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www.pwc.com/technology Continuing to grow China’s impact on the semiconductor industry 2013 update Technology Institute September 2013 Table of contents 1 Executive summary 3 Overview of China’s impact in 2013 3 China’s semiconductor market 10 China’s semiconductor industry 15 Integrated circuit and O-S-D consumption/production gap and surplus 17 IC design in China 20 Chinese semiconductor companies 22 Wafer fabrication capacity 25 Packaging, assembly and test capacity 27 Top Chinese semiconductor manufacturers 30 Greater China 35 Government support and tax incentives 37 Semiconductor patents 39 Financial markets and IPO funding 41 Production growth scenarios 43 Conclusion 44 Acknowledgements 45 PwC can help Raman Chitkara Partner and Global Technology Welcome Industry Leader [email protected] In 2004 when we published our first report on China’s impact on the semicon- ductor industry, we were responding to our clients’ concerns that China’s grow- ing semiconductor production would cause over-capacity in the global market. Interestingly, it is not China’s semiconductor production but its semiconduc- tor consumption which is creating headlines. In 2012, China’s semiconductor consumption market grew by 8.7% (in contrast to a 3% decline in the worldwide market) to reach a new record of 52.5% of the global market. Continued strong global demand for smartphones and tablets—the lion’s share of which are pro- duced in China—is the main reason for this continued strong growth in semicon- ductor consumption and will continue to be a factor in the coming years. And while the growth of semiconductor production in China has fallen short of some expectations, it is nevertheless remarkable, rising 9.6% in 2012 and repre- senting about 12% of the worldwide industry. But the production/consumption gap continues to grow and represents an unparalleled market opportunity. What remains to be seen, however, is whether local Chinese companies will rise to meet this challenge. Broadening our look, we see economic ties strengthening between China and Taiwan which serves to expand and deepen the impact of Greater China on the global semiconductor industry. Further, as the industry continues to grow and mature, we see China increasing its share of basic patents and becoming a lead- ing territory for semiconductor IPOs. Taking all these factors into consideration, we expect that China will continue to strengthen its position in the global semiconductor industry for the foresee- able future. If you would like to start a conversation on how these findings might impact your business, please contact me or any of the technology industry lead- ers listed at the back of this report. Sincerely, In the last few years, as the semiconductor industry has matured, we A note to our readers have re-evaluated both the timing and depth of this report to ensure that we continue to provide needed information in a timely manner. For this year’s 2013 Update we have elected to release a condensed report in order to provide the information earlier than past reports. Included are versions of 26 of the 29 figures and 10 of the 12 tables found in the 2012 Update. All of the considerations described in the 2012 Update appendix, “Interpreting Chinese semiconductor statistics” and the “About this report” section remain relevant to this condensed 2013 Update and should be referred to as needed. If you are interested in reading any of the previously issued full reports, please visit our website at www.pwc.com/chinasemicon. Executive summary Both China’s semiconductor has continued to increase its share of consumption market and the worldwide semiconductor market semiconductor industry production by displacing all other regions. grew to new record levels in 2012 despite a 3% decrease in the The major global semiconductor worldwide semiconductor market. companies continue to dominate the China’s semiconductor consumption Chinese market. There have only been market grew by 8.7% in 2012 to reach fourteen different companies that have The major global a new record of 52.5% of the global been among the top ten suppliers to market while China’s semiconductor the Chinese market over the past ten semiconductor industry revenues grew by 9.6% to years. Seven companies have been companies continue reach a record US$56.3bn. For the first among the top ten suppliers for every to dominate the time ever during 2012 China consumed year from 2003 through 2012: Intel, more than half of all the worldwide Samsung, TI, Toshiba, SK Hynix, ST Chinese market. semiconductor market. However, and Freescale. It still appears that almost three percentage points of there was no Chinese company within these increases were the result of the top 30 suppliers to the Chinese China’s continuing revaluation of the semiconductor market in 2012. Even Renminbi (RMB). if the