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The bigger picture China’s impact on the semiconductor industry

Chapter 4: 2012 update Greater China

September 2012 About this report Chapter 4: Table of contents In 2004, PwC released its original report, China’s impact on the semicon- ductor industry, in response to our clients’ interest in the rapid growth of the semiconductor industry in China. Specifically, clients wanted to find 4.1 Undergoing a out whether China’s production volumes would contribute to worldwide structural shift overcapacity and a subsequent downturn in the industry. For the past seven years, we have provided updates that included an analysis of both 4.1 Mixed outlook for the semiconductor market (consumption) and industry (production). 2012 We also covered design, the value chain and possible production growth scenarios along with a number of other topics. 4.2 Foundries Because the report relies on a number of data sources, we have been un- aggressively able to deliver it in full until the fourth quarter of the following year. This investing in new year, in an effort to get you this vital information in a more timely fash- generation capacity ion, we have chosen to release the report in a tiered fashion. This is the fourth chapter in the series. Please note that figure and table numbering continue from the second chapter, thus the first figure in this chapter is 4.4 Ambitious assembly numbered 20 rather than 1. In the coming weeks, we will release ad- and testing ditional chapters, until we have covered as much material as in previous expansion plans reports. At the end of the release period, you will be able to download a complete pdf file of the full report. 4.4 Taiwan’s two largest IC design houses to merge

Please visit www.pwc.com/chinasemicon over 4.5 DRAM industry the next several weeks to read or download shake-up underway each chapter of this year’s report. 4.6 Taiwan allows higher Chinese Chapters released to date include: investment in 1. Market and industry overview tech sector 2. China’s semiconductor industry 4.7 China removed 3. Design in China from Taiwan’s SHTC watch list 4. Greater China 4.7 Greater China’s impact on the semiconductor industry

4.11 Greater China’s impact on semiconductor demand

Greater China, which includes mainland China, Hong Kong and Taiwan, accounted for more than half of the worldwide semiconductor consumption market in 2011.

The Greater China semiconductor industry has performed better than the worldwide industry, growing 34% compared to a worldwide 17% growth over the last four years.

China’s consumption of semiconductors has grown to be almost fifteen times that of Taiwan in 2011, while Taiwan’s IC industry declined to slightly less than two and a quarter times that of China in 2011.

There were 30 Greater China OEM, ODM and EMS companies among the worldwide top 100 semiconductor consumers in 2011 based upon Purchasing TAM.

Greater China continues to dominate contract or outsourced semiconductor manufacturing. Undergoing a structural shift Greater China

Greater China’s consumption and of talent, technology and capital from production of semiconductors Taiwan. This chapter highlights the both grew to record levels in 2011. latest market developments in Taiwan’s Measured in US dollars, Greater China, semiconductor industry and its which includes mainland China, interactions with China. Hong Kong and Taiwan, accounted for more than half of the worldwide semiconductor consumption market Mixed outlook for 2012 in 2011, while it produced less than a third of the worldwide semiconductor Taiwan’s IC industry revenues industry revenues. as a whole (including design, manufacturing, assembly and testing) Taiwan is one of the world’s largest fell 11.7% to NT$1,562 billion suppliers of semiconductors and (US$53 billion) in 2011, according to a key pillar of the Greater China the Taiwan Semiconductor Industry semiconductor industry. Its growing Association (TSIA). Between the economic relationship with China natural disasters in Japan and Thailand and progressive easing of cross-Strait and the overall impact of a weak investment restrictions have helped global economy, last year presented accelerate the integration of the a number of major challenges for the Taiwanese and Chinese semiconductor semiconductor industry in Taiwan industries, largely through the infusion and worldwide.

Greater China accounted for more than half of the worldwide semiconductor consumption market in 2011, while it produced less than a third of the worldwide semiconductor industry revenues.

