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www.pwc.com/technology Another year of strong growth China’s impact on the semiconductor industry 2012 update Technology Institute February 2013 Table of contents i Executive summary 5.1 Manufacturing v Key findings 6.1 Government and production growth scenarios viii Recommendations ix Appendix: Interpreting Chinese 1.1 Market and industry overview semiconductor statistics 2.1 China’s semiconductor industry xv About this report 3.1 Design in China xvii Acknowledgements 4.1 Greater China xix PwC can help Raman Chitkara Partner and Global Technology Welcome Industry Leader [email protected] China’s domination in semiconductor consumption continues with no near-term challenge from any other country. The ongoing mobile computing explosion, marked by rapid proliferation of smart phones and tablets, helped China further consolidate its position as the leading consumer of semiconductors, accounting for 47% of the global semiconductor market. China’s semiconductor industry also continued to grow at an impressive pace, having achieved a 10-year compounded annual growth rate of 24%. A significant portion of that growth came from China’s IC design or fabless sector, which grew from less than US$200m in 2001 to more than US$7bn in 2011. With the emer- gence in 2011 of the first Chinese billion-dollar IC design company and two of the worldwide top five fastest growing IC design companies, this sector is helping to accelerate development of the Chinese semiconductor industry. In addition to semiconductor industry advancements, we see sustained growth supported by China’s top position in technology and semiconductor IPOs, an increasing percentage of original issue semiconductor patents and the Chinese government’s ambitious policy initiatives that promote domestic innovation. The following report is our seventh update to the original 2004 study. Our in- depth analysis is the result of careful evaluation of numerous industry statistics and conversations with a number of Chinese semiconductor executives and analysts. You will find a discussion of both geographical and product category demand as well as commentary on changes in the semiconductor value chain. If you would like to discuss any of the findings and how they might impact your business, please reach out to me or any member of our global technology team listed in the back of this document. Sincerely, What you need to know Executive summary PricewaterhouseCoopers began the cant portion of that exceptional growth study series, China’s Impact on the was attributed to China’s IC design or Semiconductor Industry, in 2004 in fabless sector, which grew by more response to our clients’ interest in the than 36% in 2011. rapid growth of the semiconductor industry in China. Specifically, clients China’s semiconductor consumption wanted to find out whether China’s market has grown many times faster production volumes would contrib- than the worldwide market as a result China’s semiconductor ute to worldwide overcapacity and a of two driving factors—the continuing subsequent downturn. Since then, it transfer of worldwide electronic equip- consumption market has become clear that market growth ment production to China and the grew by 14.6% in 2011 in China was far more significant to above-average semiconductor content to reach a record 47% the worldwide semiconductor indus- of that equipment. Even during the try than production volumes. That global recession, China’s electronic of the global market. relationship may now have started to equipment production value grew dur- change as China’s 2011 semiconductor ing both 2008 and 2009 while world- performance far exceeded the world- wide production decreased by 3% in wide industry! Both China’s semicon- 2008 and 11% in 2009. As a result, ductor consumption market and semi- China’s share of worldwide electronic conductor industry growth were more equipment production increased to than ten times greater than worldwide 28.7% in 2008 and 32.8% in 2009. semiconductor industry growth. In 2011 worldwide electronic equip- China’s semiconductor consumption ment production grew by its historical market grew by 14.6% in 2011 to reach average 6%, while China’s electronic a record 47% of the global market. equipment production increased 10.7% Much of this exceptional growth was and its share increased to 33.2%. At the result of China’s dominant position the same time, the semiconductor in the production of smartphones and content of the electronic equipment media tablets. produced in China has continued to be about 25% higher than the world- At the same time, China’s semiconduc- wide average, which remained at 20% tor industry grew by 14.4% in 2011 to in 2011. reach a record US$43.5bn. A signifi- Another year of strong growth | China’s impact on the semiconductor industry—2012 update | i Whether the Chinese semiconduc- domestic market—the value of semi- tor market will be