SMIC poised to ride the China wave

By Phil LoPiccolo, Editor-in-Chief, Solid State Technology

In a one-on-one interview at The ConFab, Charles Huang, SVP of SMIC’s Shanghai operation, followed up on his Monday presentation about general strategies foundries can take to produce next-generation semiconductor technology, and outlined his company’s plans to exploit the burgeoning demand for ICs in China — now the world’s largest regional IC market.

Summing up China’s domestic demand for semiconductor products, Huang cited research data from IC Insights showing that IC sales in China soared from approximately US$10 billion in 2000 to about $40 billion in 2005, representing a compound annual growth rate of 33% and a gain in worldwide market share from 6% to 21% (SEE CHART). By comparison, during the same six-year period, the US share of market dropped from 35% to 19%. As a result, last year, China emerged as the world’s largest IC market. If the trend continues, China will soon widen the gap, as its market will more than triple to $124 billion by 2010.

Although the appetite for ICs in China is growing, the country’s supply of domestically produced chips has fallen short. In fact, China’s fabs met only 6% of the country’s demand for ICs, producing less than $3 billion worth of the $40 billion the Chinese spent on IC products in 2005, according to IC Insights. By 2010, that percentage will improve to nearly 10%, with China producing $12 billion worth of the $124 billion its population is expected to spend on ICs. Even so, that means the total unmet demand will have more than tripled to some $112 billion.

This huge demand for ICs in China is leading to a migration of electronics manufacturing into the country. As production cost pressures are passed down to the IC level, Huang said, system houses are hoping to ride the wave by localizing their IC supply and expanding fab capacity in the country.

The adoption of new technology is key to lowering the cost of ICs, and China is benefiting from a rapid migration of advanced technology into the region to rapidly close the technology gap with the rest of world, said Huang. Indeed, while the US and Taiwan moved from commercial production of 0.18µm-node technology in 1999 to 65nm technology in 2006, Shanghai-based SMIC will have moved from 0.18µm-node production in 2002 to 65nm technology in 2007 — that is, in just four years versus seven, according to Huang.

Nevertheless, continued scaling and increasing complexity — for example, of copper/low-k processes — have led Chinese fabs to outsource much of their production work, Huang said. For example, for the 0.18µm node, SMIC licensed technology from Chartered, and for the 0.13µm node it purchased technology from IMEC. In addition, ongoing issues relating to export licenses and government support are major challenges that will determine the ability to move advanced technologies and tools into China.

Despite these challenges, SMIC’s strategy is to become more horizontal in terms of technological capabilities and offer fully integrated turnkey foundry services. Technology transfer is too expensive, Huang said. “Therefore, while we will continue to work with other partners outside of China, our hope is to become more independent in terms of intellectual property and technology patents,” he said, adding that this will result in good opportunities for investors and lower-cost products for customers.

Other factors will help fuel the expansion of semiconductor manufacturing operations in China, Huang believes. While Chinese foundries may be playing catch-up in terms of technology and IP development and services, the country offers advantages and opportunities for manufacturers that outweigh those in Taiwan, Singapore, and the US, he contended. In fact, China is ranked as most advantageous in terms of labor costs and construction and utility costs, he said, and is approached only by the US in local market demand, supply of natural resources, and availability of human resources. — By Phil LoPiccolo, Editor-in-Chief, Solid State Technology


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