New global player in IC market: China pushes chipmaking
02/01/2002
George Burns, Strategic Marketing Associates, Santa Cruz, California
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China's emergence as a center for chip manufacturing has been heralded for more than a decade. Now it is finally happening. China today, especially Shanghai, is like Taiwan and Hsinchu a decade ago: It is up and coming and will definitely make its mark on the world.
China is the only major region in the world where new fab projects continue to be built. In 2001, as the chip industry cut spending by 30%, Chinese companies increased theirs by 59% (Fig. 1). This year, when at best, industry capital spending will be flat, spending by Chinese companies will increase by 79% to $1.5 billion.
Plans and expansions
As many as 11 new China fab projects can be counted, either in the planning stages, or actually being built and equipped (Fig. 2). Two of these (Motorola and SMIC) are undergoing qualification runs now. New fab activity is centered in two regions: near Beijing, and most significantly, around Shanghai.
 Figure 1. China: Positive spending territory. |
The area around Beijing is home to Shougang-NEC; Motorola's new fab, MOS-17; and Rohm Electronics. Shougang-NEC (SGNEC), a joint venture of the Shougang Group and NEC, has operated a 6-in. fab near Beijing since 1994. To date, the company has spent $500 million to build and equip this facility, which has a capacity of 13,500 wafers/month and a process capability of 0.35µm. In May of 2001, the joint venture began an expansion/upgrade project in which it will transition to 0.25µm technology and increase its capacity to 20,000 6-in. wafers/month. The estimated cost of this project is $150 million.
A second stage of this expansion project is planned by Shougang alone, which wants to build an 8-in. fab extension to a new 6-in. expansion cleanroom. The company is looking for another partner to share in this project.
 Figure 2. New fab activity in China. |
Motorola's MOS-17 actually began running qualification wafers in the first half of 2001 and expects to begin production runs in the first half of 2002. To date, it has spent almost $1.5 billion to build and equip the plant, which is located near Beijing in Tianjin. It is the only 100% foreign-owned fab in China. MOS-17 is equipped to process about 13,000 8-in. wafers/ month and has room to double its capacity when business conditions permit. The fab, like all facilities located in China, is limited to 0.25µm technology due to US Department of Defense trade restrictions.
Also in Tianjin, Rohm Electronics is building two discrete semiconductor lines at a cost of $90 million. The two lines will process 6-in. wafers and begin operations before the end of 2002.
In addition to the fabs noted above, there are plans for two factories in the Beijing area. Beijing Sinotron plans to break ground on a new 6-in. analog foundry, although no firm date has been set. Huaxia Semiconductor Manufacturing Corp. (HSMC) is a joint venture in which the Shougang Group is a major investor; it has raised more than $300 million for the first phase of the project, which would be the construction of an 8-in. facility that the company estimates will cost $1.3 billion. Additional financing and a technology partner are being sought.
While chip plants are planned near Beijing, Shanghai is actually building some. In fact, there is more new fab activity in Shanghai than any other place on earth. Five companies are either building or planning new plants, expansions, or upgrades. The value of these plants when fully ramped will be $4.6 billion.
The joint venture company, Shanghai Hua Hong NEC (SHHNEC), is planning a $150 million expansion/upgrade project, as early as the beginning of this year. The company wants to expand capacity from its current 20,000 8-inch wafers/month to 25,000, and upgrade its process capability from 0.25µm to 0.18µm, if technology restrictions are relaxed.
Advanced Semiconductor Manufacturing Corp. (ASMC) is a pure play foundry in Shanghai with major customers around the world. The company, which operates both 5-in. and 6-in. lines, is planning to begin construction on a new 8-in. $900 million fab by March. When fully ramped, the facility will have a capacity of 30,000 wafers/month. Originally, construction was to begin by the end of 2001, but the company is holding off due to concerns about the downturn.
In the Pudong area of Shanghai, Grace Semiconductor Manufacturing Corp. (GSMC), one of China's new start-up foundries, broke ground at the end of 2000. Using technology licensed from Oki, the capacity of the $1.6 billion fab will be 40,000 8-in. wafers/month when fully ramped. The site itself can hold up to three additional fabs. Equipment move-in for Fab 1 is scheduled for September.
Also in the Pudong area, Shanghai Belling is in the process of building a fab. Ground was broken for this $500 million project in July 2001, and the company plans to begin operations by the end of 2002 on either 6-in. or 8-in. equipment. Process capability is 0.25µm. When fully ramped, it will have a capacity of 20,000 8-in. wafers/month and will be Shanghai Belling's second fab. The company's current 4-in. fab has a capacity of 16,000 wafers/month and has been in operation since 1988.