The bigger picture: Greater China | China’s impact on the semiconductor industry—2012 update | 4.1 For the time being, Taiwan’s Foundries aggressively market domination of the global investing in new semiconductor foundry and assembly generation capacity and testing sectors is assured. Taiwan currently has an estimated two- Taiwan’s dedicated IC foundry sector thirds global market share of the IC is expected to enjoy healthy growth chip contract manufacturing sector, in 2012, boosted by strong demand and its IC packaging and testing for smart mobile devices. Taiwan’s industry ranks first in the world, with two largest chip makers, Taiwan over 50% market share. However, Semiconductor Manufacturing Co. Taiwanese fabless IC designers face (TSMC) and United Microelectronics increasing competition in the Chinese Corp. (UMC), are aggressively market from mainland rivals, while expanding production capacity to local DRAM chip manufacturers are safeguard their market positions. Both struggling to stay afloat. companies embarked on new multi- billion 12-inch fab construction in the The latest TSIA forecasts, made in second quarter of 2012 in southern August 2012, project a 6.9% annual Taiwan, aiming to provide sufficient increase in Taiwan’s IC industry 28-nanometer and below capacity in revenues for 2012. Microsoft’s the years to come to meet consumer upcoming release of Windows 8, demand for high-end chips. along with still-strong demand for smartphones, tablet PCs and other The unexpected strength of demand mobile devices, will help drive industry for smartphones and tablets in growth this year. Offsetting some early 2012 prompted TSMC to of these positives is the continued raise its capital expenditure budget weakness in the global economy, for the year to between $8 billion which could potentially dampen and $8.5 billion from the original demand for IC chips through to $6 billion, and exceeding the record- the year-end and into 2013. Still, high of $7.3 billion it spent in 2011. semiconductor capital investment is The proposed investment is intended projected to continue apace this year to meet growing customer demands for and to be directed towards advanced its 28-nanometer technology process technologies in wafer processing and and expedite development of the packaging assembly. more advanced 20-nanometer node. TSMC is also ramping up its capital investment and spending on R&D in an effort to fend off growing competition from new rivals as they vie for a bigger share of the booming mobile market.

Microsoft’s upcoming release of Windows 8, along with still-strong demand for smartphones, tablet PCs and other mobile devices, will help drive semiconductor industry growth this year.

The bigger picture: Greater China | China’s impact on the semiconductor industry—2012 update | 4.2 TSMC has dominated the global chip As for UMC, Taiwan’s second-largest foundry sector since the middle of pure-play foundry has set its capital the last decade, but competition in expenditure budget at $2 billion for the market is on the rise. US-based 2012, which is 25% higher than the GlobalFoundries is emerging as a $1.6 billion it spent in 2011. In May rival in the IC foundry business, while 2012, UMC announced plans to spend Intel and Samsung Electronics, which $8 billion over the next few years mainly make chips for their own to expand its advanced chipmaking brands, are pushing into the market capacity, with the aim of boosting its for chips used in mobile devices. 28-nanometer chip production and Samsung, already the world’s largest establishing a solid foundation for memory chip maker, is planning large 20-nanometer chips and beyond. One investments in its own capacity to month earlier, it had also unveiled expand into non-memory chip and plans to raise its investment stake foundry chip making, including the in Chinese wafer foundry Hejian building of a $7 billion NAND flash Technology to 80–90%, up from its memory plant in China, its biggest current holding of 35%, subject to overseas chip investment. approval of the Taiwanese authorities.

The expansion plans of TSMC and UMC have also attracted the Taiwan’s contract chip makers are also benefitting investment support of several foreign from the current shake-out in Japan’s semiconductor IC designers and packagers. Last industry as it grapples with costly restructuring. November, UK chip designer ARM Holdings opened an R&D center in the Hsinchu Science Park and, in July In an effort to gain leverage in a 2012, signed a multi-year agreement highly competitive market, TSMC with TSMC to co-develop technology announced in early August 2012 beyond the 20-nanometer process. that it would invest €838 million (The month before UMC said it had (US$1 billion) to acquire a 5% equity licensed process technology from stake in Dutch firm ASML, the world’s IBM to expedite the development top chip equipment maker. (The of 20-nanometer chips). Also, announcement came within weeks Singaporean chip packaging and of both Intel and Samsung signing testing firm STATS ChipPAC has similar investment agreements with expanded its wafer bump and wafer ASML.) Under the deal, TSMC will also level chip scale packaging facilities in invest €276 million (US$400 million) Hsinchu, which can now provide wafer over the next five years in ASML’s bumping and associated leading-edge R&D programs, including extreme packaging services for 12-inch wafers. ultraviolet (EUV) lithography technology and 450mm lithography Taiwan’s contract chip makers are also tools, which are aimed at accelerating benefitting from the current shake-out the development of faster, smaller and in Japan’s semiconductor industry as more energy-efficient chips. TSMC it grapples with costly restructuring. said it also expects the co-investment In May 2012, Renesas Electronics, the program will help control escalating world’s largest supplier of automotive wafer manufacturing costs. microcontroller chips, announced

