Tag Archives: letter-wafer-top

IC Insights recently released its new Global Wafer Capacity 2017-2021 report that provides in-depth detail, analyses, and forecasts for IC industry capacity by wafer size, by process geometry, by region, and by product type through 2021.  Figure 1 splits the world’s installed monthly wafer production capacity by geographic region (or country) as of December 2016.  Each regional number is the total installed monthly capacity of fabs located in that region regardless of the headquarters location for the companies that own the fabs.  For example, the wafer capacity that South Korea-based Samsung has installed in the U.S. is counted in the North America capacity total, not in the South Korea capacity total.  The ROW “region” consists primarily of Singapore, Israel, and Malaysia, but also includes countries/regions such as Russia, Belarus, and Australia.

Figure 1

Figure 1

As shown, Taiwan led all regions/countries in wafer capacity with 21.3% share, a slight decrease from 21.7% in 2015 when the country first became the global wafer capacity leader.  Taiwan was only slightly ahead of South Korea, which was in second place.  The Global Wafer Capacity report shows that South Korea accounted for 20.9% of global wafer capacity in 2016, slightly more than the 20.5% share it held in 2015.  Two companies in Taiwan and two in South Korea accounted for the vast share of wafer fab capacity in each country.  In Taiwan, TSMC and UMC held 73% of the country’s capacity while in South Korea, Samsung and SK Hynix represented 93% of the IC wafer capacity installed in 2016.

Japan remained firmly in third place with just over 17% of global wafer fab capacity.  Micron’s purchase of Elpida several years ago and other recent major changes in manufacturing strategies of companies in Japan, including Panasonic spinning off some of its fabs into separate companies, means that the top two companies (Toshiba and Renesas) accounted for 64% of that country’s wafer fab capacity in 2016.

China showed the largest increase in global wafer capacity in 2016, rising 1.1 percentage points to 10.8% from 9.7% in 2015. China’s gained marketshare came mostly at the expense of North America’s share, which slipped 0.9 percentage points in 2016. With a lot of buzz circulating about new ventures and wafer fabs in China in the coming years, it will be interesting to watch how quickly China’s installed wafer capacity grows.  It is worth noting that China first became a larger wafer capacity holder than Europe in 2010.  The two companies with the largest portion of wafer fab capacity in China were SMIC and HuaHong Grace (including shares from joint ventures).

In total, the top five wafer capacity leaders accounted for more than half of the IC industry’s wafer fab capacity, having increased from 2009, when the top five wafer capacity leaders accounted for approximately a third of global capacity.

By Paula Doe, SEMI

The explosive growth in demand for internet bandwidth and cloud computing capacity brings a new set of technology challenges and opportunities for the semiconductor supply chain. “Azure grew by 2X last year, but we can’t pull more performance out of the existing architecture,” noted Kushagra Vaid, Microsoft’s GM Hardware Engineering, Cloud & Enterprise, at last week’s Linley Cloud Hardware Conference in Santa Clara, Calif.  “We are at a junction point where we have to evolve the architecture of the last 20-30 years.” He stressed that the traditional way of designing chips and systems to optimize for particular workloads isn’t working anymore. “We can’t design for a workload so huge and diverse. It’s not clear what part of it runs on any one machine,” he noted. “How do you know what to optimize? Past benchmarks are completely irrelevant.”

Explosive growth in demand for data storage and processing in the cloud means change across the chip world. Source: Cisco VNI Global IP Traffic Forecast

Explosive growth in demand for data storage and processing in the cloud means change across the chip world. Source: Cisco VNI Global IP Traffic Forecast

Roadmap accelerates for networking chips 

Look for accelerating change in the networking chip market. Now that merchant chip suppliers have taken over 75 percent of the networking chip market from the proprietary suppliers, intense competition has meant astonishing improvements in reducing size and power, and two-year technology cycles, reported keynote speaker Andreas Bechtolsheim, Arista Networks Chief Development Officer and Chairman.  “The cloud is accelerating transitions, as the big data centers demand low cost,” he noted, explaining that new technologies no longer see gradual adoption through different applications. They have to start out cheaper to get any traction at all, but then ramp sharply to high volume in six months as high-volume data centers convert.

