COLLIERS RADAR SEMICONDUCTOR OCCUPIERS | RESEARCH | PAN CHINA | 11 MAY 2020
Primary Author
Molly Hu Senior Manager| Research| East China +86 21 6141 3621 [email protected]
Contributors
Candice Yang Senior Analyst | Research | East China +86 21 6141 4308 [email protected]
Abby Zheng Assistant Manager| Research | East China +86 21 6141 4336 [email protected]
SILICON FUTURE Building China’s Semiconductor Industry COLLIERS RADAR SEMICONDUCTOR OCCUPIERS | RESEARCH | PAN CHINA | 11 MAY 2020
Summary & Recommendations China is largest 85% of
In sharp contrast to China’s vast semiconductor upcoming fabs consumption, less than 10% of global consumer in Tier 2 cities semiconductor revenue1 is generated by Chinese-headquartered semiconductor Being the world’s factory for electronic Tier-2 cities, specifically Wuhan, Chengdu, products and strong domestic consumption, firms, whose manufacturing processes Hefei and Xiamen, are host to 23 of 27 new China became the largest semiconductor facilities under construction or in the planning remain at least two generations behind consumer in the world, accounting for 35% of stage. Only four are in Tier 1 cities. international competitors. Propelled by global semiconductor sales of USD142 billion2 multiple government policies, a firm push in 2019 according to WSTS. in R&D, and a massive capital injection, Chinese semiconductor companies are catching up. Based on this, we recommend: 5G to drive Government > Semiconductor sector occupiers should growth support, talent fully exploit incentive measures from central and local governments, In 2020, the roll out of 5G infrastructure is and mature including robust subsidies, strategic one of the key initiatives that is leading to industrial base vital funding, tax deduction and preferential higher levels of semiconductor consumption. 5G is regarded as “new infrastructure” by the financing services by setting up offices central government as a method to stimulate Based on interviews with enterprises across the in different regions. economic development through investment semiconductor value chain, occupiers should focus > Semiconductor sector occupiers should and increased demand for electronics. their location strategy on these three factors look for locations with a sufficient talent base. The industry needs people With China’s growing semiconductor design, manufacturing, packaging and related industries supported by with strong backgrounds in the national policies, we expect the sector’s demand for commercial real estate (both leased and owned space) science, technology, engineering, and will increase as well. maths (STEM) fields. Occupiers should More semiconductor enterprises are quickly expanding, and this is reshaping business parks in Tier 1 cities negotiate with governments to gain and pushing demand to Tier 2 and Tier 3 cities. Business park landlords and management committees in more incentives for talents. these cities should proactively seize the opportunity that semiconductor occupiers present, and meet their demands for unique building requirements. > When expanding to new cities, those with a mature industrial base (autos, Molly Hu chemistry, electronics) will offer better Senior Manager access to skilled workers, industrial Research | East China knowledge, suppliers and customers. Source: 1SIA 2018 annual book, 2World Semiconductor Trade Statistics (WSTS). Note: USD1 to RMB 7.0931 as of 2020/3/31. 1 sq metre = 10.76 sq feet. 2 COLLIERS RADAR SEMICONDUCTOR OCCUPIERS | RESEARCH | PAN CHINA | 11 MAY 2020
Opportunities and challenges Recommendations Opportunities Local Government > 5G is driving a wave of global demand. Despite the COVID- > Engage the semiconductor sector at the beginning of regional 19 pandemic, SEMI projects the semiconductor industry development planning to understand and meet its unique will start recovering in Q4 20202. However, 5G should drive requirements for infrastructure and property space. a wave of demand growth for semiconductor with opportunities new applications in the next three years. > Strategically leave Build-to-Suit (BTS) project lots for future possibilities beyond standardized office, plant and R&D spaces. > China to achieve self-sufficiency goals. Growth of the semiconductor sector in China should outpace global > Provide high-profile incubation programs and offer a focus on growth given the the pursuit of semiconductor accessing venture capital resources. independence and new technology emergence like 5G. > Look deeply into talent risk and solutions for businesses’ long- > Fab to generate ecosystem. Semiconductor chips are term growth. manufactured in fabs, which are extremely capital intensive Semiconductor Tenants and involve hundreds of suppliers’ close cooperation for non-stop production and instant problem-solving. > Choose government-backed business parks to settle in. Business parks provide full-scope real-estate solutions ranging from > Design firms are set to boom. The increasing number of leasing to property purchasing to BTS for short- to long-term applications in an inter-connected world drives demand for development, and comprehensive incentives and services. more specialized chip designs and 5G upgrading. > Large facilities and headquarters that seek expansion should > Subsidies, talent and a developed industrial base are proactively negotiate with local governments for premium lots priorities for site selection and sustainable development. and incentive packages. Robust subsidies and incentives from government are vital for fabs and ATP (assembly, test and package) facilities. > Design firms should plan and take action early to secure offices Reputable universities can provide sufficient knowledge and R&D space to avoid potential obstacles to expansion. and expertise for the industry. Developed manufacturing > Start-ups should apply for high quality incubators to save on bases have an accumulation of skilled workforces and costs and receive guidance to connect with venture capital. industry knowledge. Business Park Landlords > Study the sector to understand its needs and provide specialized Challenges services, including subsidy, incubation, talent, and financing solutions. > Further restriction of US chip technology exporting to China. > Pay close attention to the sector’s unique requirements such as > Growing talent shortage. environmental assessment, dormitories, height, load bearing, in order to support future development.
