China is catching up to leading-edge technology
02/01/2004
Foundries are developing manufacturing technologies that will allow second-generation products to transition to China, further speeding the rise of semiconductor manufacturing there. Though Chinese technologies currently are two generations behind the leading edge, by 2005 the leading semiconductor foundries will have closed that gap to just one generation.
These are some of the conclusions drawn in a report from iSuppli Corp., a company based in El Segundo, CA, that provides value chain services to electronics companies. The report, "Global Demand Revives China's Semiconductor Manufacturing Industry," is a comprehensive look at the current and future semiconductor industry in China.
The report predicts that transfers of both technology and processing equipment by major IDMs and foundries into China will continue. The Wassenaar Agreement — a document that regulates the export by 33 participating countries of any products that could be used to enhance military capabilities or provide technology to countries whose policies do not restrict the proliferation of military technology — should not be viewed as a barrier that will slow the transition to next-generation technology to China, concludes the report.
China's manufacturing capacity
As global semiconductor manufacturing has consolidated over the past couple of years, the rate of capacity expansion has only slowed in China. The industry is now in recovery, and many IDMs and other companies in the industry are concerned that a glut of global capacity may exist due to new fab construction in China. iSuppli is not forecasting that expansions in China will drive the industry into a significant overcapacity situation, however; the report points out that past overcapacity situations were due to significant increases in capacity in all world regions.
In the first nine months of 2003, three new 200mm fabs entered pilot production in China from three different companies — Advanced Semiconductor Manufacturing Co. (ASMC), Grace Semiconductor, and He Jian Technologies. Also, the 200mm Shanghai Belling joint venture has been purchased by the HuaHong Group and is slated for production late this year. The only new 200mm fab that has a timeline for production is TSMC's initial 200mm fab, now scheduled for mass production in late 2005.
 Figure 1. Wafer fab transitions in China. (Courtesy: iSuppli Corp., October 2003) |
China currently has no 300mm fabs in operation, but iSuppli forecasts that a key area of growth in the country will result from the emergence of four 300mm fabs by 2007. Semiconductor Manufacturing International Corp. (SMIC) has begun construction of its first 300mm complex in Beijing. Overall, iSuppli estimates that there are seven fab shells currently constructed that are capable of supporting 300mm manufacturing; by 2007, there will be 11. Figure 1 shows an estimate of how wafer sizes will transition in China.
Capacity utilization
Figure 2 depicts factory capacity and utilization in China. Three distinct periods are represented.
 Figure 2. Total Chinese factory capacity and utilization. (Courtesy: iSuppli Corp., October 2003) |
Prior to 2000, Chinese fabs were primarily serving domestic requirements. Multinational companies that formed joint ventures were governed by regulations that required the export of all products manufactured in China. The result of this policy was to isolate domestic manufacturing from global economic forces, resulting in high utilization rates in China as semiconductor companies used the country as a low-cost alternative to manufacturing in other world regions, especially North America and Europe.
The second period was 2000–2002, by which time domestic foundries had emerged in China. It became clear that for business to grow, semiconductor manufacturers in China had to engage with international customers. This resulted in Chinese manufacturers being affected by the same global market forces that affected manufacturers in other parts of the world. The end result of these forces was that new 200mm fabs installed equipment based on market demand, rather than the traditional model of filling the fabs with equipment and manufacturing at full capacity, regardless of market demand.
By 2005, the Chinese semiconductor industry will be essentially the same as the global semiconductor industry, with supply and demand dictating capacity and utilization for both foundries and domestic fabs.
Chinese technology
In the early days of the Chinese semiconductor industry, manufacturing was done with mature technology that was transferred as part of captive supply agreements. There were no foundries in China at that time, so domestic companies looking to develop products had to export their designs to other parts of the world.
 Figure 3. Technology transitions in China. (Courtesy: iSuppli Corp., October 2003) |
The first pure-play foundry in China was CSMC, which opened in 1991. But no foundry even attempted to provide anything near to leading-edge technology until SMIC began production. Figure 3 shows the technology transition that has taken place in China.
Domestic designs in China have been limited to libraries at 0.25µm and larger. But China is now closing the gap between its semiconductor technology and that of the rest of the global industry. In fact, iSuppli forecasts that by 2007 Chinese semiconductor manufacturers will be using technology that is only one generation behind leading-edge technology.
 Figure 4. Wafer production in China by feature size. (Courtesy: iSuppli Corp., October 2003) |
Figure 4 shows current wafer production within China. A significant change will not occur until additional design houses introduce and qualify next-generation devices into products targeted at domestic consumption, according to iSuppli.
 Figure 5. Forecasted capacity increases by feature size. (Courtesy: iSuppli Corp., October 2003) |
Figure 5 shows a forecast of increased capacity by feature size through 2007. Note the significant forecasted growth for capacity used to produce 90–350nm feature sizes. The majority of this new capacity will come on as 200mm and 300mm wafers. Key to technology advancement in China will be the rate that international companies accept and use Chinese foundries. Since no Chinese company currently has the two elements needed to be successful in 300mm manufacturing — advanced technology and a dominant market position — China has to look to foreign companies for help.
SMIC has partnered with Infineon Technologies AG to build the first 300mm fab in China this year, in Beijing. SMIC anticipates that initial equipment deliveries to the first facility — Fab 4 — will occur in the first quarter of this year. Initial pilot production is targeted at 2000 wafers/month, with plans to expand to 10,000 wafers/month by the end of 2004. A second fab shell — Fab 5 — is being constructed simultaneously and will be equipped to focus on logic process technology. A third fab in the cluster will be a backend support facility and will include mask-generation capabilities.
The complete report, "Global Demand Revives China's Semiconductor Manufacturing Industry," was authored by Len Jelinek, principal analyst, Semiconductor Manufacturing, iSuppli Corp., 1700 E. Walnut Ave., El Segundo, CA 90245. For more information, visit www.isuppli.com.