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Can We Believe The Hype About China’s Domestic IC Production Plans?

Daniel Nenni

Admin
Staff member
Tariffs and trade issues are forcing China to scale its domestic IC production plans, but do its claims line up with reality? IC Insights believes they do not.

In the wake of tariffs and trade tension between China and the United States, government officials and company representatives throughout China have doubled down on their resolve to quickly and meaningfully grow the nation’s domestic IC business in order to reduce its dependence on critical IC components currently supplied by companies based in the U.S. and other countries.

In the memory IC market specifically, some recent headlines and reports have proclaimed that China is “unstoppable” and will soon match the output and technology level of Samsung, SK Hynix, and Micron. When those types of claims emerge, a reality check is in order.

Consider that China’s first indigenous DRAM supplier, Changxin Memory Technologies (CXMT), is due to sample its first DRAM products by the end of this year. This company has a few thousand employees and a capital spending budget of about $1.5 billion per year. In contrast, Micron and SK Hynix each have over 30,000 employees and Samsung’s memory division is estimated to have over 40,000. Moreover, in 2018, the combined capital spending from Samsung, SK Hynix, and Micron was $46.2 billion. Now that’s a reality check!

Overall, DRAM and flash memory accounted for 41% of China’s $155.1 billion IC market last year. Although some reports would have us believe that China’s wafer fab output is quickly increasing and that technology advances (particularly in memory) will catch up with those from the leading suppliers (within 3-5 years in some cases!), IC Insights completely disagrees.

While China continues to make large investments in its memory manufacturing infrastructure and has developed some clever design innovations in an attempt to avoid potential patent disputes, IC Insights remains extremely skeptical whether the country can develop a competitive indigenous memory industry even over the next 10 years and come anywhere close to meeting its memory IC needs.

One major issue, among many, that most observers overlook with regard to China becoming more self-reliant for its IC needs is its lack of indigenous non-memory IC technology. Currently, there are no major Chinese analog, mixed-signal, server MPU, MCU, or specialty logic IC manufacturers. Moreover, these IC product segments, which represented over half of China’s IC market last year, are dominated by well-entrenched foreign IC producers with decades of experience and thousands of employees.

In IC Insights’ opinion, it will take decades for Chinese companies to become competitive in the non-memory IC product segments. While everyone is focused on China’s moves in the memory market, becoming self-reliant in non-memory IC segments poses an even more difficult problem for China.

Figure 1 shows China’s IC market versus China’s IC production. As seen, China’s IC market (IC sales into China) amounted to $155 billion in 2018.

2f4d189f-e121-401a-a607-1de7e11c25b9.png

Figure 1

Of the $155 billion worth of ICs sold in China last year, only $24.0 billion (15.5%) was manufactured in China. However, of the $24.0 billion worth of ICs manufactured in China last year, China-headquartered companies produced only $6.5 billion (27.0%), accounting for only 4.2% of the country’s $155 billion IC market. TSMC, SK Hynix, Samsung, Intel, and other foreign companies that have IC wafer fabs located in China produced the rest. IC Insights estimates that of the $6.5 billion in ICs manufactured by China-based companies, about $1.0 billion was from IDMs and $5.5 billion was from foundries like SMIC.

If China-based IC manufacturing rises to $45.2 billion in 2023 as IC Insights forecasts, China-based IC production would still represent only 8.4% of the total forecasted 2023 worldwide IC market of $538.8 billion. Even after adding a significant markup to some of the Chinese producers’ IC sales (many 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 likely represent only about 10% of the global IC market in 2023.

2018
Worldwide IC Market ($B)
421.7
China IC Market ($B) 155.1

China-based IC Production ($B) 24.0
% of WW IC Market 5.7%
% of China IC Market 15.5%

China-HQ IC Production ($B) 6.5
% of total China IC Production 27.1%
% of WW IC Market 1.5%
% of China IC Market 4.2%

Currently, China is putting on a brave face with regard to its future IC industry capabilities. However, given the extremely small and undeveloped starting base of Chinese company IC production and technology today, IC Insights believes it is essentially impossible for China to make significant strides in becoming self-sufficient for its IC needs (memory and non-memory) within the next 5 years and probably not even within the next 10 years.

Report Details: The 2019 McClean Report
Additional details on IC market trends are provided in The McClean Report—A Complete Analysis and Forecast of the Integrated Circuit Industry. A subscription to The McClean Report includes free monthly updates from March through November (including a 250+ page Mid-Year Update), and free access to subscriber-only webinars throughout the year. An individual-user license to the 2019 edition of The McClean Report is priced at $4,990 and includes an Internet access password. A multi-user worldwide corporate license is available for $7,990.

To review additional information about IC Insights’ new and existing market research reports and services please visit our website: www.icinsights.com.
 
IP is the real issue and will become more so as conflicts arise in not just semis, but all industries. IP and Data are the new gold and oil and the conflicts arising from this change are far reaching and will have many unpredictable turns and changes. Hopefully China will play to their inherent strengths instead of their weaknesses. The whole issue of ownership, use and application of IP and Data has to be settled on a world wide platform for the current, fractured legal and political models are outdated and obsolete. Transparent and fair methods of handling the rights to IP and Data that protect all from abuse, while allowing for the maximum value to all have to be created. The current systems have become totally obsolete and an obstacle to the speed and application of the progress we should be making. I hope China can become more solution oriented than problem oriented and this would involve giving the Chinese more freedom to reach their maximum potential. One just has to look at where progress comes from and freedom to expand one's horizons is a proven path to progress for all.
 