largest Chinese semiconductor company sold all of their 2012 output This exceptional performance was within China, they would have not the result of the continuing transfer been within the top 30 suppliers to of both worldwide electronic that market equipment production and worldwide semiconductor production to China. There is now some uncertainty about China’s share of worldwide electronic the size and growth history of China’s equipment production increased by semiconductor industry. In October two percentage points to 34.2% in 2012, the China Semiconductor 2012 and is forecast to increase to Industry Association (CSIA) revised more than 40% by 2017. By our most China’s IC industry statistics for conservative comparison, China’s 2011 and 2012 year-to-date without share of worldwide semiconductor providing a detailed explanation production value increased by three for the cause and its implications. percentage points to at least 12% in We believe the reported ten-year 2012 and is forecast to increase to at compound annual growth rate least 14% by 2015. As a result, China (CAGR) for China’s semiconductor Continuing to grow | China’s impact on the semiconductor industry—2013 update | 1 industry from 2002 through 2012 record US$101.6bn. It is our belief remains reasonably representative. that this gap continues to contribute However, there are unanswered to the Chinese government’s ongoing questions associated with the yearly initiatives to increase indigenous and quarterly growth rates for the most IC production. recent half decade. Measured in dollars, during the last The overall performance of China’s two years China’s IC industry has IC industry (the sum of IC design, reported a 26.9% CAGR; China’s IC IC wafer manufacturing and IC design sector reported a 35.5% CAGR; packaging and testing) was the IC packaging and testing 27.1% and major contributor to China’s overall IC manufacturing 19.2%. Based upon semiconductor industry growth in these revised results, it is now deemed 2012. IC industry revenues, measured reasonably possible, if not completely in dollars, increased by 14.5% to probable, that China’s IC industry more than US$34bn in 2012. All may follow the aggressive production three sectors of China’s IC industry growth scenario through 2015 and reported double-digit growth in achieve the Ministry of Industry 2012. Benefiting from the continuing and Information Technology (MIIT) growth of the smartphone and IC revenue goals of over US$52bn, with IC card markets, China’s IC design sector design over US$11bn. During the same grew by 21% in 2012 to a new record two-year period, more than US$10bn US$9.9bn. Despite a 4% decline in of additional fixed-asset investments the worldwide IC market, China’s IC were made in China’s IC industry. China’s exceptional wafer manufacturing and IC packaging While this investment rate clearly relative semiconductor and testing sectors benefited from a supports the moderate scenario, it may continuing industry shift to outsourced have to be increased to support the performance in 2011 and manufacturing and grew by 13% aggressive scenario requirements. 2012 remains evident in and 11% in 2012 to new records of the continuing growth of US$9.4bn and US$15bn respectively. Greater Chinese companies have grown to dominate worldwide semiconductor China’s IC consumption/ China’s optoelectronics-sensor-discrete outsourced manufacturing. With production gap. (O-S-D) industry sector performance the merger of China’s HHNEC in 2012 was only slightly better than and GSMC (Grace Semiconductor worldwide O-S-D performance. Manufacturing Company) six of the Measured in dollars, China’s O-S-D top 10 (4 Taiwanese + 2 Chinese) industry sector revenues increased and 10 of the top 20 (6 Taiwanese + 2.7% in 2012 to a record US$22bn 4 Chinese) pure-play semiconductor while the value of China’s O-S-D wafer foundries were Greater China exports exceeded the value of O-S-D companies, accounting for 77% imports for the third year in a row. of total worldwide 2012 foundry revenues. By the end of 2012, Greater China’s exceptional relative China also represented 71% of semiconductor performance in worldwide pure-play wafer foundry 2011 and 2012 remains evident in capacity. Similarly, six of the top 10 the continuing growth of China’s IC (4 Taiwanese + 2 Chinese) and 11 of consumption/production gap. This the top 20 (8 Taiwanese + 3 Chinese) gap is the difference between IC SATS (semiconductor assembly and consumption and IC industry revenues. test services) suppliers were Greater Based upon the revised CSIA industry China companies, accounting for 48% statistics, this annual gap had grown of total worldwide 2012 SATS revenue. by US$7.6bn, (8.7%) in 2011 to Also by the end of 2012 Greater China reach US$94.9bn and grew a further represented 64% of worldwide SATS US$6.7bn (7.1%) in 2012 to reach a manufacturing floor space capacity.