Source: 1https://epsnews.com/2020/03/24/idc-foresees-6-virus-related-drop-in-2020-global-chip-market/. 2https://www.vlsiresearch.com/public/cms_pdf_upload/tci200323/SEMI-Equipment-Outlook-in-the-wake-of- Coronavirus.htm. 3 COLLIERS RADAR SEMICONDUCTOR OCCUPIERS | RESEARCH | PAN CHINA | 11 MAY 2020
SEMICONDUCTORS: VITAL TO Figure 1: Growth of global GDP versus total semiconductor sales Growth of total sales of semiconductor Global GDP grwoth THE GLOBAL ECONOMY (LHS) (RHS)
As the heart of every electronic device, semiconductors are the enabling 45% technology of the information age, and play a vital role in the world 4.0% Type of economy. Total industry sales contribute about 3% to global GDP 35% semiconductors according to World Semiconductor Trade Statistics (WSTS), and drive 3.0% almost all key industries downstream. Technological advancement and 25% 2.0% IC (Memory) continuously expanding application scenarios such as consumer 15% electronics, industrial, telecommunications, data centres, and 1.0% automotive uses demand innovative semiconductor designs. 5% IC (Logic and Analog) -5% 0.0%
Total sales of global semiconductors reached about 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 -15% -1.0% Sensors and USD409 billion in 2019 with annual growth of Actuators 6.1% in the past decade and should reach -25% -2.0% USD433 billion in 2021 Source: WSTS, World Bank, Colliers International Optoelectronics Source: World Semiconductor Trade Statistics (WSTS) Figure 2: Contribution of semiconductors to global GDP (2012) Services: Discrete Following a 12.8% plunge in 2019, global semiconductor market revenue Other: 5.6% is expected to rebound in 2020 according to SEMI, SIA and IDC. The 6.1% Source: Colliers International. deployment of 5G is the main factor propelling the recovery—due not Note: IC stands for integrated only to increased consumption of chips, but also to the wider benefits circuit. Motor vehicles 5G should bring to global businesses and economies. However COVID-19 and transport: will have a negative impact on semiconductor industry in 2020, 14.9% Total reflecting a global supply and demand shock in 2Q and 3Q in the Direct Global Impact computing and mobile phone markets. As of April, IDC therefore $202 bn foresees a 6% YOY decline for 2020 semiconductor market1. However, $2.7 trn 2 as of April SEMI projects a growth recovery towards the end of 2020 . Industry: Indirect We think total demand for semiconductors will continue to recover in 24.9% $116 bn 2021 according to IMF’s projection for global GDP growth with a Induced $142 bn rebound of 5.8%, following the negative growth of -3% in 2020. Electronic and Downstream computer: $2.2 trn Source: 1https://epsnews.com/2020/03/24/idc-foresees-6-virus-related-drop-in-2020-global-chip- 48.5% market/. 2https://www.vlsiresearch.com/public/cms_pdf_upload/tci200323/SEMI-Equipment- Outlook-in-the-wake-of-Coronavirus.htm. Source: SIA (Semiconductor Industry Association), Colliers International
4 COLLIERS RADAR OCCUPIER PROPERTY MARKETS | RESEARCH | PAN CHINA | 11 MAY 2020
THE SEMICONDUCTOR ECOSYSTEM
AMENITIES
DESIGN FIRMS / FABLESS
R&D UNIVERSITY DORMITORY SPACE OFFICE EQUIPMENT SUPPLIERS
OFFICE OFFICE PLANT
FAB MATERIAL SUPPLIERS PLANT GAS PLANT R&D SPACE OFFICE ATP
CLIENT
Subsidies and incentives Business and financing services Continued infrastructure improvement Industry • Direct subsidies • Incubation program • Accessibility and transportation Development • Land purchase support • Strategic funding • Shared infrastructure Support • Rent reduction • Financing/IPO support • Environment • Tax incentives • Talent solutions • Power and waste management • Talent rewards • Legal, admin and IP advisory • Amenities for work and life
Source: Colliers International 5 COLLIERS RADAR SEMICONDUCTOR OCCUPIERS | RESEARCH | PAN CHINA | 11 MAY 2020