Semiconductor Manufacturing International Corp. (SMIC), also a start-up foundry, is the third new chip plant presently being built in the Pudong area. SMIC is further along than either Grace or Shanghai Belling. It is currently building two fabs plus a separate metallization fab at an estimated cost of $1.5 billion. Each will have a capacity of 42,500 8-in. wafers when fully ramped. The company will be using Toshiba's 0.25µm process as well as developing its own.
Wafer qualification at SMIC's Fab 1 has just begun and plans are to start wafer qualification at Fab 2 in about six months. In addition to the manufacturing plants, SMIC has also built a housing complex with apartments for 500 families and a bilingual school for grades 1-12. The school is now operating and is designed to attract top quality engineers from other manufacturing centers such as Taiwan and Singapore. SMIC has plans for Fabs 4 and 5 as well as another metallization fab when market conditions warrant.
The emergence of China as a manufacturing center
As the chip industry has grown over the decades, different regions of the world have emerged as major manufacturing centers. First, there was the US; then, in the 1980s, the Japanese became prominent. Following the success of the Japanese model, South Korean companies began investing heavily in DRAMs in the early 1990s. Indeed, from 1992 to 1997, South Korean companies accounted for 10-15% of all capital spending (Fig. 3). As a result, two of the three top DRAM producers are South Korean firms.
Taiwanese semiconductor companies at the start of the 1990s accounted for only 2% of the chip industry's capital spending and 4% of the industry's existing capacity. However, by 1999, Taiwanese companies accounted for 18% of all capital spending and today have 13% of the world's capacity. The two largest foundries, TSMC and UMC, are Taiwanese companies. Now it is time for China.
 Figure 3. Waves of growth: South Korea, Taiwan, China. |
China's place in the chip world today is similar to Taiwan's a decade ago. China's share of worldwide capital spending in 2001 was 2%, like Taiwan's in 1990. It is expected that China's share of the chip industry's capital-spending budget will rise to almost 5% this year, as Taiwan's did in 1991. Moreover, China, like Taiwan, is relying on the foundry model to carry it into the future. Indeed, in 2001, 10% of all foundry capital spending took place in China and, in 2002, it is expected that China will account for as much as 20% of all foundry capital spending. But the most telling similarity between Taiwan then and China now — as well as the surest sign that China is on its way to becoming one of the industry's major manufacturing centers — is the way China is recruiting skilled professionals to staff its new companies.
One of Taiwan's greatest strengths in the late 1980s and early 1990s was the great number of Chinese from both Taiwan and the mainland who had extensive industry experience outside of Taiwan, particularly in the US. These professionals were eager to come to Taiwan and use their experience and skills to found a new industry. Morris Chang, who had a 25-year career at Texas Instruments (TI), where he became group VP of semiconductors, is but one example of the Chinese who came to Taiwan to found a new chip industry.
Something similar is happening in China today. The difference now, however, is that the flow is moving from Taiwan to China. For example, the founder and president of SMIC, Richard Chang, formerly with TI, was president of WSMC in Taiwan before he came to Shanghai. Winston Wang, Grace Semiconductor, Shanghai, set up Nan Ya Semiconductor in Taiwan before coming to Shanghai.
 Figure 4. China's share of future fab capacity is exceeded only by the US and Taiwan. |
Taiwan is not just supplying personnel for the top posts on the mainland. From engineers on the factory floor all the way to top management, the Chinese in Taiwan, and to a lesser degree in Singapore too, see China, and especially Shanghai, as the next big thing in the chip industry. They are voting with their feet and moving to the mainland to staff the new chip companies. The SMIC housing complex and international school are two concepts being copied by Grace Semiconductor to encourage professionals and their families to make the move.
The major difference between China now, and Taiwan ten years ago is that China is hobbled by technology restrictions. Until such restrictions are lifted, Chinese fabs will be two generations behind those elsewhere. Although the market for chips within China is huge and will get bigger and grow faster than in other chip-producing regions, selling only to the domestic market will slow the growth of Chinese chipmakers. In order to become world-class manufacturers, Chinese fabs will have to have access to the same technology as their competitors. For chip equipment makers to fully benefit from the growing number of Chinese fabs, they will need to be able to sell the most advanced equipment. This is not an obstacle that will go away quickly because of the political situation.
Even with the current restrictions, however, China will be a major manufacturing center. While today China accounts for only 2% of the industry's capacity, in terms of new capacity likely to come on line in the next two or three years, China will add more than any other country except for Taiwan and the US (Fig. 4). Indeed, more capacity is currently scheduled to come on line in China than in South Korea or in Japan. After years of standing on the sidelines, China's chip industry is finally taking off and, as in the days of Marco Polo, the outside world will be beating a path to its door.
George Burns is president of Strategic Marketing Associates, a research firm specializing in fab information, which publishes the database World Fab Watch and Quarterly Spot Report on Semiconductor Fab Projects. PO Box 1217, Santa Cruz, CA 95061; ph 831/464-2669, fax 831/464-2025, e-mail [email protected], www.scfab.com.