Chip supply in China is limited
By Jim Carbone, Executive Editor, Electronics, Purchasing Magazine -- Purchasing, 4/27/2006 2:00:00 AM
China’s semiconductor industry is posting strong growth, but before purchasing executives at OEMs open up international procurement offices (IPO) in China to find new semiconductor sources, they should take a close look at what kind of chips are being produced there.
In fact, lower value discrete chips such as diodes and transistors are produced in China rather than leading edge integrated circuits such as DRAMs and microprocessors. As a result while the chip industry will grow from about $2.5 billion in 2005 to $12.1 billion in 2010, its share of the overall global semiconductor industry will be small. Consider: In 2005, the value of chips produced in China was 1.3% of the global market. In 2010, it will grow to 3.8% of the global total. China will continue to produce relatively low-value chips because it lacks the intellectual property (IP) to build sophisticated integrated circuits such as microprocessors, digital signal processors and application specific integrated circuits (ASICs). It is unlikely that Chinese manufacturers will get access to IP in the next few years for several reasons. “There are significant limitations against China in the form of the Taiwanese government not allowing any company to transition semiconductor process technology below .25 micron to China,” says Len Jelinek, director and principal analyst at researcher iSuppli. Taiwan is home to many semiconductor foundries some of which have opened facilities in China. However, the foundries in China use older semiconductor processing technology such as .25 or .35 micron. Leading-edge chips such as microprocessors and ASICs use 90 nm and 65 nm process technology which cannot be transitioned to China from Taiwan. “If the Taiwanese government and China embrace a free technology exchange, then all of sudden you could paint a different scenario,” says Jelinek. “But in the next two years, the chance of that happening is slim.” That’s because the current Taiwanese government that supports the current policy toward China will remain in power.
In two years, there will be an election and “there may be a heated debate as to what Taiwan’s political stance should be on these type of issues concerning mainland China,” says Jelinek. Besides Taiwan’s current policy, the Wasserman Agreement bars many western countries from providing leading-edge technology to China if the technology has military applications. Leading-edge semiconductor processing technology is covered under the agreement. Politics aside, many semiconductor suppliers are leery of putting fabs in China because of concerns over IP theft. “China is a big market, but there is a risk for IC suppliers to set up factories there. If I am Intel I would like to be close to that huge potential market and tap into it, but I am leery of building parts in an area that has a reputation for stealing and copying and duplicating,” says Brian Matas, an analyst with IC Insights. China is a source of many counterfeit parts and illegally copied software. For more on this story, see Purchasing’s May 18th issue.
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