The bigger picture: Greater China | China’s impact on the semiconductor industry—2012 update | 4.3 that it was broadening its outsourcing copper wire IC packages. The company agreement with TSMC. The Taiwanese reportedly plans to spend a further foundry manufacturer is to make $1.9 billion in Taiwanese capacity 40-nanometer microchips for Renesas, expansion over the next four years. in addition to the 90-nanometer units that it already produces for A month earlier, ASE broke ground the embattled Japanese chip maker. on its China headquarters and an Taiwan’s contract chip assemblers can R&D center in Shanghai’s Zhangjiang also expect to benefit from increased Industrial Park. The new facilities are outsourcing from Japanese IDMs. aimed at attracting more orders from local fabless IC firms and IDMs, and establishing a firm foothold in China. Ambitious assembly and At the same time, ASE also unveiled testing expansion plans plans to invest another $3.7 billion in China over the next eight to 10 years, Several of Taiwan’s leading where it currently runs production independent providers of plants in Kunshan, Shanghai, semiconductor assembly and testing Shenzhen, Suzhou and Weihai. The services also plan to increase their company has been migrating its capital spending this year and beyond capacity for entry- and mid-level IC to meet growing demand. Kaohsiung- backend services to China since 2010, based Advanced Semiconductor leaving its Taiwan plants to focus on Engineering (ASE), the world’s largest higher-end services. IC packaging and testing company, continues to expand its capital investments in both Taiwan and China Taiwan’s two largest IC to keep up with the brisk consumption design houses to merge of smartphones, tablet PCs, smart TVs and game consoles, as well as the Taiwan’s IC design sector, in which increase in outsourcing by IDMs. over 80% of companies reported declining revenues and profits for 2011, faces growing competition in The merger of MediaTek and Mstar, Taiwan’s largest China from local rivals like Spreadtrum Communications. MediaTek, the and second-largest IC design houses, respectively, world’s second biggest mobile chipset will create the world’s fourth-biggest chip designer. maker, has been particularly hit by the intensifying competition in its core feature-phone chip market and its In October 2011, ASE completed slow progress in designing chips for construction of its new K12 high-end smartphones. In response, manufacturing plant in the Nantze MediaTek has stepped up efforts Export Processing Zone in southern to broaden its product portfolio, Taiwan. The facility cost between $500 primarily through acquisitions that million and $600 million to build, and aim to build up its technological will focus on the production of ASE’s capabilities in communications and advanced packaging technologies and digital home entertainment.

The bigger picture: Greater China | China’s impact on the semiconductor industry—2012 update | 4.4 In June 2012, MediaTek announced Local DRAM manufacturers are plans to acquire long-standing taking action to reduce their over- Taiwanese rival Mstar Semiconductor dependence on PC DRAM. Winbond in a deal that values the latter at Electronics, Powerchip Semiconductor about $3.8 billion. The merger of and ProMOS Technologies have all Taiwan’s largest and second-largest largely left the PC DRAM market to IC design houses, respectively, would become either contract manufacturers create the world’s fourth-biggest chip or producers of other, niche DRAM designer, with annual revenue of about products used in hot-selling devices $4.2 billion last year. For MediaTek, such as smartphones and tablets. the MStar buy puts it into the smart TV Nanya Technology, Taiwan’s largest business, which will be one of the main DRAM chip maker by sales and part growth drivers in the future. MStar of the conglomerate Formosa Plastics currently accounts for about 50% of Group, and its Inotera Memories the world’s digital TV chip market and joint venture with US firm Micron has rapidly expanded into the mobile- Technology are also expanding their phone chip and set-top box chip share of non-standard DRAM products. markets in recent years. Nanya also has a 10-year partnership agreement with Micron (through 2018) to co-develop new DRAM DRAM industry shake- chip technology. up underway Besides Micron, Japan’s Elpida Taiwan’s memory chip makers are Memory had also formed key struggling to keep afloat in the face partnerships with several Taiwanese of stagnant demand for PC DRAM DRAM companies. However, the chips, an increased consumer focus embattled Japanese DRAM chip on mobility and a darkening global maker filed for bankruptcy protection economic outlook. Coupled with in late February 2012. Five months over-capacity and growing inventories, later, Micron agreed to buy Elpida in these factors are depressing DRAM a deal worth $2.5 billion. Separately, prices and undermining the ability Micron also took ownership of Elpida’s of Taiwan’s DRAM sector to remain 65% stake in Rexchip Electronics, profitable. Moreover, this comes at its Taiwanese joint venture with a time of significant pressure from Powerchip Technology, and, in industry leader Samsung Electronics, addition, purchased the latter’s shares which now commands over 40% of the in Rexchip. Once completed, these global DRAM market. deals will bring significant changes to the DRAM industry landscape and supply chain relationships, and Taiwan’s memory chip makers are struggling to keep may even help correct the current afloat in the face of stagnant demand for PC DRAM oversupply situation. chips, an increased consumer focus on mobility and a darkening global economic outlook.

