By Deborah Geiger, SEMI
The year begins with intensified attention to China’s rapid semiconductor industry growth, which was a central theme of the recent SEMI Industry Strategy Symposium (ISS) and also weighed heavily in a new report from a Presidential advisory council.
Speaking at the SEMI Industry Strategy Symposium (ISS), Handel Jones, CEO of International Business Strategies (IBS), forecast the global semiconductor market to grow at a compound annual rate of 5.6 percent from 2015 – 2025, while the semiconductor market in China will grow at a 7.5 percent CAGR during the same period. Jones says that Chinese companies will supply 60 percent of the global smartphone volume in 2020. China is also increasingly competitive in high performance systems as evidenced by its development of the world’s two fastest supercomputers: the Sunway TaihuLight using Sunway processors and the Tainhe-2 (Milky Way), which uses Intel xenon chips.
According to China’s 13th 5-year plan, China local semiconductor revenue (including that for design, manufacture and packaging) is targeted to reach $143 billion by 2020 – up from $48 billion in 2014, said Lip-Bu Tan, president and CEO of Cadence Design Systems.
Tan pointed out that global venture capital investment in semiconductor innovation has slowed dramatically to about $288 million and now accounts for less than 1 percent of VC activity. However, China’s IC initiative will drive significant investment in the semi supply chain for the next 10 years.
Jack Qi Shu, vice president of Shanghai Huali Microelectronics Corporation (HLMC) echoes China’s ecosystem position noting that seven of the top 10 smartphone producers by unit shipments are Chinese brands (Huawei, Oppo, Vivo, Xiaomi, Lenovo, ZTE and TCL-Alcatel).
China’s challenge is to catch up in process technology. The region represents 11.7 percent of global wafer manufacturing capacity in 2015. However only 5 percent of China’s semiconductor capacity is for ≤28nm manufacturing capability.
From 2004 through 2014, over $70 billion was spent on semiconductor equipment and materials in China.
SEMI is currently tracking 20 new fab projects in China (see “Fab Investment Surge in China,” Jan 4, 2017). Unlike previous fab investments, indigenous entities will be the key drivers behind many of these projects. SEMI estimates that fab equipment related spending in China could exceed $10 billion or more per year by 2018 and remain at the level over several years.
According to AMEC president and CEO Gerald Yin, who also presented at ISS, total semiconductor capital expenditure in China over the next five years will surpass $64 billion and increase to more than 27 percent of the world total by 2020. In that period, there will be over $48 billion in wafer fab investment in China.
IBS’s Jones cautions that the large expansion in China may result in excess ≥ 28nm wafer capacity later in 2017 and 2018. He said that China will need to strengthen its product expertise in order to absorb wafer capacity that is established in the long term.
The market dynamics detailed by the speakers at ISS also underscored concerns about U.S. semiconductor competitiveness in a recent report by a Presidential advisory group.
Since Franklin D. Roosevelt established a Science Advisory Board in 1933, U.S. Presidents have appointed various advisory committees of scientists, engineers, and health professionals to help guide technology-related policies. In 2009, President Obama announced the President's Council of Advisors on Science and Technology (PCAST) to advise the President and the Executive Office in areas where science, technology, and innovation factor significantly in policy considerations related to health care, climate change, and a variety of information technologies.
Early in the new year, but very near the end of the Obama administration, the PCAST and a working group of current and former industry executives issued a report, Ensuring Long-Term U.S. Leadership in Semiconductors. The report profiles increasing challenges to semiconductor industry innovation, competitiveness, and security. It also outlines recommendations to address them and examples of R&D investment to keep the US at the leading edge of technological development.
The report recognizes the semiconductor industry’s impact on the economy, national security and the ability to thwart cybersecurity attacks. It recommends coordinated Federal effort to influence and respond to Chinese industrial policy, strengthening the U.S. business environment for semiconductor investment, and increased partnership with industry, academia and potentially government to advance the boundaries of semiconductor innovation.
The PCAST report identifies several challenges for the semiconductor industry. The slowing of Moore’s Law and a broader array of end applications that call for diverse technological solutions with different goals, which makes it difficult to align R&D and investment strategies across industry. In addition to these fundamental challenges, the report calls out issues related to China’s semiconductor industry policies and practices. The report notes concerns about capital subsidies used to entice foreign companies to relocate in China and subsidized capital to domestic companies and investment firms for the acquisition of foreign companies and technologies.
The report also highlighted actions it called “China Zero-Sum Tactics” that are deemed to tilt the competitive playing field. These include practices that pressure domestic customers to buy only from Chinese semiconductor suppliers, forcing transfer of technology in exchange for access to the Chinese market; theft of intellectual property and collusion, for which several anecdotal examples were furnished.
PCAST underscores principles for action that include an emphasis on innovation and focus on leading-edge technology. It says, “the only way to win is to outpace the competition,” suggesting that it is more important to lead in technology development than attempting to constrain China’s advancement.
Recommendation in the report include long-held appeals for general industry support mechanisms such as regulatory relief, corporate tax reform, proactive workforce development policies.
Other recommendations pertain more directly to “pushing back” on China and include greater enforcement of trade rules, various national security tools and strengthening of export controls and inward investment security.
Finally, the report calls for investments in US innovation – including pre-competitive R&D and “moonshot” projects or novel, high risk, big-impact technologies and applications that would demand simultaneous advances in semiconductor technology with broader applicability.
It is not yet clear how the Trump administration will view or act on the Obama-era report. However, there is ample evidence of a bias towards strong trade measures to counteract China more generally.
The SEMI ISS conference concluded with an executive panel discussion in which the concerns about the challenges of doing business in China were juxtaposed to the vast potential market opportunities of doing so. Leading U.S. equipment companies on average export about 80 percent of their product and have little interest in seeing escalation of trade tensions. The conundrum was well-expressed by FormFactor Chairman Tom St. Dennis who said that doing business in China is important, “You have to find a way engage the local market in an appropriate way and have to figure out a way to deal with [the complexity] in a way you are comfortable.”
The next SEMI executive conference is the Industry Strategy Symposium Europe on March 5-7 in Munich, Germany. SEMICON China 2017 is also coming up soon on March 14-16 in Shanghai. For the full SEMI calendar of events, including all SEMICON events, visit www.semi.org/en/events.
January 17, 2017