able to continue conductors consumed in China that are to gain global share will be primarily used in components of finished prod- determined by the future transfer of ucts assembled and sold in China—has electronic equipment production. Most grown at a 24% compounded annual industry analysts are predicting that growth rate (CAGR). That market the trend of an increasing share of elec- has grown from US$10bn in 2003 to tronic equipment production in China US$56bn in 2011. By itself, China’s do- will continue over the next five years. mestic consumption market has made up more than 34% of total worldwide The major global semiconductor semiconductor market growth since companies continue to dominate the 2003. China’s domestic semiconduc- Chinese market. The largest suppliers tor market grew to represent almost to the Chinese market continue to be 19% of the worldwide semiconductor the same multinational semiconduc- market in 2011. It has had a noticeable tor companies. There have been only impact on the semiconductor industry thirteen different companies that and has been credited with initiating have been among these top ten suppli- or leading the industry’s recovery from ers over the past nine years since our the depths of its decline in 1Q/09. initial report. Eight companies have been among the top ten semiconduc- Chinese OEMs influence and/or tor suppliers to China every year from purchase a significant and increasing 2003 through 2011: Intel; Samsung; number of semiconductor devices. Toshiba; TI; Hynix; ST; Freescale and The top 10 Chinese OEMs’ (original Whether the Chinese NXP/Philips. equipment manufacturers taken from semiconductor market China’s Ministry of Industry and Infor- It appears that there is still no Chinese mation Technology [MIIT] report of will be able to continue to company within the top 35 suppliers “Top 100 Chinese Electronic Informa- gain global share will be to the Chinese semiconductor market. tion Enterprises in 2012”) 2011 Design primarily determined by the Even if the largest Chinese semicon- TAM (total available market) semicon- ductor company sold all of its output ductor consumption was reported to be future transfer of electronic within China, no Chinese semiconduc- US$17.7bn, an increase of almost 24% equipment production. tor company would be among the top from 2010. The top 10 OEM 2011 Pur- 35 suppliers to the Chinese Semicon- chasing TAM semiconductor consump- ductor market in 2011. tion was reported to be US$14.8bn, an 18% increase from their 2010 reported Sixty-three percent (63%) of all the Purchasing TAM. These values are less semiconductors consumed in China than their Design TAM because some were used in components of finished of the OEMs (for example Lenovo) will products assembled in China and design a product specifying specific exported for sale in other countries. key components and then consign This export market has been the major manufacturing and purchasing to contributor to the growth of China’s an EMS (electronic manufacturing semiconductor market for the last services) company. decade. Since 2003, the consumption of semiconductors for export products China’s semiconductor industry has has increased by US$75bn and con- achieved a ten-year CAGR of 24% mea- stituted 62% of the overall growth of sured in US dollars (or 21% measured China’s semiconductor market. in local RMB currency) from 2001 through 2011. During 2011, almost At the same time, China’s domestic US$8bn of additional fixed-asset in- market continues to be of increasing vestments were made in China’s semi- significance to the global semicon- conductor industry, down 13% from ductor industry. Since 2003, China’s the slightly more than US$9bn invest- Another year of strong growth | China’s impact on the semiconductor industry—2012 update | ii ments made in 2010. Of that amount, in 2010. 2011 was also the first year almost US$5bn was made in the IC in which the value of China’s O-S-D industry, 34% less than in 2010 and exports exceeded the value of China’s more than US$3bn made in the O-S-D O-S-D imports. sector, 65% more than in 2010. China’s exceptional relative semicon- Based upon a comparison between ductor performance in 2011 was also China’s reported semiconductor in- evident in the continued growth of dustry revenue and the sum of world- China’s IC consumption/production wide semiconductor device sales, plus gap. This gap is the difference between foundry and semiconductor assembly IC consumption and IC industry reve- and test services (SATS) revenue, nues. Both China’s IC market consump- China’s semiconductor industry ac- tion and China IC industry production counted for 12.2% of the worldwide increased to new record levels in 2011. semiconductor industry in 2011, up As a result, China’s IC consumption/ from 10.8% in 2010 and, more signifi- production gap also increased to a new cantly, up from just 2% in 2000.

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