A Decade of Unprecedented Growth China's Impact on the Semiconductor Industry 2014 Update
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www.pwc.com/technology A decade of unprecedented growth China’s impact on the semiconductor industry 2014 update Technology Institute PwC’s 10th annual in-depth report on China’s semiconductor industry January 2015 Page Welcome 2 Table of contents Ten-year perspective 3 Executive summary 4 Section 1: Market and industry overview China’s semiconductor market 9 China’s semiconductor industry 17 Interview – Samsung Electronics 21 IC and O-S-D production/consumption gap 24 Interview – SMIC 26 Section 2: IC design and manufacturing IC design in China 30 Chinese semiconductor companies 36 Interview – NXP 38 Wafer fabrication capacity 42 Interview – JCET 46 Packaging, assembly and test capacity 48 Regional structure 51 Section 3: Manufacturing, Greater China, growth scenarios China’s domestic OEM buying power 54 Top Chinese semiconductor manufacturers 56 Semiconductor equipment 61 Interview – Qualcomm 62 Greater China 67 Government considerations 73 Semiconductor patents 77 Financial markets and IPO filings 79 Production growth scenarios 82 About this report 85 Appendix 87 Acknowledgements 92 PwC can help 94 A decade of unprecedented growth | China’s impact on the semiconductor industry—2014 update | 1 Ten years ago when we published our first report on China’s impact on the semiconductor industry, we were responding to our clients’ concerns that China’s Welcome growing semiconductor production would cause over-capacity in the global market. At that time, it was estimated that Chinese semiconductor companies represented less than 6% of established semiconductor companies and that they contributed less than 0.2% of worldwide semiconductor revenues. But great growth was projected. China did not disappoint in terms of growth. However, it wasn’t its production of semiconductors that skyrocketed, but rather its consumption. Today, China accounts for more than half of the global semiconductor consumption and its growth rate exceeds the global industry growth rate year after year. Driven by strong global demand for smartphones and tablets—the lion’s share of which are produced in China—and the growing momentum towards networked things (the “Internet of Things”), this strong growth in semiconductor consumption should Raman Chitkara continue in the coming years. Partner and Global It’s important to note, however, that while the growth of semiconductor production Technology Industry Leader in China has fallen short of earlier expectations, it is still impressive and today [email protected] represents 12% of the worldwide industry. But the production/consumption gap continues to grow despite the Chinese government’s efforts to contain it via incentives and investments. This gap represents an unparalleled market opportunity for Chinese and multinational companies alike. Going forward, it is clear China will continue to expand its role in the semiconductor industry beyond leadership in consumption. The next ten years are likely to witness an accelerated growth in semiconductor manufacturing and a new breed of semiconductor companies competing for leadership in the global industry. Ten years is a long time, particularly in the rapidly changing technology industry and many factors go into an industry’s growth rate and prospects. For this reason, over the years we’ve expanded our report to include an analysis of semiconductor patents and IPO trends, both of which indicate a steadily maturing market. Like previous editions, this year’s report looks at year-over-year growth in key areas. But interspersed throughout are ten-year comparisons that help readers see how far the industry has come over the past decade. I’d like to take a moment to recognize the efforts of Clements (Ed) Pausa, key architect of this report. For ten years now he has dedicated a significant portion of his year researching and writing these annual reports, traveling back and forth to China to meet with industry leaders and executives. His decades of experience in the semiconductor industry have brought immeasurable depth and value to this series and we appreciate his dedication. In summary, the past ten years have seen China’s semiconductor industry transform itself from an emerging industry into a significant global player whose impact and growth will no doubt continue. If you would like to talk about how China’s semiconductor industry is impacting your business, or how you can take advantage of its market potential, please contact me or any of the technology industry leaders listed at the back of this report. Sincerely, 2 | A decade of unprecedented growth | China’s impact on the semiconductor industry—2014 update Ten-year perspective The dramatic growth of China’s recognize that more than 11% of the semiconductor companies. They integrated circuit (IC) design industry established semiconductor companies are: Alwinner Technology Co., Ltd. over the past ten years has resulted are now from China and that they (Zhuhai, China); Brite Semiconductor in a noticeable increase in industry contribute almost 2% of worldwide (Shanghai) Corp. (Shanghai, China); awareness of China’s semiconductor semiconductor revenues. Gpixel Inc. (Changchun, China) and companies. Between 2003 and 2013 Senodia Technologies Co., Ltd. Over China’s IC design sector revenues grew Not one of the five largest Chinese the last ten years there have been ten from US$541mn to US$13,150mn, a semiconductor companies included Chinese companies out of the total of twenty-four times increase. in the Gartner 2013 Worldwide more than 340 companies that have Database—Spreadtrum, HiSilicon, appeared on the EE Times’ Silicon 60 In 2003, the Gartner Dataquest RDA, Sanan, and Galaxycore—were list of emerging technology companies Semiconductor Industry Worldwide included in the 2003 database, while since it first appeared in April 2004. Annual Market Share Database only ten of the eleven Chinese companies included 11 Chinese companies in the 2003 database continued to be In summary, the dramatic growth out of a total of 200 worldwide included in the 2013 database. Only of China’s IC design industry over semiconductor companies and the Beijing Huahong has disappeared from the past ten years has resulted in aggregate reported revenue of those 11 view. a noticeable increase in industry companies represented just 0.14% of awareness of China’s semiconductor total worldwide revenue. That would The initial 2004 edition of the companies. The worldwide industry indicate that in 2003 the industry’s EE Times’ “Silicon Strategies’ 60 recognizes that more than 11% of the perception was that less than 6% of the Emerging Start-ups” only included a established semiconductor companies established semiconductor companies single partial Chinese semiconductor are now from China and that they were from China and they contributed company, Memsic Inc. (Norwood contribute almost 2% of worldwide less than two-tenths percent of Mass. and Wuxi, China), a 1999 semiconductor revenues. The latest— worldwide semiconductor revenues. spin-off from Analog Devices Inc. version 15.1—of that EE Times’ “Silicon with a wholly owned subsidiary 60: Hot Start-ups to Watch” now Ten years later the same Gartner (Memsic Semiconductor Ltd.) located includes four Chinese semiconductor Worldwide Semiconductor Market in Wuxi, China. This EE Times’ list companies. Share Database for 2013 included was their editors’ selection of the 32 Chinese companies out of a total 60 emerging semiconductor start- of 288 worldwide semiconductor up companies to watch worldwide companies and the aggregate reported that were developing breakthrough 2013 revenue of those 32 companies technologies and products. Ten years represented 1.9% of total worldwide later, the latest—version 15.1—of that revenue. Over the past ten years the EE Times’ “Silicon 60: Hot Start-ups industry has increased its awareness to to Watch” now includes four Chinese A decade of unprecedented growth | China’s impact on the semiconductor industry—2014 update | 3 Executive summary China’s semiconductor consumption companies will be among the top 20 growth continued to far exceed suppliers to the Chinese semiconductor worldwide semiconductor market market in 2014. growth for a third consecutive year in 2013. While the worldwide China’s reported semiconductor semiconductor market increased industry growth continued in 2013 to 4.8% in 2013, China’s semiconductor exceed both China’s semiconductor consumption market grew by 10.1% in consumption growth and the 2013 to reach a new record of 55.6% of worldwide semiconductor market the global market. growth. China’s semiconductor industry has grown at an equal or China’s semiconductor consumption greater rate than its semiconductor market also continued to grow many market consumption for eight of the times faster than the worldwide past ten years. From 2003 through market as a result of two driving 2013, China’s semiconductor industry factors—the continuing transfer of has achieved a ten-year compounded worldwide electronic equipment annual growth rate (CAGR) of 23.0%. production to China and the above- During this same ten-year period average semiconductor content of that China’s semiconductor consumption equipment. Most industry analysts achieved a 19.4% CAGR and the predict that the trend of an increasing worldwide semiconductor market share of electronic equipment a 6.3% CAGR (all measured in production in China will moderate US dollars). but continue over the next several years and China’s share of worldwide A conservative comparison indicates semiconductor consumption to that China’s semiconductor industry increase by a further 4%. accounted for slightly more than 12% of the worldwide semiconductor The major global semiconductor industry in 2013, up from 11.6% in companies continue to dominate the 2012. Looking forward, the Chinese Chinese market. There have only been authorities currently forecast that fourteen different companies among China’s semiconductor industry the top ten suppliers over the past revenues will grow to reach US$86bn eleven years (since our initial report). by 2016 and would then represent Seven of these companies have been almost 15% of the worldwide among the top ten suppliers to China semiconductor industry.