The bigger picture: Greater China | China’s impact on the semiconductor industry—2012 update | 4.5 In the meantime, Taiwan’s DRAM Taiwan allows higher sector remains plagued by financial Chinese investment in problems. But the government is tech sector unlikely to step in as it tried during the steep downturn in 2008–2009. In a bid to shore up Chinese investment Its original plan to restructure the interest in Taiwan’s technology industry by building a stronger DRAM industry, in March 2012 the Taiwan entity—Taiwan Memory Co.—was government raised investment finally scrapped in March 2010 in the ceilings for Chinese investors in five face of strong resistance. This time key sectors: liquid crystal displays around, while the government has (LCDs); semiconductors; IC assembly voiced concern over the DRAM sector’s and testing; microelectronics woes, it is trying a different approach, production equipment and metal tool looking to raise R&D capability in manufacturing. Chinese investors the industry. are no longer limited to a 10% stake in local companies, or 50% in joint In December 2011, the government- ventures. However, they are still backed Industrial Technology Research barred from taking controlling stakes Institute (ITRI) and US chipmaker Intel or appointing managers in their announced a five-year partnership investments, and all investments must to develop next-generation memory be approved by Taiwan regulators. chips. The project will focus on The relaxation also covers makers of developing 3D IC technology for light-emitting diodes (LEDs) and solar memory chips, which would be cells, which were opened to Chinese mostly used in ultra-mobile devices, investors for the first time. such as smartphones and tablets.

In March 2012, the Taiwan government raised investment ceilings for Chinese investors in the LCD, semiconductor, IC assembly and testing, microelectronics production equipment and metal tool manufacturing sectors.

ITRI expects the project to bear fruit Since the signing of the Economic within three years at the earliest, and Cooperation Framework Agreement it would then transfer the memory in June 2010, Taiwan has accelerated technologies to private firms. This the process of opening its market development suggests that, in the to investment from China. To date, longer run, the memory sector will however, accumulated Chinese still likely play a key role in Taiwan’s investment in Taiwan is less than semiconductor industry. three-thousandths of the money going in the other direction. As of June 2012, Chinese enterprises had invested a total of almost $300 million in Taiwan since it first opened its market to them in 2009, while Taiwanese businesses have officially invested about $120 billion in China since 1991, according to statistics from