China has been trying for years/decennia to get substantial IC production off the ground. With the marching on of Moore's law they were never be able to catch up. With the slowing of Moore's law I do think this will give China opportunity to catch up. Also I think it's a long term goal for them; so if it is not in the next 10 years it will be in the 10 years after.
 
China has been trying for years/decennia to get substantial IC production off the ground. With the marching on of Moore's law they were never be able to catch up. With the slowing of Moore's law I do think this will give China opportunity to catch up. Also I think it's a long term goal for them; so if it is not in the next 10 years it will be in the 10 years after.

I have been working with China companies for more than 20 years, SMIC included. When they first came about I thought for sure they would give UMC and TSMC a competitive run for their CAPEX. Out of the gate they ripped off TSMC .13 and got busted for it big time. For FinFETS I remember partnerships being announced with QCOM, imec, etc.... and nothing.

Now that SMIC is finally launching 14nm TSMC and Samsung are launching 5nm, right? What about EUV? 3D packaging? There is no way a China fab will EVER catch up to TSMC or Samsung. Just ask GF or UMC who both failed at FinFETs.

Now take a close look at the fabless companies in China. There is such a bubble of activity that is going to come crashing down. China outspent the US 9:1 in 2017 and and 3:1 in 2018 on fabless companies but look at where the money went. There are 463 companies developing EV cars and trucks and 216 companies developing autonomous vehicles, most of which are in China. That is a giant bubble ready to burst. And do you really think Chinese companies are going to out innovate the rest of the world in the automotive industry? Absolutely not.

So yes China is going to continue to spend trillions of Yuan on semiconductors but they will never be competitive on the leading edge with the rest of the world, my opinion.
 
I have been working with China companies for more than 20 years, SMIC included. When they first came about I thought for sure they would give UMC and TSMC a competitive run for their CAPEX. Out of the gate they ripped off TSMC .13 and got busted for it big time. For FinFETS I remember partnerships being announced with QCOM, imec, etc.... and nothing.

Now that SMIC is finally launching 14nm TSMC and Samsung are launching 5nm, right? What about EUV? 3D packaging? There is no way a China fab will EVER catch up to TSMC or Samsung. Just ask GF or UMC who both failed at FinFETs.

Now take a close look at the fabless companies in China. There is such a bubble of activity that is going to come crashing down. China outspent the US 9:1 in 2017 and and 3:1 in 2018 on fabless companies but look at where the money went. There are 463 companies developing EV cars and trucks and 216 companies developing autonomous vehicles, most of which are in China. That is a giant bubble ready to burst. And do you really think Chinese companies are going to out innovate the rest of the world in the automotive industry? Absolutely not.

So yes China is going to continue to spend trillions of Yuan on semiconductors but they will never be competitive on the leading edge with the rest of the world, my opinion.

Firstly, who exact is the "rest of the world " ? There are around 200 countries in the world .

Secondly, no matter how advanced foreign techs are, there will always be room for Chinese tech companies in China domestic market , which is a sizeable market.

Thirdly , why is the current US administration so paranoid about China's tech advancement if they will stay backward forever ?
 
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Rest of the semiconductor world: Korea, Taiwan, etc... remember, I said leading edge. China is trailing edge. Unless of course China invades Taiwan.
 
So yes China is going to continue to spend trillions of Yuan on semiconductors but they will never be competitive on the leading edge with the rest of the world, my opinion.

With that boundary condition we could both be right. I see it perfectly possible that China can produce much more of their semiconductors in house without ever having to run the latest leading edge node. I see it perfectly possible that Mediatek will produce a lot of mobile processors and a lot of the cheap Chinese cell phones will use mostly Chinese produced chips on 14nm/10nm process node.
 
With that boundary condition we could both be right. I see it perfectly possible that China can produce much more of their semiconductors in house without ever having to run the latest leading edge node. I see it perfectly possible that Mediatek will produce a lot of mobile processors and a lot of the cheap Chinese cell phones will use mostly Chinese produced chips on 14nm/10nm process node.

From what I remember SMIC had a partnership with QCOM and imec for 14nm many years ago but are just now ramping up 14nm. Do you know if the partnership bore fruit or did it die an unnatural death?
 
From what I remember SMIC had a partnership with QCOM and imec for 14nm many years ago but are just now ramping up 14nm. Do you know if the partnership bore fruit or did it die an unnatural death?

I was not involved in that project and don't know how it turned out; especially because I left the technology side @ imec more than 7 years ago.
 
I’m pretty sure Silicon Valley type people take the same attitude toward China as they do all not-of-the-Valley entities, and it’s not pure nationalism, or other ism. But, these discussions always have a whiff of -isms.

I admire Chinese ability to quickly and cost-effectively build infrastructure. It’s an advantage on par with Germany’s apprenticeship program (which is part of Germany’s manufacturing advantage, IMHO). Foreign-owned and operated semiconductor companies have built large, modern, profitable operations in 3D NAND in China in recent years. These are not trailing edge, they join leading facilities in the West. So yes it seems possible for China too, once they get a hold of that pesky IP.

I am fascinated by CXMT. They have a defunct but viable, perhaps, IP source: Qimonda. Qimonda planned 65nm buried wordline (stacked capacitor) DRAM in 2009 when they stopped operations. Could CXMT be building a modern DRAM around this? I don’t see why not. It picks up an IP thread with few entanglements.
 
I am fascinated by CXMT. They have a defunct but viable, perhaps, IP source: Qimonda. Qimonda planned 65nm buried wordline (stacked capacitor) DRAM in 2009 when they stopped operations. Could CXMT be building a modern DRAM around this? I don’t see why not. It picks up an IP thread with few entanglements.

I certainly hope so. More sources means lower prices for all. I am more concerned about NAND though. Samsung dominates NAND and that is not optimal.
 
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