it will lose jobs and technology to its political rival.

Be that as it may, industry executives from Taiwan started the biggest foundries in China, Semiconductor Manufacturing International Corp. (SMIC) and Shanghai Huahong Grace Semiconductor Manufacturing Corp., more than a decade ago to tap into the world's biggest electronics market. The Chinese foundries have so far failed to grab much business from Taiwan Semiconductor Manufacturing Co. (TSMC), which has about half of the global market. China's biggest foundry, SMIC, has a 5 per cent share.

SMIC is likely to grow, according to Randy Abrams, an analyst with Credit Suisse in Taipei.

"We are seeing [Chinese] foundries receive favourable government grants, equipment subsidies, equity stakes from state-backed enterprises, opportunities for joint-venture fab investments to share capex with local governments and foreign suppliers manufacturing locally, as we saw with Qualcomm's sourcing at SMIC," Abrams said.

China IC market

Threats and opportunities

TSMC confirmed an October 25 press report citing chairman Morris Chang saying China's semiconductor industry may catch up with Taiwan's after five years.

TSMC sees both opportunities and threats.

TSMC has captured about 80 per cent of the Chinese chip design business, according to TSMC co-CEO Mark Liu.

"With this subsidy, they [Chinese chipmakers] will be more aggressive," Liu said in October. "We will be ready to capture the business, given the existing good penetration."

The threat will come from China's foundries, according to Liu.

"Companies will be under the influence to use local foundries. That is a threat," Liu said.

Companies in Taiwan are taking the renewed initiative from China seriously.

"It's different this time for a couple of reasons," said Scott Meikle, president of Taiwan-based chipmaker Inotera Memories, in which U.S.-based Micron Technology owns a 35 per cent stake. "The scale of the subsidies that they are planning to deploy into the industry will be bigger than anything that's been done in the past."

The move is not entirely a threat, because the increased investment will enhance demand, according to Meikle.

"But on the other hand, if China is going to provide some unfair subsidies, or subsidies that can be interpreted as unfair, creating a playing field that's not level, that could be considered a threat," he adds.

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