MEGA CITY CLUSTERS DRIVE FABS EXPANSION Over the past three years, due to the development of the semiconductor ecosystem, unmet demand for chip production and government policies, fabs (semiconductor factories) in China have encountered major growth opportunities. Fab development accounted for 67% of the phase one ‘Big Fund’s¹ total RMB139 billion (USD19.6 billion) investment. The China Semiconductor Industry Association reported that China’s chip revenue reached RMB182 billion (USD25.6 billion) in 2018 with a YOY growth rate of 25.6%. Home to quality universities and talent, advanced infrastructure, and established manufacturing industries, China’s megacity clusters are currently attracting most fab Figure 3: China semiconductor map investment. Mid-Western Bohai Ring Yangtze River Delta (YRD) Major clusters Notable companies Major clusters Notable companies continues to have an edge Wuhan Donghu National YMTC, MTK, CSOT, Synopsys, Beijing Zhongguancun Science Park SMIC, NAURA Technology, Datang The YRD is the most developed Independent Innovation UNISOC Microelectronics Demonstration Zone semiconductor region in China, Tianjin Haibin New Development Zone SMIC, NXP, SPREADTRUM with some 53% of total domestic Chengdu Hi-Tech Industrial SMIC, Intel, Montage Dalian Eco. & Tech. Development Zone Intel, Epoch fab revenue, 33% of chip design Development Zone Technology revenue, and up to 60% of ATP Xi’an Hi-tech Zone Sumsung, Micron, ZTE, (assembly, test and package) Huawei Yangtse River Delta Major clusters Notable companies revenue in 2018 according to Shanghai Zhangjiang SMIC, Huahong, ASE, ASML, the Shanghai Integrated Circuit Hi-Tech Park NXP, Infineon Dalian Association. Industry pioneers Beijing Nanjing Jiangbei New Vimicro, Solomon Systech, such as SMIC and Huahong set the Area Spreadtrum Tianjin foundation in Shanghai and the Wuxi National Hi- SK Hynix, Samsung, Tech District Huahong, Infineon, Mems industry has flourished over the Suzhou Industrial Samsung, FASL, ASEN, past two decades. Lingang FTZ is Park National Semiconductor Xi’an currently the hotspot for fab Nanjing Hefei National Hi-tech TSMC, NXP, MTK, ASML, development. Wuxi, Nanjing, Wuxi Development Zone Lam Research Shanghai Ningbo Xingang SMIC, Prema, Anjimicro Suzhou, Ningbo and Hefei have also Chengdu Hefei Ningbo Township formed semiconductor clusters Among the 27 new facilities Wuhan under construction or in the Chongqing with major fab investments in the planning stage, only four are past decade. located in Tier-1 cities, others are set in Tier-2 cities Xiamen Pearl River Delta Mid-Western and Tier-2 cities such as Wuhan, Major clusters Notable companies rapidly emerging Chengdu, Hefei National IC Design HiSilicon, ZTE, GOODIX, During the past three years, chip and Xiamen. Shenzhen Shenzhen Industrial Synopsys, Huahong, manufacturing leaders have set up Centre TSMC new fabs in Tier 2 cities, including Note: ASE Group (Advanced Semiconductor Engineering, Inc), UMC (United Microelectronics Corporation), Xiamen Torch UMC, UNISOC, Sanan TSMC (Taiwan Semiconductor Manufacturing Company), Amkor (Amkor Technology, Inc.), SMIC (Semiconductor Development Zone Optoelectronics western cities such as Chengdu and Manufacturing International Corporation), YMTC (Yangtze Memory Technologies), MTK (MediaTek.Inc), JCET Xian, which also offer reputable (Jiangsu Changjiang Electronics Technology), CR MICRO (China Resources Microelectronics), CSOT (China Star Optoelectronics Technology), GOODIX (Shenzhen Goodix Technology) universities, a skilled workforce and Source: Shanghai Integrated Circuit Association, Public Information, Colliers International 6 a mature industrial sector. ¹ China’s National Integrated Circuit Industry Investment Fund COLLIERS RADAR SEMICONDUCTOR OCCUPIERS | RESEARCH | PAN CHINA | 11 MAY 2020
ZHANGJIANG HI-TECH PARK: CHINA’S Figure 4: Shanghai Zhangjiang Integrated Circuits Port