Data center networks expect transition to 400G to start in 2018. Source: MACOM

Data center networks expect transition to 400G to start in 2018. Source: MACOM

Bechtolsheim said the majority of the network link market will convert from 40G to 100G this year, and to 400G in 2019.  For 800G two years later, chip design will have to start this year. Luckily there’s a clear path for scaling on the chip side, from the current generation’s 28nm technology down to 16nm and 7nm.  But it could be a push for some of the ecosystem. “It’s pushing the packaging vendors, as 1.0mm solder balls are about the limit,” said Bechtolsheim. Companies are also forming a group to speed the standards process by making the 800G standard simply 2X that for 400G, as the 400B standard took eight years.

The 40G chips at the server layer are moving to pulse amplitude modulation (PAM4) to send and receive four signals at once, which will require moving to digital signal processing. Moving from analog bipolar to digital CMOS technology also enables significant scaling of chip size and power, with significant reduction in die area (~50 percent) and power (~40 percent) with 16nm FinFET compared to 28nm, noted MACOM’s Chris Collins, director of Marketing. The company plans 7nm 800G devices next year.

New layers and new types of memory

One likely change is new types and new placement for memory, for higher speeds, different levels of non-volatile cache, and designs and accelerator subsystems that limit the need to move large amounts of data back and forth over limited pipelines. “Data is doubling every 2-2.5 years, but DRAM bandwidth is only doubling every 5 years. It’s not keeping up,” noted Steven Woo, Rambus VP, Systems and Solutions. “We’ll see the addition of more tiers of memory over the next few years.” He suggested the emerging challenge would be what data to place where, using what technology, and how to move memory in general closer to the processing. Racks may become the basic unit instead of servers, so each can be optimized with more memory or more processors as needed.

Handling big data in the cloud means more opportunity for new memory technologies in an emerging tier between DRAM and solid state drives. Source: Rambus

Handling big data in the cloud means more opportunity for new memory technologies in an emerging tier between DRAM and solid state drives. Source: Rambus

Specialized accelerators speed particular applications

Another emerging solution is specialized chips or subsystem boards to accelerate particular types of cloud processing by taking over some jobs from the CPU cores, typically with different types of processors and lots of localized memory. Google and Wave Computing have their accelerator chips optimized for neural network processing. Mellanox offers offload adopter cards based on ASICs, FPGAs or RISC, with increasingly complex functions, claiming the potential to offload as much as of 80 percent of the overhead function of the CPU, to get a 2.7X increase in throughput per server.  MoSys proposes replacing conventional content addressable memory with a programmable search engine, based on an FPGA, a lot of SRAM, and software to search and route with different strategies for different types of applications to significantly increase speeds. Chelsio offers a module to handle encryption and decryption off the CPU without having to shuttle information back and forth to memory. Amazon even is renting FPGAs in its cloud so users can design their own accelerators for their particular workloads. But Microsoft’s Vaid remained skeptical that a proliferation of solutions for particular applications would be the best approach for the general use in the cloud.

300mm production and passive fiber alignment improve silicon photonics

Silicon photonics technology continues to make progress, and may find application in the market for very high bandwidth, mid to long haul transmission (30 meters to 80 kilometer), where spectral efficiency is the key driver, suggested Ted Letavic, Global Foundries, Senior Fellow. “4.5 and 5G communications will use photonics solutions similar to those needed in the data center, for volume that will drive down cost,” he noted. The foundry has now transferred its monolithic process to 300mm wafers, where the immersion lithography enables better overlay and line edge roughness, to reduce losses by 3X.  The company has an automated, passive solution to attach the optical fiber to the edge of the chip, pushing ribbons of multiple fibers into MEMS groves in the chip with an automated pick and place tool.  Letavic said the edge coupling process was in production for a telecommunications application.

Array of optical fibers are passively aligned by sliding into MEMS grooves at the side of the chip for 100Gpbs x 12 = 1.2Tb interconnect in flat form factor. Source: Global Foundries

Array of optical fibers are passively aligned by sliding into MEMS grooves at the side of the chip for 100Gpbs x 12 = 1.2Tb interconnect in flat form factor. Source: Global Foundries

For more information about SEMI, visit www.semi.org. SEMI also offers many events covering electronics manufacturing supply chain issues; for a full list of SEMI events, visit www.semi.org/en/events. SEMI is on LinkedIn and Twitter.

Intel continued to top all other chip companies in R&D expenditures in 2016 with spending that reached $12.7 billion and represented 22.4% of its semiconductor sales last year.  Intel accounted for 36% of the top-10 R&D spending and about 23% of the $56.5 billion total worldwide semiconductor R&D expenditures in 2016, according to the 20th anniversary 2017 edition of The McClean Report that was released in January 2017.  Figure 1 shows IC Insights’ ranking of the top semiconductor R&D spenders based on semiconductor manufacturers and fabless suppliers with $1 billion or more spent on R&D in 2016.