The bigger picture: Greater China | China’s impact on the semiconductor industry—2012 update | 4.6 Taiwan’s Investment Commission. from Taiwan. While administrative The paucity of Chinese investment has fines may still be triggered by non- been partially attributed to the lack compliance with export permit of a bilateral investment protection requirements, criminal liabilities will agreement. Such a pact was finally no longer apply to SHTC exports to signed in early August 2012 at the China, except where the item is one eighth round of high-level talks of 12 categories of semiconductor between Taiwan and China. This manufacturing equipment. should help encourage more Chinese investment to come to Taiwan. Export restrictions to China are now limited to chemical mechanical polishers, photo-resist strippers, China removed from photo-resist developers, rapid thermal Taiwan’s SHTC watch list processors, deposition apparatuses, cleaning equipment, dryers, electron In a further sign of normalization of microscopes, etching machines, ion cross-Strait trade ties, Taiwan eased its implanters, photo-resist coaters and ban on the export of strategic high- lithography equipment. tech commodities (SHTC) to China in June 2012. The ban was introduced in 2006 amid concerns that Iran Greater China’s impact on and North Korea might use Taiwan the semiconductor industry as a transhipment point for goods and materials that could be used to Driven by the Chinese market, produce weapons of mass destruction. Greater China’s semiconductor The relaxation measure now brings consumption increased to a record Taiwan’s rules into line with export level of $162 billion in 2011, growing control regimes in most countries, by 14%, or $29.9 billion, in the year. including the US, the European Union This growth was more than fifteen and Japan. times the $1.2 billion increase in the 2011 worldwide semiconductor The removal of China from the market reported by SIA/WSTS list of restricted areas will benefit (Semiconductor Industry Association/ companies whose trade activities World SemiconductorTrade Statistics). involve exporting SHTC items to China As a result, Greater China’s share

We gauge semiconductor market share by region including Greater China to be:

2007 2008 2009 2010 2011 Change Greater China 42% 45% 48% 47% 54% +12% Japan 19% 19% 17% 16% 14% -5% Americas 16% 15% 17% 18% 17% +1% Europe 16% 15% 13% 13% 11% -5% Rest of world 7% 6% 5% 6% 4% -3%

The bigger picture: Greater China | China’s impact on the semiconductor industry—2012 update | 4.7 of the worldwide semiconductor As a result, China’s consumption of consumption market increased semiconductors has grown to be almost significantly to 54% in 2011, fifteen times that of Taiwan’s in 2011. accounting for more than half of all A conspicuous portion of that market the semiconductors consumed in the consumption in China continues to world for the first time ever. In the be created by Taiwanese electronic latest business cycle, Greater China manufacturing service (EMS) has fared much better than the total and original design manufacturer industry. Over the last four years, since (ODM) companies. 2007, Greater China’s semiconductor consumption market has increased Greater China’s semiconductor 51%, while the worldwide market industry (production) also increased only increased 17%. This is because to a new record level in 2011, as China’s consumption market has China’s industry growth more than increased 70%, while Taiwan’s offset Taiwan’s decreases. Although has decreased 6%. The difference Taiwan’s semiconductor industry between the two markets reflects the continues to be larger, uses more continued and sustained transfer (or advanced technology and features off-shoring) of worldwide electronics more renowned companies, it was equipment production to China from also more affected by global natural other locations including Taiwan. disasters, economic weakness and the challenges of the DRAM market.

Figure 20: Greater China share of the worldwide semiconductor industry, 2000–2012

Industry–production Market–consumption

Hong Kong Taiwan China China Hong Kong Taiwan

32.6% 2011 54.0%

31.3% 2010 47.5%

30.1% 2009 48.2%

30.2% 2008 45.5%

Greater 28.6% 2007 41.7% Greater China China production consumption 36.2% as a 26.4% 2006 as a percent of percent of worldwide 22.8% 2005 32.0% worldwide

21.5% 2004 29.1%

19.9% 2003 28.7%

19.0% 2002 26.9%

15.5% 2001 20.2%

N/A 2000 15.9%

120 80 40 0 0 40 80 120 160 US$bn

Source: CCID, CSIA, Gartner Dataquest, ICI, TSIA, WSTS, PwC 2004–2012

The bigger picture: Greater China | China’s impact on the semiconductor industry—2012 update | 4.8 Measured in US dollars, Taiwan’s than that of China. Much of that IC industry revenue decreased by volatility came from Taiwan’s IDM/ more than 4% (almost 12% in local IC sector, reflecting the crash of the currency terms) in 2011, an annual worldwide DRAM market in 2008 drop of more than $2 billion, while and 2009, its dramatic recovery China’s semiconductor industry in 2010 and subsequent relapse in revenue increased by more than 14% 2011. After a two-year run of declines in the year, for a gain of more than (-27% in 2008, and -19% in 2009) $5 billion. As a result, Greater China’s the sector abruptly grew 86% in 2010 semiconductor industry (production) and then dropped by -34% in 2011. revenues increased by a net $3 billion Taiwan’s foundry and packaging and in 2011, growing 3.2% to a new record testing sectors also contributed to the of almost $98 billion. volatility, declining by -2% in 2008 and -9% in 2009 before growing +36% in During the past four years of this 2010 and declining a moderate -2% in business cycle both China’s and 2011. Taiwan’s IC design sector, which Taiwan’s IC industry revenues have had a more stabilizing performance, increased: China by 59% and Taiwan declined -6% in 2008, but grew +3% by 19%. As result, the Greater China in 2009 and +18% in 2010, before semiconductor industry has performed declining -15% in 2011. As a result, better than the worldwide industry, Taiwan’s IC industry relative revenue growing 34% compared to a worldwide performance ended up being slightly 17% growth over the last four years. less than two and a quarter times as During that period, Taiwan’s industry large as China’s in 2011. performance was much more volatile