LARGEST SEMICONDUCTOR CLUSTER Fabs and ATP Material and Equipment supplier Incubator innovations and strategic funding to propel startups Design / Fabless Located in Pudong, Shanghai, Zhangjiang Hi-Tech Park houses the largest semiconductor cluster in China, with its revenue tops in the country. It started with a few anchor companies SMIC School such as Semiconductor Manufacturing International Corporation (SMIC) and Hua Hong Residential Applied Materials Semiconductor, then over the past two decades attracted large global groups including TSMC, ASE Test Broadcom, Qualcomm and Applied Materials. It now positions itself as a tech hub for startups, Praxair providing specialised services including incubation, funding, training and introductions to Hua Hong • VeriSilicon Holdings venture capital firms. ASML • UNISOC • HDSC Led by the Zhangjiang management committee and Zhangjiang Hi-tech Park, several high • Cambricon profile incubation programs are forging a startup culture. Established in 2016, the “1+N” Anji incubator model is a joint program connecting with multiple MNCs in the region, including GE Microelectronics and BOSCH. The collaboration not only boosts innovation in these corporates but also matches Technology Dow their resources with startups’ demand. Zhangjiang has also been a strategic funder, investing Source: Colliers International heavily in its semiconductor tenants, and supporting their growth. These measures have built Zhangjiang into a leading position in China’s semiconductor industry. Figure 5: Services provided to facilitate startups Figure 6: Zhangjiang’s strategic semiconductor funding
Company name Share of equity Category Financing Anji Microelectronics Technology (Shanghai) Funding: BoC, PDB, BoS, introductions to 12% IC material Birth venture capital Sanan Optoelectronics 11% Optoelectronic Strategic funding: Zhangjiang industry fund Shenzhen Goodix Technology 7% IC Fabless JCET Group 19% IC ATP Operations Gigadevice Semiconductor (Beijing) Inc. 10% Memory Growth Incubation, legal services, financing services, space solutions, IP advisory TongFu Microelectronics 22% IC ATP NAURA Technology Group 8% IC equipment Hunan Goke Microelectronics IPO support 16% IC design tool Maturity Hangzhou Changchuan Technology 10% IC equipment Zhangjiang Integrating capital markets and the hi-tech Hi-Tech Park industry with over 50 companies from Jiangsu Yoke Technology 6% IC material Zhangjiang Hi-Tec Park have been listed China Wafer Level Csp 9% IC ATP Source: Shanghai Zhangjiang Hi-Tech Park Development, Colliers International. Note: Bank of Communication (BoC), Pudong Source: Shanghai Zhangjiang Hi-Tech Park Development, Colliers International Development Bank (PDB), Bank of Shanghai (BoS). 7 COLLIERS RADAR SEMICONDUCTOR OCCUPIERS | RESEARCH | PAN CHINA | 11 MAY 2020
SEIZING OPPORTUNITIES BY UNDERSTANDING DEMAND The semiconductor industry is known to be capital and knowledge intensive, > Sufficient talent supply. The semiconductor industry is in need of demanding specialized services and support beyond the basic requirements talent with strong backgrounds in the science, technology, engineering, for physical space. The following three items are priorities for businesses in and maths (STEM) fields. Considering the development of talent in the semiconductor ecosystem. China, cities with elite universities should have an edge in attracting > Solid government support. Robust subsidies and incentives from the semiconductor businesses. government are vital for fabs, as they require billions of RMB of investment > Mature industrial base. Fabs, ATP facilities and suppliers also pay for construction and operation, and take about three years to be attention to the scale of the manufacturing base, including the such as profitable. Meanwhile, design firms strongly need incubation, strategic auto, electronic and chemicals industries, as these produce an funding and financing services to address funding issues. Other incentives accumulation of skilled workers and industry knowledge. The and services like tax and rental discounts, technical support and housing development of Internet of Things (IoT), artificial intelligence (AI), and solutions are also important measures to facilitate the development of the 5G technologies should continue to fuel the demand for semiconductor industry. semiconductors.