Figure 1

Figure 1

Intel’s R&D spending is lofty and exceeded the combined R&D spending of the next three companies on the list. However, the company’s R&D expenditures increased 5% in 2016, below its 9% average increase in spending per year since 2011 and less than its 8% annual growth rate since 2001, according to the new report.

Underscoring the growing cost of developing new IC technologies, Intel’s R&D-to-sales ratio has climbed significantly over the past 20 years.  In 2010, Intel’s R&D spending as a percent of sales was 16.4%, compared to 22.4% in 2016. Intel’s R&D-to-sales ratios were 14.5% in 2005, 16.0% in 2000, and just 9.3% in 1995.

Among other top-10 R&D spenders, Qualcomm—the industry’s largest fabless IC supplier—remained the second-largest R&D spender, a position it first achieved in 2012.  Qualcomm’s semiconductor-related R&D spending was down 7% in 2016 compared to an adjusted total in 2015 that included expenditures by U.K.-based CSR and Ikanos Communications in Silicon Valley, which were acquired in 2015.  Broadcom Limited—which is the new name of Avago Technologies after it completed its $37 billion acquisition of U.S-based Broadcom Corporation in early 2016—was third in the R&D ranking. Excluding Broadcom’s expenditures in 2015, Avago by itself was ranked 13th in R&D spending that year (at nearly $1.1 billion).

Memory IC leader Samsung was ranked fourth in R&D spending in 2016 with expenditures increasing 11% from 2015. Among the $1 billion-plus “R&D club,” the South Korean company had the lowest investment-intensity level with 6.5% of its total semiconductor revenues going to chip-related research and development in 2016, which was up from just 6.2% in 2015.

Toshiba in Japan moved up two positions to fifth as it aimed its R&D spending at 3D NAND flash memories.  Foundry giant Taiwan Semiconductor Manufacturing Co. (TSMC) was sixth with a 7% increase in 2016 R&D spending, followed by fabless IC supplier MediaTek in Taiwan, which moved up one position to seventh with 13% growth in R&D expenditures. U.S.-based memory supplier Micron Technology advanced from ninth to eighth in the ranking with its research and development spending rising 5% in 2016.

Rounding out the top 10, NXP in Europe was ninth in 2016, slipping from sixth in 2015 and SK Hynix grew its R&D spending 9% to complete the list.   Fabless Nvidia just missed the cut with a 10% increase in expenditures for research and development.

Semiconductor consolidation played a factor in industry R&D spending rising just 1% in 2016 to a record-high $56.5 billion after a 1% increase in 2015 to $56.2 billion.  The slowdown in industry-wide R&D spending growth also corresponded with weakness in worldwide semiconductor sales, which declined 1% in 2015 and then recovered with a low single-digit increase in 2016.

GLOBALFOUNDRIES yesterday announced plans to expand its global manufacturing footprint in response to growing customer demand for its comprehensive and differentiated technology portfolio. The company is investing in its existing leading-edge fabs in the United States and Germany, expanding its footprint in China with a fab in Chengdu, and adding capacity for mainstream technologies in Singapore.

“We continue to invest in capacity and technology to meet the needs of our worldwide customer base,” said GF CEO Sanjay Jha. “We are seeing strong demand for both our mainstream and advanced technologies, from our world-class RF-SOI platform for connected devices to our FD-SOI and FinFET roadmap at the leading edge. These new investments will allow us to expand our existing fabs while growing our presence in China through a partnership in Chengdu.”

In the United States, GF plans to expand 14nm FinFET capacity by an additional 20 percent at its Fab 8 facility in New York, with the new production capabilities to come online in the beginning of 2018. This expansion builds on the approximately $13 billion invested in the United States over the last eight years, with an associated 9,000 direct jobs across four locations and 15,000 jobs within the regional ecosystem. New York will continue to be the center of leading-edge technology development for 7nm and extreme ultraviolet (EUV) lithography, with 7nm production planned for Q2 2018.

