mannerisms

Ruminations on the electronics industry from David Manners, Senior Components Editor on Electronics Weekly.

Dreams Of A Domestic IC Industry Elude China

It’s a funny thing that though China has been trying to establish a domestic semiconductor industry for 30 years, it has almost completely failed.

China-based IC production was only about $8.9 billion in 2012, says IC Insights, and most of that was done by foreign companies.

And foreign companies’ share of China-based IC production is rising fast.

IC Insights reckons that foreign IC companies making ICs in China will represent 70% of China’s IC production in 2017 – up from 58% in 2012

Although China has been the largest individual market for ICs since 2005, IC production in China represented only 11.1% of its $81 billion IC market in 2012.

Moreover, IC Insights forecasts that this share will increase only about three percentage points to 14.4% in 2017.

China’s total IC production is forecast to represent only 6% of the worldwide IC market in 2017.

That China-based IC production will grow 17.6% CAGR 2012-2017 is mainly thanks to Intel, Hynix and TSMC.

In 2012, SK Hynix, TSMC, and Intel were the major foreign IC manufacturers that had significant IC production in China.  In fact, SK Hynix’ China fab had the most capacity of any of its fabs last year.

In 2012, Intel continued to ramp-up its 300mm fab in Dalian, China (it started production in late October 2010), which is expected to give a noticeable boost to the China-based IC production figures over the next few years.  This fab currently has an installed capacity of 30,000 300mm wafers per month with a maximum capacity of 52,000 wafers per month.

In early 2012, Samsung gained approval from the South Korean government to construct a 300mm IC fabrication facility to produce NAND flash memory in Xian, China.
Samsung started construction of the fab in September of 2012 with production set to begin in the first half of 2014.  The company expects to invest $2.3 billion in the first phase of the fab with $7 billion budgeted in total.  This facility is targeting NAND flash production using a 10-19nm feature size process technology.

If China-based IC production rises to $20.0 billion in 2017 as forecast, it would still represent only 5.6% of the total forecasted 2017 worldwide IC market of $359.1 billion.  Even after adding a significant “markup” to many of the Chinese producers’ IC sales figures (since many of the Chinese IC producers are foundries that sell their ICs to companies that re-sell these products to the electronic system producers), China-based IC production would still represent less than 10% of the global IC market in 2017.

Historically, the lack of consistent intellectual property protection has been a major deterrent for foreign firms seeking to establish state-of-the-art IC fabrication facilities in China.

The lack of intellectual property protection is also a reason many large fabless IC suppliers (e.g., Qualcomm, Broadcom, etc.) have not brought leading-edge IC designs into China for the indigenous Chinese IC foundries to manufacture.

It should also be noted that, thus far, Chinese IC foundries have also been unable to offer large amounts of IC production using leading-edge feature sizes.

IC Insights believes that the future size of the IC production base in China is more dependent upon whether foreign companies continue to locate, or re-locate, IC fabrication facilities in China than on the success of indigenous Chinese IC producers (e.g., SMIC, Hua Hong Grace, etc.).

As a result, IC Insights forecasts that at least 70% of IC production in China in 2017 will come from foreign companies such as SK Hynix, TSMC, Intel, and Samsung.

Tags: domestic semiconductor industry, funny thing, ic insights, individual market, xian

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5 Comments

  1. david manners
    July 27, 2013 09:35

    Yes SMIC, Graham. Set up by a former TI-er with mainly American and China government money and has only been profitable for a handful if quarters in its lifetime. I wouldn’t bank on SMIC being leading-edge, profitable or a rival to TSMC anytime soon.

  2. July 26, 2013 18:13

    Realistically, IC production in China is still very much in its infancy. But consider: SMIC is China’s leading foundry for process technology, and they have only been in existence for about 10 years. Going from nothing to 40nm production in that time frame is a pretty impressive feat…and they are catching up on smaller geometries too.

    Getting to $20Bn by 2017 would be an achievement that Europe would be very envious of, especially considering the EU’s head start. And at their current growth rate – 100% every 4 years – just think where China will be very soon. A 10nm fab in Xi’an? – EU eat your heart out.

    Your headline, David, is, I think, a dangerous slant on the reality. There are still large number of people in the west who see China as a country with no IP protection, trailing edge technology, low levels of creativity and so on. These people typically have never been to China, and know little of the reality. What worries me is that by putting the country into this basket they are closing their eyes to what is really happening, and that will lead to them either be swamped by the Chinese competition or to miss out on a huge potential market. The reality is that there are very many opportunities for Europe and China to work together – and Europeans shouldn’t hide their heads in the sand!

  3. david manners
    July 25, 2013 15:05

    Well Yes Fred maybe the Chinese authorities will appreciate that it takes top flight engineers with access to capital to build companies which can create an industry. Up to now they seem to have adopted the 5-year or 10-year plan approach beloved by Communist dictatorships.

  4. Fred Dart
    July 25, 2013 13:00

    Hmm .. I wouldn’t be too complacent about that. The current generation of Chinese engineers tend to be younger, smart and very driven compared to say 5 to 10 years ago. Some of the new R&D centres that have been set up would be the envy of the western world in terms of facilities and market focus and are capable of self innovation from within as opposed to copying. The required improvements in mainland China IC process technology will flow through eventually as a result, I’m sure…

  5. martijn
    July 24, 2013 14:02

    hynix and especially intel only make non-leading edge products in china. Surprisingly samsung is going for cutting edge if the statement above is true, 1x nand in 2014 is their leading node by then.