Figure 7: Major semiconductor industry site-selection and sustainable development criteria
> Solid government support Strategic Premium land with good Tax discounts and Robust Major infrastructure funding/investment location and accessibility incentive package subsidies investments > Mature industrial base Complete industry supply chain Skilled workforce Developed industry knowledge > Long-term planning Ecosystem development Environmental assessment Power supply Supplier connections Dormitories Fabs and ATP facilities Sufficient ceiling height Chemical and water Clean rooms Waste management > Specialized building specs and load bearing floors management
> Sufficient talent supply Developed talent pool Reputable universities Preferable Hukou policy* Incentives for specialists
> Convenient cluster and proximity Material suppliers Equipment suppliers Transportation / logistics Clients
> Sufficient talent supply Developed talent pool Reputable universities Preferable Hukou policy Incentives for specialists
> Solid government support Incubation program Strategic funding Financing/IPO support Talent solutions Legal, admin and IP advisory Design firms > Multi-staged space requirements Incubator / flexible workspace Regular office space Multiple offices R&D space Headquarters
> Convenient cluster and Proximity Fabs Other design firms Service firms Application clients Amenities
Source: Colliers International 8 Note: *China's Hukou system is an urban registration program that serves as a domestic passport, regulating population distribution and rural-to-urban migration. COLLIERS RADAR SEMICONDUCTOR OCCUPIERS | RESEARCH | PAN CHINA | 11 MAY 2020
GEARING UP FOR 5G The adoption of 5G mobile technology is an important factor driving Semiconductors, as the core of all 5G devices, should see demand growth from growth in semiconductor demand. 5G promises faster speeds, more multiple dimensions: storage and increased processing capacity. 5G gives opportunities for > Integrated memory circuits: the growth of data-intensive services under 5G’s new applications and scenarios for almost all industry sectors: strong increase in network speed requires higher memory capacity. > Information and communication: enhanced outdoor wireless > Integrated logic and analog circuits: with wide computing and communications broadband, particularly for smartphones, offering increased coverage, 5G delivers data hundreds of times faster than current wireless and 4G. connectivity. > Sensors and actuators: wireless sensors, software and other technologies are > Manufacturing and transportation: asset tracking (visibility over embedded into physical assets to connect and exchange data with other devices incoming and outgoing components and goods in the supply and systems over the internet. chain) and industrial automation, e.g. connectivity for moving > Optoelectronics (Display): replacement of smartphone and computer centering assets. on 5G, and IoT technology need displays to monitor things. > Wholesale and retail: enhanced indoor wireless broadband coverage (enabling consumers to access product information) via smartphones. Out-of-store tracking of vehicles and condition monitoring of perishables in transmit. > Health: remote patient monitoring and treatment guidance from hospital-based clinicians to field workers.