In Germany, GF plans to build up 22FDX 22nm FD-SOI capacity at is Fab 1 facility in Dresden to meet demand for the Internet of Things (IoT), smartphone processors, automotive electronics, and other battery-powered wirelessly connected applications, growing the overall fab capacity by 40 percent by 2020. Dresden will continue to be the center for FDX technology development. GF engineers in Dresden are already developing the company’s next-generation 12FDX technology, with customer product tape-outs expected to begin in the middle of 2018.

In China, GF and the Chengdu municipality have formed a partnership to build a fab in Chengdu. The partners plan to establish a 300mm fab to support the growth of the Chinese semiconductor market and to meet accelerating global customer demand for 22FDX. The fab will begin production of mainstream process technologies in 2018 and then focus on manufacturing GF’s commercially available 22FDX process technology, with volume production expected to start in 2019.

In Singapore, GF will increase 40nm capacity at its 300mm fab by 35 percent, while also enabling more 180nm production on its 200mm manufacturing lines. The company will also add new capabilities to produce its industry-leading RF-SOI technology.

“GF has had a strong foundry relationship with Qualcomm Technologies for many years across a wide range of process nodes,” said Roawen Chen, senior vice president, QCT global operations, Qualcomm Technologies, Inc. “We are excited to see GF making these new investments in differentiated technology and expanding global capacity to support Qualcomm Technologies in delivering the next wave of innovation across a range of integrated circuits that support our business.”

“Collaborative foundry partnerships are critical for us to differentiate ourselves in the competitive market for mobile SoCs,” said Min Li, chief executive officer of Rockchip. “We are pleased to see GF bringing its innovative 22FDX technology to China and investing in the capacity necessary to support the country’s growing fabless semiconductor industry.”

“As our customers increasingly demand more from their mobile experiences, the need for a strong manufacturing partner is greater than ever,” said Joe Chen, co-chief operating officer of MediaTek. “We are thrilled to have a partner like GF that invests in the global capacity we need to deliver powerful and efficient mobile technologies for markets ranging from networking and connectivity to the Internet of Things.”

Intel Corporation yesterday announced plans to invest more than $7 billion to complete Fab 42, a project Intel had previously started and then left vacant. The high-volume factory is in Chandler, Ariz., and is targeted to use the 7 nanometer (nm) manufacturing process. The announcement was made by U.S. President Donald Trump and Intel CEO Brian Krzanich at the White House.

Intel Corporation on Tuesday, Feb. 8, 2017, announced plans to invest more than $7 billion to complete Fab 42. On completion, Fab 42 in Chandler, Ariz., is expected to be the most advanced semiconductor factory in the world. (Credit: Intel Corporation)

Intel Corporation on Tuesday, Feb. 8, 2017, announced plans to invest more than $7 billion to complete Fab 42. On completion, Fab 42 in Chandler, Ariz., is expected to be the most advanced semiconductor factory in the world. (Credit: Intel Corporation)

According to Intel’s official press release, the completion of Fab 42 in 3 to 4 years will directly create approximately 3,000 high-tech, high-wage Intel jobs for process engineers, equipment technicians, and facilities-support engineers and technicians who will work at the site. Combined with the indirect impact on businesses that will help support the factory’s operations, Fab 42 is expected to create more than 10,000 total long-term jobs in Arizona.

Mr. Trump said of the announcement: “The people of Arizona will be very happy. It’s a lot of jobs.”

There will be no incentives from the federal government for the Intel project, the White House said.

Context for the investment was outlined in an e-mail from Intel’s CEO to employees.

“Intel’s business continues to grow and investment in manufacturing capacity and R&D ensures that the pace of Moore’s law continues to march on, fueling technology innovations the world loves and depends on,” said Krzanich. “This factory will help the U.S. maintain its position as the global leader in the semiconductor industry.”

“Intel is a global manufacturing and technology company, yet we think of ourselves as a leading American innovation enterprise,” Krzanich added. “America has a unique combination of talent, a vibrant business environment and access to global markets, which has enabled U.S. companies like Intel to foster economic growth and innovation. Our factories support jobs — high-wage, high-tech manufacturing jobs that are the economic engines of the states where they are located.”

Intel is America’s largest high-technology capital expenditure investor ($5.1 billion in the U.S. 2015) and its third largest investor in global R&D ($12.1 billion in 20151). The majority of Intel’s manufacturing and R&D is in the United States. As a result, Intel employs more than 50,000 people in the United States, while directly supporting almost half a million other U.S. jobs across a range of industries, including semiconductor tooling, software, logistics, channels, OEMs and other manufacturers that incorporate our products into theirs.

