China’s investments will have a significant impact on the entire semiconductor ecosystem.
By Allen Lu
China’s new industry investment and government promotion policies represent major opportunities for China and global semiconductor companies. The global industry is closely watching the details of the policy and its implementation ─ both because of the resources China’s government has dedicated and the potential impact to the global semiconductor manufacturing supply chain. It is anticipated that the new policies will exert a significant influence on China and the entire semiconductor ecosystem.
Take a look at the semiconductor supply chain:
In addition, there are many Test & Assembly companies in China:
Challenges in China’s Semiconductor Industry
With consolidation continuing largely unabated, Chinese semiconductor manufacturers are facing high entry barriers and competitive challenges. Not only does advanced IC manufacturing require huge investment, China is behind in terms of scaling and developing core competencies and IP.
China is taking significant steps to change the equation. Since technology, talent, markets and supply chains are all global, it is becoming increasingly important to answer the question how China intends to position itself as a key stakeholder – and competitor ─ in the global semiconductor ecosystem.
The announcement of major Chinese government investments in the domestic semiconductor industry has created a buzz worldwide. While this policy will certainly boost local companies, the risk of overly relying on government initiatives might actually hinder competitiveness and product excellence and divert the focus from sustained research and innovation. China needs to develop core competencies quickly and demonstrate them on the global stage. Competition on price alone will not work.
Opportunities for the Chinese Semiconductor Industry
It is clear that successful global collaboration is critical, opening up opportunities for global semiconductor stakeholders along the supply chain.
Recent China IC Initiatives and Developments
In June 2014, the State Council of China issued the “National Guideline for the Development and Promotion of the IC Industry,” to support the development of the domestic semiconductor industry. The Guideline addresses development targets, approaches, and specific measures to achieve that goal. It has echoed strongly across the global semiconductor industry and attracted a lot of attention due to the ambitious development targets and the sheer amount of funds made available for a national IC industry investment fund.
So what is new?
June 3, 2014: 30B RMB Beijing IC Fund management company selection completed.
Sept 24, 2014: 120RMB National IC Industry Investment Fund established.
China IC Industry Revenue and Projection
Revenue targets under the 2014 China IC industry guideline indicate that the revenue target for 2015 is more than US$57 billion (RMB 350Billion) with a CAGR target of more than 20 percent between 2015 and 2020.
Recent M&A in IC Design
In IC design, numerous recent mergers & acquisitions (M&As) have occurred.
Assembly & Test: Recent Merger & Acquisition /Joint Venture Activity
For Assembly and Test, M&A and Joint Venture activity is at equally high levels.
Goal 14nm, as SMIC, IMEC, Huawei, and Qualcomm Collaborate
In June 2015, SMIC forged a joint venture with Huawei, Qualcomm and the IMEC research institute to develop its own technology for making 14nm chips. SMIC Advanced Technology R&D intends to have its 14nm process in production by 2020. This will be a major leap forward for chip manufacturing capability in China. Other major initiatives include Memory, Analog, and Power/IGBT.
Impact of Policy
The new policies will exert significant influence on the semiconductor ecosystem in China. China’s semiconductor industry will expand dramatically given the scale of equity funds that are leveraged by government investments. The existing semiconductor industry in China is estimated to have more than 10 percent of global fab capacity and more than 20 percent of global packaging capacity currently. The new investments will contribute to a powerful expansion in China-based capacity and create a stronger and more globally prominent semiconductor industry in China. These newly established national and local IC industry investment funds will focus squarely on fab and IC design companies, but also stimulate the IC industry M&A activity in and outside of China.
In addition, the new policies will also promote market development and global cooperation. In the 1990s, the Chinese government established two semiconductor production lines directly through National Engineering Project 908 and 909. In the beginning of the 21st century, SMIC was co-established by state-owned enterprises and an entrepreneurial team.
Now, with new capital flowing, the Chinese government will support industry development through equity funds, placing investors and entrepreneurs at center stage to create industry growth. Experienced investors and entrepreneurs with international vision will have a chance to lead China’s semiconductor industry towards broader global cooperation.
The first step is to develop a better understanding of China. Industry stakeholders need to come to terms with the fact that China is the largest semiconductor market —not just a manufacturing base with a cost advantage. China’s economy and its semiconductor industry are changing dramatically, and rapidly, having a potentially profound effect on the entire global semiconductor ecosystem. Secondly, China’s economy is highly diversified with developed metropolitan areas such as Shanghai, Beijing and Shenzhen, and central and Western regions catching up quickly. Each of these regions will offer specific opportunities for companies in the semiconductor supply chain.
To participate in China’s industry ecosystem, it is essential to establish connections with the stakeholders in China, such as government, customers, suppliers, and even competitors, and to seek opportunities in cooperation and development through mutual understanding and engagement.
During SEMICON China 2016 (March 15-17), SEMI China will host a Tech Investment Forum-China 2016, an important platform between investment and pan-semiconductor industry in China.
In addition, SEMI China’s Industry Research and Consulting team provides market research, supply chain surveys, investment site evaluations, and partner matching services. Visit www.semi.org.cn/marketinfor/exclusive.aspx (in Chinese) or visit the SEMI Industry Research and Statistics website at www.semi.org/en/MarketInfo.
Another important resource: Visit China Market Central for news and views on the unfolding China Market Dynamics.
Allen Lu is the president of SEMI China.