Figure 8: 5G accelerates network transformation 5G >> Next generation of wireless networks HUMAN TO HUMAN HUMAN TO MACHINE MACHINE TO MACHINE >> Higher speeds, greater capacity and lower latency Virtual Reality/ Augmented Reality Video Mobile Cloud Monitoring Computing >> Billions of connected devices and things Video Calling Fixed UGH Virtual Meating wireless Video
Wearables Social 4G Networking Smart Homes/ Smart Cities 3G Health Care Vehicle to 2G Infra- Industrial Monitoring Automation DATA AND THE FASTER DATA and structure Vehicle CELLULAR COMMS APP REVOLUTION MORE USERS Remote Public Safety to Vehicle to Surgery Pedestrian Vehicle
Source: Intel, Colliers International
9 COLLIERS RADAR SEMICONDUCTOR OCCUPIERS | RESEARCH | PAN CHINA | 11 MAY 2020
CHINA TO PURSUE SEMICONDUCTOR SELF-RELIANCE
The supply demand imbalance calls for action Figure 9: Semiconductor value chain Driven by strong domestic consumption and cheaper smartphones, China has become the largest global consumer of semiconductors, accounting for 35% of Materials global sales in 2019 according to World Semiconductor Trade Statistics (WSTS). China’s Ministry of Industry and Information Technology (MIIT) stated that 90% of Assembly, Test the world’s smartphones, 90% of personal computers, and 70% of televisions are Design Manufacturing and Packaging Applications made in factories located in mainland China in 2018. (ATP)
Yet in sharp contrast to its vast market, less than 10% of global semiconductor Equipment revenue is generated by China-headquartered semiconductor firms in 2018, while their US counterparts maintain a leading position in most of the sectors on the value chain, with a global market share of 45% in 2018 according to SIA. Source: Public information, Colliers International
To make up for the supply and demand imbalance, China remains a net importer of semiconductor products, with a value of USD306 billion in 2019, says China’s General Administration of Customs (GACC), accounting for 15% of China’s yearly total. This fact, together with the US-China trade tension, has pushed the Chinese government to emphasise the industry’s development with a goal of ultimately achieving semiconductor self-reliance. In 2015, China introduced the Made in China 2025 initiative that covers key strategic sectors such as robotics, IT, and new energy automobiles, which sets a goal of China domestically producing 40% of semiconductor products by 2020 and 70% by 2025.
Figure 10: Semiconductor sales by region (2014 vs.2019) Figure 11: Semiconductor manufacturing market share (2018) 40% 35% 2014 2019 China 5% 35% Taiwan 6% 30% 30% 27% 28% 25% 22% 19% 20% EU 9% US 45% 15% 11% 10% 10% 9% Japan 9% 10% 5% 0% Korea 24% China Asia Pacific Americas Europe Japan (excluding Japan & China)
Source: WSTS, Colliers International Source: SIA, Colliers International Source: 1https://www.eetimes.com/qualcomm-rides-on-chinas-belt-road-initiative/, Colliers International 10 COLLIERS RADAR SEMICONDUCTOR OCCUPIERS | RESEARCH | PAN CHINA | 11 MAY 2020
UNFOLDING THE DEVELOPMENT Figure 12: Semiconductor R&D expenditures as a percentage of sales (2018)
ROADMAP All Others 4.9% Comparison of semiconductor R&D expenditures shows that China has a chance to catch up with global leaders. In June 2014, the Chinese Government released Korea 7.3% specific goals with the Guidelines to Promote National Integrated Circuit Industry. The document articulated a defined strategy identifying “national champions” China 8.4% supported by the National Integrated-Circuit Industry Investment Fund (aka the Japan 8.8% Big Fund). The RMB138.7 billion (USD19.6 billion) phase one of the Big Fund is planned to be invested mainly in semiconductor manufacturing. Taiwan 9.9%
China’s ambitious goal on semiconductor self-reliance has boosted the growth of Europe 13.9% all types of domestic players in the value chain, including fabrications, assembly, test and packaging facilities (ATPs), design firms, equipment and material US 17.4% suppliers. In October 2015, the State Council issued the Technical Roadmap for IC Industry to facilitate growth and R&D breakthroughs. Source: SIA, Colliers International
Figure 13: Major goals in Guidelines to Promote National Integrated Circuit Industry (National IC Plan) By 2020 By 2030
Total revenue over RMB870 billion (USD122.7 billion) with revenue Revenue increasing at a compound annual growth rate of over 20%
Manufacture Volume production of 16/14-nm chips > World-class IC industry value chain World-class IC design in applications such as wireless, telecommunications, Design cloud computing, Internet of Things, and big data > A set of leading companies considered Tier 1 players in the global semiconductor market Assembly, Test and Packaging World-class packaging and testing technology > By 2025 30% of 14- to 20-nm semiconductor (ATP) equipment as well as 18-inch semiconductor Integration of key equipment and consumables from China into the global equipment, EUV lithography machines and Material supply chain assembly & test equipment is domestically made
Integration of key equipment and consumables from China into the global Equipment supply chain. 50% of 32-to 90-nm semiconductor equipment and 90-nm lithography machines should be made domestically.