The 7nm semiconductor manufacturing process targeted for Fab 42 will be the most advanced semiconductor process technology used in the world and represents the future of Moore’s Law. In 1968, Intel co-founder Gordon Moore predicted that computing power will become significantly more capable and yet cost less year after year.

The chips made on the 7nm process will power the most sophisticated computers, data centers, sensors and other high-tech devices, and enable things like artificial intelligence, more advanced cars and transportation services, breakthroughs in medical research and treatment, and more. These are areas that depend upon having the highest amount of computing power, access to the fastest networks, the most data storage, the smallest chip sizes, and other benefits that come from advancing Moore’s Law.

After the announcement, President Trump tweeted his thanks to Krzanich, calling the factory a great investment in jobs and innovation. In his email to employees, Krzanich said that he had chosen to announce the expansion at the White House to “level the global playing field and make U.S. manufacturing competitive worldwide through new regulatory standards and investment policies.”

“When we disagree, we don’t walk away,” he wrote. “We believe that we must be part of the conversation to voice our views on key issues such as immigration, H1B visas and other policies that are essential to innovation.”

During Mr. Trump’s presidential campaign, Krzanich had reportedly planned a Trump fundraiser event and then cancelled following numerous controversial statements from Trump regarding his proposed immigration policies. Intel has continued to be critical of the Trump administration’s immigration policies, joining over 100 other companies to file a legal brief challenging President Trump’s January 27 executive order which blocked entry of all refugees and immigrants from seven predominantly Muslim countries. Recently, Krzanich took to Twitter to criticize the order, voicing the company’s support of lawful immigration.

In 2012, Paul Otellini, then Intel’s CEO, made a similar promise about Fab 42 in the company of Obama, during a visit to Hillsboro, Oregon.

IC Insights’ 20th anniversary, 2017 edition of The McClean Report shows that since 2010, worldwide economic growth has been the primary influencer of IC industry growth.  In this “global economy-driven” IC industry, factors such as interest rates, oil prices, and fiscal stimulus are the primary drivers of IC market growth.  This is much different than prior to 2010, when capital spending, IC industry capacity, and IC pricing characteristics drove IC industry cycles.

Figure 1 plots the actual annual growth rates for worldwide GDP and the IC market from 1992 and includes IC Insights’ 2017 forecast.  As shown, both of these categories displayed extremely volatile behavior from 1992 through 2010 before registering much more subdued growth rates from 2011 through 2016.  Moreover, IC Insights forecasts similar restrained annual growth rates for worldwide GDP and the IC market through 2021.

Figure 1

Figure 1

Some observations regarding worldwide economic growth (GDP) include the following.

•    Since 1980, the annual worldwide GDP growth has averaged 2.8%. The average annual worldwide GDP growth rate has declined every decade since the 1960s with a slight rebound forecast to be registered in the first seven years of the current decade.

•    Worldwide GDP growth of 2.5% or less is currently considered by most economists to be indicative of a global recession, which puts 2016’s growth right at the threshold.  The 2017 global growth rate is forecast to come in only slightly better at 2.6%.  Prior to the late 1990s, when emerging markets like China and India represented a much smaller share of the worldwide economy, a global recession was typically defined as 2.0% or less growth.  The global recession threshold has never been a “hard and fast” rule, but the guidelines discussed here are useful for this analysis.

Figure 2 compares the actual annual growth rates of worldwide GDP and the worldwide IC market from 2011 through IC Insights’ 2017 forecast.  It is worth mentioning that the same scale used in Figure 1 for both worldwide GDP growth (-2% to 5%) and IC market growth (-40% to 50%) was used for this chart.  It is clear when looking at this specific timeperiod and using the historical growth rate scale end points, that IC market and worldwide GDP growth volatility from 2011 through 2017 is expected to be much more tame than in the past.

Figure 2

Figure 2

Worldwide GDP growth rates are expected to range from 2.5% to 3.0% from 2016 through 2021.  IC Insights’ expects the IC market to mirror the narrow range of worldwide GDP growth with forecasted growth rates ranging from a low of 2% to a high of 7% through 2021.

Given the tight correlation between annual worldwide GDP growth rates and IC market growth rates, IC Insights believes that a significant and noticeable IC market cycle will not occur through 2021 unless there is a significant departure from trend, up or down, for worldwide GDP growth (e.g., <2% growth on the low side and >3.0% growth on the high side).

