China Foundries Seek Niches

After multiple failed attempts, change is under way, but there is no direct challenge to the big foundries.

popularity

By Mark LaPedus
For decades, China has launched several initiatives to modernize its semiconductor industry with hopes of becoming the next IC powerhouse in Asia.

In 2001, for example, China unveiled its so-called “Tenth Five-Year Plan,” which called for the nation to build 25 new fabs from 2001 to 2005. At the time, the Chinese government hoped to start and fund a new crop of domestic foundry vendors. The new foundries were not only supposed to develop leading-edge technologies, but they would also make a larger percentage of the chips within China.

Generally, China has fallen short in many of its goals. The country has emerged as the world’s largest market for semiconductors, but it must still import the majority of its chips from foreign vendors. And for years, China’s foundries were plodding along with “me-too” and trailing-edge technologies.

Now, China is finally elevating its status in the IC industry on at least three fronts. First, after a long hiatus, the multinationals are investing in new fabs in China. For example, Samsung shortly will move into 3D NAND production in a new 300mm fab in Xi’an, the capital of Shaanxi province. Separately, Taiwan’s United Microelectronics Corp. (UMC) is mulling over plans to set up its second fab in China.

Secondly, several Chinese foundry vendors are finally enjoying some success, after years of mishaps and a series of ill-fated strategies. “China’s foundries are finding their niches,” said Samuel Wang, an analyst at Gartner.

China’s foundries won’t topple GlobalFoundries, Samsung and TSMC. In fact, TSMC and UMC each have fabs in China, which pose a threat to the domestic foundries. Still, Chinese foundries are carving out decent niches in various markets, such as CMOS image sensors, consumer, flash, mixed-signal and smart card ICs.

Finally, the most significant event is the emergence of China’s fabless IC industry. “The top 20 design houses in China are now big, established and competent,” said Walt Lange, a chip veteran and senior vice president of sales and marketing at XMC, China’s newest foundry vendor. “The big telecoms in China have helped to fuel that growth.”

Looking for help
It’s too early to declare China’s IC industry a smashing success. In terms of production, China manufactured only 3.5% of the world’s ICs in 2012, up from 2.99% in 2011, according to IC Insights. “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,” said Bill McClean, president of IC Insights. “The lack of intellectual-property protection is also a reason many large fabless IC suppliers (in the U.S. and elsewhere) have not brought leading-edge IC designs into China for the indigenous Chinese IC foundries to manufacture.”

China’s origins in the semiconductor industry can be traced back several decades, when the government launched a plethora of state-run discrete IC and vacuum tube companies. Those backward enterprises produced old devices with outdated technology.

Realizing that the nation needed to upgrade its IC industry, the Chinese government sought help from foreign companies in the form of joint ventures. In one of the first experiments, state-run Shanghai Radio No. 7 Factory in 1988 formed a joint foundry venture with Philips, dubbed Advanced Semiconductor Manufacturing Corp. (ASMC).

Then, in the late 1990s, NEC and various state-run enterprises formed two joint chip/foundry ventures in China, including Shanghai Hua Hong NEC Electronics (HHNEC). At first, HHNEC focused on the leading-edge foundry and memory business, but it has since moved to mixed-signal and specialty processes. ASMC also focuses on specialty processes.

Following those efforts, China then launched two leading-edge foundries—Semiconductor Manufacturing International Corp. (SMIC) and Grace Semiconductor Manufacturing. SMIC was started in 2000, but by 2010, the company’s future was uncertain following a series of losses, management problems and shaky IP practices.

New starts
In 2011, SMIC brought in a new management team, which, in turn, has put the company back on a sound and profitable course. “In the past, most of the SMIC’s technology portfolio was a plain-vanilla technology, going head-to-head with most of the other foundry competitors,” said Tzu-Yin Chiu, chief executive of SMIC, in a recent presentation. “We are investing in our capacity specifically to tailor our customers’ needs, and a lot of our customers are not asking for bleeding-edge (technology). So, we think that there are plenty of opportunities in 28nm, 40nm and even in the mature technology area.”

SMIC also received help from IBM, which some time ago licensed its 45nm and 28nm processes to the Chinese foundry company. SMIC plans to offer its initial 28nm process by the end of 2013. The first revenues for its 28nm polysilicon process are expected in the third quarter of 2014, with sales for a high-k/metal-gate version slated for the second half of 2015.