Figure 21: Greater China share in 2011

Worldwide 29% Worldwide 34% Worldwide 54% semiconductor current wafer committed advanced (consumption) market fab capacity <0.08µm fab capacity

Worldwide Worldwide Worldwide 32% 30% semiconductor industry committed wafer 50% committed discrete/ (production) revenue fab capacity LED fab capacity

Worldwide Worldwide Worldwide committed “pure play” 42% semiconductor package, 66% all new wafer fabs 69% under construction foundry fab capacity assembly & test capacity

Worldwide Worldwide Worldwide SATS 52% new wafer fab capacity 32% committed 300mm 62% (semiconductor assembly & under construction fab capacity test services) capacity

Greater China Rest of world

Source: CCID, Gartner Dataquest, ICI Insights, SEMI World Fab Watch, TSIA, WSTS, PwC 2012

The bigger picture: Greater China | China’s impact on the semiconductor industry—2012 update | 4.9 Greater China’s IC consumption Since the end of the 2008/09 far exceeds its IC production. The semiconductor downturn, 49 new difference, which we describe wafer fabs have started production in as Greater China’s annual IC Greater China, representing 60% of consumption/production gap, has all the new fabs starting production grown steadily since 2000 to reach worldwide and 35% of their capacity. a record $58 billion in 2011. This is Of these new fabs, 40 were discrete/ a 43% increase from the $40 billion LED fabs, giving Greater China a annual gap reported for 2010 and significant 78% share of new discrete/ is the consequence of China’s IC LED fabs starting production since consumption growth greatly exceeding 2009. In addition, there are currently (as of May 2012) 29 additional wafer fab facilities under construction in Since the end of the 2008/09 semiconductor Greater China, representing 66% of all fabs under construction worldwide downturn 49 new wafer fabs have started and 52% of their capacity. Twenty production in Greater China, representing 60% of these fabs under construction in of all the new fabs starting production worldwide Greater China are discrete/LED fabs, representing 91% of all discrete/LED and 35% of their capacity. fabs under construction. If and when all these fabs are completed, put into Taiwan’s IC production growth. production, fully equipped and ramped China’s annual IC consumption/ to full capacity, Greater China will production gap (i.e., the value of its IC have 30% of total worldwide wafer fab consumption less production), which capacity, including 69% of pure-play had been growing steadily since 2000, foundry capacity, 50% of discrete/LED with only a slight decrease in 2009, capacity, 32% of 300mm capacity and increased by 15% in 2011 to a new 34% of advanced ≤ 80nm capacity. record $100.5 billion. At the same time, Taiwan’s annual production/ Eight of the twelve new semiconductor consumption surplus, which had package, assembly and test facilities reached a record $46.9 billion in that have been added worldwide since 2010 after four consecutive years in 2009 are located in Greater China. As the $30 billion to $34 billion range, a result, Greater China has increased decreased by 9%, or $4.1 billion, to 42% its share of total worldwide to $42.8 billion in 2011. Therefore, semiconductor package, assembly and Greater China had an annual IC test capacity. consumption/production gap of $57.7 billion in 2011, a further increase from $40 billion in 2010, $36 billion in 2009 and $35 billion in 2008. While the gap is still significantly less than that of China alone, it now accounts for more than 19% of the total worldwide semiconductor market.