11 Source: China made 2025, Technical area road map, Colliers International COLLIERS RADAR SEMICONDUCTOR OCCUPIERS | RESEARCH | PAN CHINA | 11 MAY 2020
THE ECO-SYSTEM DECODED Generating a cluster with synergies The high capital requirements and necessary supplies make a fab a scarce Fabs are at the core resource in any region. In the meantime, it is at the core of the silicon eco- Acting as the brains of every computing device, chips are some of the most system and acts as a magnet to attract other businesses on the semiconductor complex objects humans have ever manufactured, requiring over a thousand value chain, for numerous reasons: precisely controlled production steps. The factories where chips made are > Packaging and testing facilities. Specialised packaging and testing facilities are called fabrication facilities, or fabs. The material suppliers firstly have apart from fabs, but need to be set nearby to maintain smooth transportation extremely pure melted silicon pulled into a silicon rod that is sliced into bare for chips and constant communication between both sides. wafers. Upon receiving a bare wafer, hundreds of identical chips are created > Gas, material and equipment suppliers. Due to non-stop production with high The process in batches on it using a photolithographic printing process that forms billions supply requirements, fabs need suppliers close assure stability. Gas suppliers, involves creating of transistors and electrical circuits in a space as small as a finger nail. for example, run pipes directly into the fab from their factories. identical High resource and waste management demands > Design firms. Chips are designed on computers, but need to be taped-out or prototyped in fabs. Design firms need fabs close by for convenient operations. semiconductors on Production in fabs is completely automated in a sealed environment. The ultrapure round process relies on ultra-pure water to clean the wafers after each step of silicon wafers using polishing. One fab can use millions of gallons of filtered and treated water Figure 14: Number of semiconductor design firms in China extremely per day, requiring highly sophisticated water processing systems. Meanwhile, sophisticated gases, which create chemical reactions at the molecular level, must be 1800 equipment, precisely dispensed at each stage of the process. To maintain a clean and Since the release of National IC Plan 1698 and establishment of the Big Fund in materials, and stable environment, the entire fab must continuously have accurately controlled temperature, humidity and filtered airflow. Waste water and the end of 2014, the number of design processes. This firms almost doubled from 2015 to 1362 1380 chemicals are highly toxic and call for specific waste management facilities. 2016. stage is highly The power supply required for all the equipment, water and gas processing, capital intensive, environmental controls, and waste management facilities, is significant. and leading-edge 736 Extreme cleanliness 632 681 fabs can cost several 582 534 569 billion dollars to During manufacturing, one tiny particle in the air can cause a product defect. construct. Therefore, the entire fab space is composed of non-shedding materials and must be thousands of times cleaner than hospital operating rooms. Semiconductor Technicians must wear special suits to keep contaminants off the wafers. Industry Enormously capital intensive 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Association1 Fabs cost billions of dollars to build and operate. High capital costs require fabs to keep the production lines running at full capacity. “The most Source: MIIT, Colliers International expensive thing on the planet is a half-empty fab,” says Brian Krzanich2, general manager of Intel’s manufacturing and supply chain.