SMIC’s fortunes are not necessarily tied to the leading edge. “They have maintained a strategy to compete in the ‘N minus 1’ node,” said Gartner’s Wang, who was a former SMIC executive. “They cannot go head-to-head with Intel and TSMC.”

Instead, SMIC is following a different path, which is paying dividends. “They have synchronized themselves with China’s fabless IC industry,” Wang said. “Most of China’s fabless IC companies are not asking for 28nm. Most are still on 65nm and 40nm.”

In fact, the company is building up a sizable business in CMOS image sensors, mixed-signal, smart-card ICs, and other segments. But SMIC is not winning all the business in China. Rockchip, Spreadtrum and other Chinese fabless companies have alliances with foundries outside of China. For example, Rockchip, a supplier of application processors, will ramp its next-generation chips based on GlobalFoundries’ 28nm high-k/metal-gate technology. “We have chosen GlobalFoundries as our strategic source partner, because their 28nm process has allowed us to ramp our products with very high yields in a relatively short timeframe,” said Chen Feng, vice president of Rockchip.

One of SMIC’s challenges is to speed up the development of its digital process roadmap, in an effort to garner more business from leading-edge fabless chipmakers from China and foreign entities. Still to be seen, however, is whether foreign chipmakers will hand off their most advanced IC designs to the China foundries amid IP concerns.

SMIC’s U.S. customers include Broadcom, Qualcomm and TI. Qualcomm, according to Gartner’s Wang, uses SMIC’s 0.18-micron technology for use in developing power management chips. “0.18-micron technology is a very popular technology in China,” he said.

On the fab front, SMIC announced plans to build a new 300mm plant in Beijing. Earlier this year, it also divested its interest in a fab venture in Wuhan, the capital of Hubei province. That venture, originally called Wuhan Xinxin Semiconductor (WXIC), started in 2006, when the Wuhan municipal government invested and built a 300mm fab. SMIC managed the fab.

WXIC’s first big customer was Spansion, which has a large percentage of its 65nm and 45nm NOR flash devices made at the fab. SMIC was supposed to buy the fab over time, but the transaction never took place.

Earlier this year, a new Chinese entity took over the fab and re-launched the venture into a new foundry company called XMC. Today, XMC is still making NOR flash devices for Spansion and others. Recently, XMC licensed Spansion’s 32nm NOR technology. “The challenge for us, like anybody in this business, is to have a model that can make money,” said XMC’s Lange. “At our size, it’s kind of stupid to say I am going to take on TSMC, because I’m not.”

NOR flash is a dwindling market. So, XMC is expanding its efforts by entering the CMOS image sensor foundry business. XMC’s process makes use of a backside illumination (BSI) technology and through-silicon vias (TSVs). “We’re doing TSV and face-to-face bonding,” he said. “We have put oxide bonding and copper-via bonding technologies into production.”

Like SMIC and XMC, Grace Semiconductor finally has found its niche. Grace’s original goal was to compete on the leading edge, but the company floundered over the years and was acquired by HHNEC in 2011.

HHNEC and Grace are run separately and focus on specialty technologies, according to Gartner’s Wang. In addition, HHNEC and Grace also have a joint 300mm foundry fab venture called Shanghai Huali Microelectronics, which develops 65nm and 40nm processes for mixed-signal, RF and embedded flash.

The multinational fabs
Over the years, several multinationals have built fabs in China, as a means to gain access to the huge market. Intel, SK Hynix and Samsung have fabs in China.

Seeking to get a piece of China’s fabless business, TSMC and UMC own fabs in that nation and have experienced mixed success in the market. TSMC and UMC only provide trailing-edge technology in China. For political and IP reasons, the Taiwan government prevents those companies from bringing leading-edge technology into China.

Several years ago, TSMC set up a 200mm fab in Shanghai. Capable of making of 80,000 wafers a month, the fab processes devices at 0.5- to 0.15-micron geometries. There are no plans to expand the fab, according to TSMC officials.

In 2011, UMC acquired He Jian, a foundry in Suzhou, near Shanghai. He Jain produces chips at 0.5- to 0.11-micron geometries. In addition, there are rumors that UMC will build a new fab in Xiamen, a city in southeast China. “It’s just a rumor,” according to officials from UMC. “UMC has been approached by multiple parties for consideration of fab expansion in their areas, and all options remain open to us.”