Worldwide silicon wafer area shipments increased 3 percent in 2016 when compared to 2015 area shipments according to the SEMI Silicon Manufacturers Group (SMG) in its year-end analysis of the silicon wafer industry, while worldwide silicon revenues increased by 1 percent in 2016 compared to 2015.

Silicon wafer area shipments in 2016 totaled 10,738 million square inches (MSI), up from the previous market high of 10,434 million square inches shipped during 2015. Revenues totaled $7.21 billion, one percent higher from the $7.15 billion posted in 2015. “Annual semiconductor silicon volume shipments reached record levels for the third year in a row,” said Chungwei (C.W.) Lee, chairman SEMI SMG and Corporate Development VP of GlobalWafers. “However, despite historical shipment highs, the same cannot be said about silicon revenue. The market remains well below pre-downturn levels.”

Annual Silicon* Industry Trends

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016
Area Shipments (MSI)

8,661

8,137

6,707

9,370

9,043

9,031

9,067

10,098

10,434

10,738
Revenues ($B)

12.1

11.4

6.7

9.7

9.9

8.7

7.5

7.6

7.2

7.2

*Shipments are for semiconductor applications only and do not include solar applications

Silicon wafers are the fundamental building material for semiconductors, which in turn, are vital components of virtually all electronics goods, including computers, telecommunications products, and consumer electronics. The highly engineered thin round disks are produced in various diameters (from one inch to 12 inches) and serve as the substrate material on which most semiconductor devices or “chips” are fabricated.

All data cited in this release is inclusive of polished silicon wafers, including virgin test wafers and epitaxial silicon wafers, as well as non-polished silicon wafers shipped by the wafer manufacturers to the end-users.

The Semiconductor Industry Association (SIA), representing U.S. leadership in semiconductor manufacturing, design, and research, today announced the global semiconductor industry posted sales totaling $338.9 billion in 2016, the industry’s highest-ever annual sales and a modest increase of 1.1 percent compared to the 2015 total. Global sales for the month of December 2016 reached $31.0 billion, equaling the previous month’s total and bettering sales from December 2015 by 12.3 percent. Fourth quarter sales of $93.0 billion were 12.3 percent higher than the total from the fourth quarter of 2015 and 5.4 percent more than the third quarter of 2016. All monthly sales numbers are compiled by the World Semiconductor Trade Statistics (WSTS) organization and represent a three-month moving average.

“Following a slow start to the year, the global semiconductor market picked up steam mid-year and never looked back, reaching nearly $340 billion in sales in 2016, the industry’s highest-ever annual total,” said John Neuffer, president and CEO, Semiconductor Industry Association. “Market growth was driven by macroeconomic factors, industry trends, and the ever-increasing amount of semiconductor technology in devices the world depends on for working, communicating, manufacturing, treating illness, and countless other applications. We expect modest growth to continue in 2017 and beyond.”

2016 worldwide revenue

Several semiconductor product segments stood out in 2016. Logic was the largest semiconductor category by sales with $91.5 billion in 2016, or 27.0 percent of the total semiconductor market. Memory ($76.8 billion) and micro-ICs ($60.6 billion) – a category that includes microprocessors – rounded out the top three segments in terms of total sales. Sensors and actuators was the fastest growing segment, increasing 22.7 percent in 2016. Other product segments that posted increased sales in 2016 include NAND flash memory, which reached $32.0 billion in sales for a 11.0 percent annual increase, digital signal processors ($2.9 billion/12.5 percent increase), diodes ($2.5 billion/8.7 percent increase), small signal transistors ($1.9 billion/7.3 percent), and analog ($47.8 billion/5.8 percent increase).

Regionally, annual sales increased 9.2 percent in China, leading all regional markets, and in Japan (3.8 percent). All other regional markets – Asia Pacific/All Other (-1.7 percent), Europe (-4.5 percent), and the Americas (-4.7 percent) – saw decreased sales compared to 2015.

“A strong semiconductor industry is strategically important to U.S. economic growth, national security, and technological leadership,” said Neuffer. “We urge Congress and the new administration to enact polices in 2017 that spur U.S. job creation, and innovation and allow American businesses to compete on a more level playing field with our competitors abroad. We look forward to working with policymakers in the year ahead to further strengthen the semiconductor industry, the broader tech sector, and our economy.”

Samsung Electronics and Apple remained the top two semiconductor chip buyers in 2016, representing 18.2 percent of the total worldwide market, according to Gartner, Inc. (see Table 1). Samsung and Apple together consumed $61.7 billion of semiconductors in 2016, an increase of $0.4 billion from 2015.