The bigger picture: Greater China | China’s impact on the semiconductor industry—2012 update | 4.10 Greater China’s impact on party. Of these 24 companies 18 are semiconductor demand in Taiwan, 5 in China, and 1 in Hong Kong. Their combined total Design There were 24 Greater China OEM and TAM accounted for slightly more ODM companies among the worldwide than 14% of worldwide in 2011, an top 100 semiconductor consumers in increase from 13% in 2009. Their 2011 based upon Design TAM (total combined Design TAM in 2011 had available market). Design TAM is increased 46% from 2009 compared the total value of the semiconductor to the worldwide Design TAM which content in all products designed by increased 34%. The top four of these electronic equipment manufacturers, Greater China companies with Design regardless whether the design is for TAM’s of more than $4 billion in 2011 the manufacturer itself or for a third are: Lenovo ($8 billion), Huawei

Table 5: Greater China’s top 100 OEM/ODM companies by Design TAM (Greater China companies among worldwide top 100 OEM/ODM companies by Design TAM)

Design TAM (US$M) Company Country 2009 2010 2011 % change Greater China’s total OEM/ODM 2009–2011 companies by Design TAM Ability TWN 420 622 737 75.5% Number of companies Acer TWN 4,162 5,410 4,286 3.0% by country A-Data TWN 663 794 570 -14.1% ASUSTeK TWN 2,976 2,341 2,455 -17.5% BenQ TWN 1,151 1,302 1,164 1.1% Compal TWN 2,360 1,952 1,617 -31.5% Delta Electronics TWN 298 396 399 33.9% ECS TWN 509 620 513 0.7% 18 5 1 Gigabyte TWN 507 607 567 11.8% Haier CN 297 437 590 98.8% Hong Taiwan Kong China Hon Hai TWN 2,628 3,854 4,086 55.4% HTC TWN 748 1,631 2,456 228.2% Huawei CN 2,278 3,408 4,255 86.8% 24% Inventec TWN 810 770 868 7.1% Lenovo CN 3,729 6,083 7,779 108.6% by 2009– 2011 growth Lite-On TWN 369 424 473 28.2% MSI TWN 916 1,187 857 -6.4% 77% Pegatron TWN 0 1,845 1,666 NA Quanta TWN 996 1,245 1,253 25.7% Even though 99% TCL CN 557 945 1,183 112.5% Taiwan numbered the most companies, TPV HKG 1,005 2,000 1,776 76.6% it experienced the lowest Transcend TWN 622 617 726 16.8% Design TAM growth from Wistron TWN 882 1,084 1,381 56.6% 2009–2011. ZTE CN 1,473 2,088 2,790 89.4% Grand total 30,358 41,663 44,446 46.4%

Source: Gartner

The bigger picture: Greater China | China’s impact on the semiconductor industry—2012 update | 4.11 Table 6: Greater China’s top 100 OEM, ODM & EMS companies by Purchasing TAM (Greater China companies among worldwide top 100 OEM, ODM & EMS companies by Purchasing TAM)

Purchasing TAM (US$M) Company Country 2009 2010 2011 % change 2009–2011 Greater China’s total OEM, ODM & EMS companies by Purchasing TAM Ability TWN 432 710 843 95.0% Acer TWN 2,091 2,846 2,256 7.9% Number of companies by country A-Data TWN 663 794 570 -14.1% Arima TWN 375 422 422 12.7% ASUSTeK TWN 5,648 1,600 1,643 -70.9% BenQ TWN 728 778 696 -4.5% Cal-comp TWN 725 864 772 6.5% Compal TWN 4,896 5,532 5,198 6.2% ECS TWN 994 1,192 1,016 2.2% 23 5 Gigabyte TWN 949 1,145 1,097 15.6% 1 Haier CN 285 410 536 88.1% Hon Hai TWN 10,573 15,438 18,429 74.3% Hong Taiwan Kong China HTC TWN 1,068 2,032 2,675 150.6% Huawei CN 1,825 2,760 3,246 77.8% Inventec TWN 2,519 2,280 2,652 5.3% Largan Precision TWN 317 365 445 40.4% 38% Lenovo CN 2,846 4,738 5,919 108.0% by 2009– Lite-On TWN 471 545 599 27.3% 2011 growth Mitac TWN 780 730 646 -17.2% 79% MSI TWN 1,461 1,817 1,440 -1.5% 87% Pegatron TWN 0 5,888 5,690 NA Hong Kong, with its Quanta TWN 4,289 6,091 6,214 44.9% single company, Skyworth CN 346 308 426 23.2% experienced almost TCL CN 784 1,230 1,459 86.0% 80% Purchasing TAM growth from 2009–2011. TPV HKG 1,008 2,000 1,808 79.5% Transcend TWN 622 617 726 16.8% TSMT TWN 368 589 653 77.7% USI TWN 587 822 916 56.1% Wistron TWN 2,452 2,949 3,520 43.5% ZTE CN 1,458 2,069 2,491 70.8% Grand total 51,561 69,560 75,004 45.5%