Source: 1SIA blog “Semiconductor Industry Primer: The Stages of Production and Business Models” Source: 2MIT Technology Review “The High Cost of Upholding Moore’s Law”
12 COLLIERS RADAR SEMICONDUCTOR OCCUPIERS | RESEARCH | PAN CHINA | 11 MAY 2020
Application demand to drive design firms
Figure 15: Major development stages of semiconductor design firms
Maturity Growth Birth Traits: Demand: Traits: Demand: • Specialized product series • Talent • Talent Traits: Demand: • Successful products • National/regional • Land / property • • Small team: 8-20 • Talent • Intellectual property Securing continuing for headquarters funding reputation staff • Incubation / Flexible • Fast growing team: 50-300 staff • Often publicly listed • Multiple offices • Office expansion • Cost sensitive workspace • Improved reputation • R&D space • Funding for initial • Sustained real-estate demand • Office fit-out aligned products with brand image
Source: Colliers International
While fabs are large and capital-intensive, chip design firms vary in size and can range from a 10-person startup to global fabless heavyweights such as Huawei and Qualcomm. Growing applications in an inter-connected world drive demand for more specialized chip designs. By interpreting needs correctly, a startup with a few well-trained engineers can boost revenue and team size tenfold in two or three years. We think chip design in China will see rapid growth with government support and 5G development. We have classified the chip design sector into three main categories based on a firm’s development stage: Volatile Birth. At birth, a design firm usually starts with some funding from angel investors, a team of 8-20 engineers and a small office or space in an incubator. Founders with solid careers usually see specialized niche opportunities from which to start design. Fund-Intensive Growth. As the product and reputation are more established, the firm attracts more business, and transitions into a fast-track growth mode. The team size can expand to anywhere between 50 to 300 over several years, but securing continuing funding is a priority because prototyping chip design in a fab is expensive. Thus, venture capital and strategic government funding are both very important for firms to pass through this stage. Maturity: Competing with Heavyweights. Those firms that survive likely have significant market share in their territories and are probably publicly listed. They also comfortably tap into areas or markets that are dominated by global players. At this stage, firms will typically have multiple offices to manage their business units.
13 COLLIERS RADAR SEMICONDUCTOR OCCUPIERS | RESEARCH | PAN CHINA | 11 MAY 2020
Accelerating growth Figure 16: Government’s role in semiconductor ecosystem The silicon ecosystem has a strong network effect, which secures the sustainable development of these specialized industry clusters in the long run, allowing any business or individual to benefit from the concentrated silicon ecosystem. However, a few stakeholders play out-size roles in accelerating the Local government growth of the silicon ecosystem. (Economic zone management committee) Local government sets the stage Long term Major Specialized Local governments play an important role in the silicon ecosystem. The local Robust aid and regional Investments in financing and Industry is finding government usually forms a dedicated management committee to support the incentives positioning infrastructure business that, for activities industry’s development and operations: package involving a high and planning and real-estate services > Long term regional positioning and planning. The local government needs to level of scientific have a clear vision, creating a plan for the industrial base, anchor businesses Source: Colliers International and technological (especially fabs), business linkages, the development scale and timeline, and creativity, a amenities for work / life balance. Wuhan’s Optical Valley is a role model in Talent to nurture the ecosystem location in a center building on an optoelectronic products manufacturing base to form an IC of brains is more cluster for communication and memory chips. The semiconductor industry demands a high density of talent, ranging from top scientists and engineers in fabless headquarters to skilled important than a > Investments in infrastructure and real-estate. As fabs and other facilities have location near workers and technicians in production facilities. However, China faces a extremely high requirements for power and resources, the local government 1 markets, raw growing talent shortage in the next few years with KPMG identifying needs to invest heavily in infrastructure to meet demands. Sufficient office talent as a top concern for the semiconductor industry. We have also materials, and R&D spaces, incubators, shared research facilities and amenities also identified through our interviews an urgent desire to secure sufficient transportation or need to be continuously built and improved. talent and workforce for sustainable development. The best model is to factory labor. > Robust aid and incentives package for businesses and talent. Due to the high have elite universities and other academies collocated within a region of capital requirements, the government needs to provide robust incentives to relevant corporate specialities. Fred Terman, support new fabs and other key facilities, including direct subsidies, tax Stanford discounts and land and construction support. Shanghai’s Lingang FTZ is a role University model for utilizing policies to launch its IC industry from the ground up. The Father of > Specialized financing and business services. To support the increasing Silicon Valley number of startups and fast-growing businesses, especially chip design firms with high funding demands, local governments needs to offer business services and develop funding connections with venture capital firms or from strategic government-backed capital.
Source: 1KPMG, “Semiconductors: As the backbone of the connected world, the industry’s future is bright”
14 Primary Author: For further information, please contact:
Molly Hu Tammy Tang Senior Manager| Research | East China Managing Director | China +86 21 6141 3621 +86 21 6141 3625 [email protected] [email protected]
Richard Shen Contributors: Managing Director | East China +86 216141 3600 Candice Yang [email protected] Senior Analyst | Research | East China +86 21 6141 4308 Andrew Haskins [email protected] Executive Director | Research | Asia +852 2822 0511 Abby Zheng [email protected] Assistant Manager| Research | East China +86 21 6141 4336 [email protected]
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