“This is the sixth consecutive year that Samsung Electronics and Apple have topped the semiconductor consumption table,” said Masatsune Yamaji, principal research analyst at Gartner. “While both companies continue to exert considerable influence on technology and price trends for the wider semiconductor industry, their impact has lessened due to falling expectations for future growth.”

Although Samsung Electronics experienced intense competition from Chinese original equipment manufacturers (OEMs) in various markets including smartphones, LCD TV and LCD panel through 2016, the company increased its design total available market (TAM) and came back as the global top design TAM company in 2016 with 9.3 percent share. Apple decreased its design TAM in 2016 for the first time since Gartner started design TAM research in 2007, ending the year with 8.8 percent share of the market. The iPad did not sell well through 2016 and Apple also lost market share in the PC market.

Table 1. Preliminary Ranking of Top 10 Companies by Semiconductor Design TAM, Worldwide, 2016 (Millions of Dollars)

2015 Ranking

2016Ranking

Company

 2015

 2016

Growth (%) 2015-2016

2016 Market Share (%)

2

1

Samsung Electronics

30,343

31,667

4.4

9.3

1

2

Apple

30,885

29,989

-2.9

8.8

4

3

Dell

10,606

13,308

25.5

3.9

3

4

Lenovo

13,535

12,847

-5.1

3.8

6

5

Huawei

7,597

9,886

30.1

2.9

5

6

HP Inc.

8,673

8,481

-2.2

2.5

8

7

Hewlett Packard Enterprises

6,485

6,206

-4.3

1.8

7

8

Sony

6,892

6,071

-11.9

1.8

21

9

BBK Electronics

2,515

5,818

131.4

1.7

9

10

LG Electronics

5,502

5,172

-6.0

1.5

Others

211,736

210,238

-0.7

61.9

Total

334,768

339,684

1.5

100.0

Note: Numbers may not add to totals shown because of rounding.
Source: Gartner (February 2017)

Nine of the top 10 companies in 2015 remained in the top 10 in 2016. Cisco Systems dropped out of the top 10 in 2016 to be replaced by Chinese smartphone OEM, BBK Electronics, which grew rapidly in 2016. The top 10 now consists of four companies from the U.S., three companies from China, two from South Korea and one from Japan. This is the first time that three Chinese companies have ranked in the top 10, proving that even with the slowing macroeconomic situation in China, the importance of the Chinese electronics market is increasing.

“Even though the influence on the semiconductor industry of the top two strongest OEMs is weakening, the combined design TAM of the top 10 companies outperformed the average growth rate of the total semiconductor market in 2016,” said Mr. Yamaji. “However, semiconductor chip vendors can no longer secure their businesses by relying on a few strong customers because market share changes much faster these days. BBK Electronics grew very fast in 2016 and increased its design TAM, but this extraordinarily fast growth also underlines how volatile the businesses in China can be. Technology product marketing leaders at semiconductor chip vendors need to take the risks of their major customers into account, and always try to diversify their customer base.”

The newly released 2017 20th anniversary edition of The McClean Report contains an analysis of the three phases of China’s attempt to gain a stronger presence in the IC industry (Figure 1).  The analysis of Phase 3 includes a long list of the successes and setbacks that the Chinese have faced since initiating this strategy in 2014.

China’s government has a long-term goal to become self-sufficient with regards to IC devices.  Its “Made in China 2025” (MIC 2025) plan was published by the China State Council in May of 2015. The milestones in MIC 2025 are for China to be 40% self-sufficient in IC devices in 2020 and 70% in 2025.  In reality, it is naive to believe that being 40%, 70%, or whatever percentage less than 100%, is even close to being self-sufficient in the IC industry. In just about every case, the lack of just one low-value IC (e.g., a mixed-signal analog device), process material (e.g., a specific chemical or gas used in fabricating ICs), or package type will stop the entire electronic system from being produced and shipped.

Figure 1

Figure 1

As an example, in the early 1980s, the U.S. government attempted to make sure that every wafer processing and packaging material as well as every piece of semiconductor processing equipment that was used to make military ICs have at least one U.S. source. Even more than 30 years ago, when IC processing was much less complex than it is now, this program had to be abandoned due to the impossible task of making sure there was a U.S. source for literally thousands of items. The bottom line is that anything less than 100% self-sufficiency in the IC industry is not self-sufficient.