Source: Gartner

The bigger picture: Greater China | China’s impact on the semiconductor industry—2012 update | 4.12 ($4 billion), Acer ($4 billion) and which increased 34%. The top five Hon Hai ($4 billion). Apple, at $18.8 of these Greater China companies billion, is reported to have the largest all with Purchasing TAM’s of more semiconductor Design TAM worldwide than $5 billion in 2011 are: Hon Hai in 2011, slightly greater than Samsung ($18 billion), Quanta ($6 billion), Electronics at $18.4 billion and greater Lenovo ($6 billion), Pegatron than HP at $16.0 billion. ($6 billion) and Compal ($5 billion). ODM and EMS companies such as Hon There were 30 Greater China OEM, Hai, Quanta, Pegatron and Compal can ODM and EMS companies among the have Purchasing TAMs that are larger worldwide top 100 semiconductor than their Design TAMs since they consumers in 2011 based upon manufacturer electronic equipment Purchasing TAM. Purchasing TAM is designed by others, while OEM the total value of the semiconductor companies such as Lenovo can have a content in all products purchased by Design TAM larger than its Purchasing an electronic equipment manufacturer TAM because it outsources some of its regardless of whether the purchase manufacturing, including purchasing, is for the manufacturer itself or for a to others. Hon Hai is reported to have third party. Since EMS companies only the largest Purchasing TAM worldwide manufacturer electronic equipment in 2011 at $18.4 billion, slightly designed by other parties, they create greater than Samsung Electronics at Purchasing TAM but not Design $17.7 billion. TAM. Of these 30 companies 23 are in Taiwan, 6 in China and 1 in Hong Kong. Their combined total Purchasing TAM accounted for slightly more than 24% of worldwide in 2011, an increase from 22% in 2009. Their combined Purchasing TAM in 2011 had increased 45% from 2009 compared to the worldwide Purchasing TAM,

The next chapter

Check back at http://www.pwc.com/chinasemicon for our next chapter in this series coming in a few weeks. It will highlight major Chinese semiconductor manufacturers.

The bigger picture: Greater China | China’s impact on the semiconductor industry—2012 update | 4.13 PwC can help

If your company is facing France Singapore challenges doing business Xavier Cauchois Greg Unsworth in China, or you just want +33 1 5657 1033 +65 6236 3738 to have a deeper discussion [email protected] [email protected] about what’s happening in the market and how we can Germany Taiwan help, please reach out to one Werner Ballhaus Andy Chang of the technology industry +49 211 981 5848 +886 (2) 2729 6666 ext 25216 leaders listed below. [email protected] [email protected]

Global India UAE Raman Chitkara Sanjay Dhawan Douglas Mahony +1 408 817 3746 +91 80 407 97003 +97 1 4304 3151 [email protected] [email protected] [email protected]

Australia Japan UK Rod Dring Akihiko Nakamura Jass Sarai +61 2 8266 7865 +81 3 5427 6555 +44 (0) 1895 52 2206 [email protected] [email protected] [email protected]

Brazil Korea US Estela Vieira Hoonsoo Yoon Tom Archer +55 1 3674 3802 +82 2 709 0201 +1 408 817 3836 [email protected] [email protected] [email protected]

Canada Netherlands Christopher Dulny Ilja Linnemeijer +1 416 869 2355 +31 (0) 88 792 49 56 [email protected] [email protected]

China & Hong Kong Russia JianBin Gao Yury Pukha +86 21 2323 3362 +7 495 223 5177 [email protected] [email protected]

The bigger picture: Greater China | China’s impact on the semiconductor industry—2012 update | 4.14 About PwC

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