Can china compete with global giants in the SEMICONDUCTOR INDUSTRY?

1. By; Kigozi Jimmy Andrew Graduate School of International Studies, Korea University www.kigozijimmy.weebly.com Can china compete with global giants in the SEMICONDUCTOR INDUSTRY?

2. Executive summary • China’s semiconductor industry is a diamond puzzle. A puzzle in a sense that china is the largest consumer of ICs constituting 1/3 of world market share. Despite of this huge market share, production of ICs is still low especially with indigenous firms since 90 percent of China’s IC industry is dominated by foreign firms with more than 90 percent of the manufacturing equipment being imported. In fact, China’s value chain share is only in assembly-and-test and back end manufacturing segments. This has made China miss out on the semiconductor league tables dominated by companies like Intel and Samsung • China’s ability to compete at a global level in its semi conductor industry remains a dream even when the Chinese government has made efforts to build an INDIGENOUS semi conductor industry by providing financial incentives, developing talent and technology and crafting alliances with global players.

3. Quick facts about China’s semiconductor industry • 90 – 90 – 90 (why 90?) • Both consumption and growth in 2011 were 10X more than that of the entire world. • Only 20 percent of domestic market share is satisfied • MTK is the only Chinese brand among the top 10 ranking 8th in the market

4. Intel 18.7% Samsung 6.7% MTK 2.9%

5. Comparison of China’s integrated circuit consumption and production, 1999–2014

6. Where is the problem? • China exerts little influence on semiconductor design and selection in major product categories such as mobile phones and laptop computers. Majority of design decisions are made by global champions e.g. Nokia, Acer and Apple (Industry is largely dominated by FOEs) • Home countries of major semiconductor companies ban the export of leading-edge manufacturing technologies to China e.g. US and Taiwan prohibit the export of equipment used to manufacture 65 nanometer process technologies leaving mainland Chinese foundries 2 generations behind the current 32 nanometer standard. • Concentrated clusters of semiconductor excellence failed to fully develop in China. Instead of focusing investments in one location like Taiwan with Hsinchu science park, Chinese government made investments in multiple provinces. Because of the fragmentation, government support did not lead to formation of a vibrant semiconductor ecosystem in any single location • Foreign players own most of the intellectual property throughout the semiconductor value chain. Applied material for instance dominates manufacturing equipment while Intel, Nvidia and Qualcomm control key parts of integrated chip design for microprocessors, video cards and mobile handsets

7. China’s semiconductor industry by sector 2003–2011

8. Provinces with semiconductor manufacturing No. of semiconductor fabrication plants No. of semiconductor packaging, assembly and test plants

9. The tables below list the main domestic players in three segments of China‟ssemiconductor industry.

13. Looking ahead. A supply and demand game

14. The six categories of products targeted were • Computer and application devices • Communication products • Modernized office equipment • Software • New energy and equipment • Energy efficient products

16. Further Opportunities • Rise in the real estate business • Rise in Health sector • New IC assembly and testing technologies including BGA, SIP, CSP,QFN, and MCM. • IC design for telecommunications, computers, network, digital audio, smart card and industrial control

17. Do you think Chinese government strategies to revamp the semiconductor industry will yield any fruits? • Opinion: Yes. Its just a matter of time • Why? • China’s semiconductor industry grew by 14.4% to reach a record $43.5 billion more than 10X greater than that of the total worldwide semiconductor industry. • Growth of China’s IC design sector from less than $200 million in 2001 to more than $7 billion in 2011—a 45% compounded annual growth rate. • Of the 160 semiconductor wafer fab facilities in operation at the end of 2011, 79 are located in the East China region (64% of capacity).

18. References • APCO Worldwide. (2010): Market Analysis Report: China’s Electronics Industry • PWC. 2012. Exceptional Relative Performance. China’s impact on the semiconductor industry. 2012 update • PWC. 2009. Exceptional Relative Performance. China’s impact on the semiconductor industry. 2009 update

19. Thank you