The success of MIC 2025 is fundamentally dependent upon two things—funding and technology. The goals of MIC 2025 have almost no chance of success without strong results in both of these areas. IC Insights considers each one to have equal weight on the potential final outcome.

There is near-unanimous consensus that funding will not be a hindrance for the potential success of MIC 2025. China’s National Government has approved approximately $20 billion of funding support for its IC industry programs with almost another $100 billion of possible support coming from local Chinese governments, provinces, and private investors. In total, the tens of billions of dollars of funding now targeting the IC industry is probably sufficient to construct at least 10 high-volume 300mm IC production fabrication facilities. It should be noted that regardless of what happens with China-based IC production in the long run, IC equipment companies are in prime position to benefit from this massive spending spree over the next few years.

IC Insights believes that the huge roadblock standing in the way of the success of MIC 2025 is the ability of the Chinese to acquire the IC technology to be used in the newly funded fabs. Beginning in 2014, the Chinese sought to acquire technology by acquiring existing IC suppliers. The Chinese had some early success in acquiring companies like ISSI and OmniVision, but most governments are now on “high alert” with regard to China’s IC industry ambitions and future foreign IC company acquisitions will be very difficult to complete. Essentially, the window of opportunity for the Chinese to attain IC technology through foreign company acquisitions is now closed.

Although the amount of money reported to be allocated toward constructing the new indigenous Chinese company IC fabs has been massive, the technology announced to be used in these fabs has in every case been at least two generations behind what the market leaders in that segment are currently using or will be using when the fab opens. Some examples are shown below.

  • XMC (purchased by Tsinghua Unigroup in July 2016 and put in a holding company called Yangtze
  • River Storage Technology)—32-layer 3D NAND technology.
  • Fujian Jin Hua Integrated Circuit—32nm DRAM technology.
  • Shanghai Huali (HLMC)—28nm foundry logic capability.

While all of the currently announced China IC fabs seem to be more than adequately funded, none of them appear to possess the IC technology needed to compete with the leaders in their respective product segments.

There have recently been reports that the Chinese companies building the new fabs discussed above are hiring IC engineers from Samsung, SK Hynix, and Intel’s China-based IC facilities. This method has been mentioned as one way for Chinese companies to “develop their own” IC technology as these engineers bring IC process knowledge/experience acquired at their former employer with them. In IC Insights’ opinion, this is a very dangerous way to “develop” IC process technology.

In 2003, in China-based pure-play foundry SMIC’s second year of production, TSMC filed a lawsuit alleging that SMIC hired more than 100 former TSMC employees and asked them to provide SMIC with TSMC trade secrets. Moreover, TSMC alleged that SMIC infringed on five of TSMC’s IC process technology patents (later expanded to eight patents). In early 2005, SMIC and TSMC settled the lawsuit with SMIC paying TSMC $175 million and TSMC gaining an 8% stake in SMIC. Prior to the settlement, a California jury returned a verdict against SMIC in a U.S. lawsuit filed by TSMC.

With the stakes so high, once the newly opened Chinese-owned memory fabs begin production, expect the reverse engineering teams at Samsung, SK Hynix, Micron, Intel, Toshiba, and Western Digital (SanDisk) to shift into high gear by taking apart the new Chinese DRAM and 3D NAND devices to determine which of their patents are being infringed upon by these new memory players. IC Insights believes that with the decades of high-volume DRAM and NAND flash production history of the major memory suppliers, it will be almost impossible to develop new DRAM and NAND flash technology without infringing on numerous patents within these companies’ extensive portfolios.

In 2016, IC production in China (including foreign companies) represented 11.6% of its $112 billion IC market, up less than two percentage points from 9.8% five years earlier in 2011. Moreover, China-based IC production is forecast to exhibit a very strong 2016-2021 CAGR of 18%. However, considering that China-based IC production was only $13.0 billion in 2016, this growth will start from a relatively small base.

Given the sheer size of the expected expenditures for new Chinese IC facilities, as well as an expanding presence of foreign IC producers (e.g., Intel, Samsung, etc.), IC Insights believes there will be a significant improvement in the share percentage of China-based IC production through 2025 (Figure 2), but nowhere near the levels forecast in the MIC 2025 plan. As shown, IC Insights forecasts that this share will increase to 17.0% in 2020 and to 25.0% in 2025, each less than half of the original MIC 2025 goals.

Figure 2

Figure 2