Credit Suisse Sector Head Outlines Semiconductor Competition from China
By Jonathan Davis, Global VP of Advocacy, SEMI
John Pitzer, managing director and research analyst at Credit Suisse, said that increasing barriers to entry, a slowing of Moore’s Law, and end demand that is less dependent on the consumer provides a solid foundation for sustainable semiconductor growth and increased valuation for the 30+ public companies in the semiconductor and semiconductor capital equipment sector that he covers.
Speaking on March 20 at the “Wafers to Wall Street” SEMI Breakfast Forum in San Jose, California, he referred to big data as the “killer app” with high potential to accelerate semiconductor content in new applications and drive sustainable CAGR growth of 8 to 12 percent.
According to Pitzer, China’s intention to increase domestic semiconductor production represents the single most significant risk factor to U.S. semiconductor industry dominance. He believes that significant intellectual property and R&D barriers will constrain China’s domestic technology development and mitigate some of the intensity of its domestic growth ambitions. However, the accelerated policy-backed Chinese merger and acquisition activity and a vibrant R&D and university agenda presents a longer-term risk, even in the analog and mixed signal sectors of the industry.
Pitzer noted that China is planning semiconductor industry investment of RMB 1Tn (USD $170 billion) in an attempt to reduce dependence on semiconductor imports. Potential M&A of U.S. companies could be a near-term theme. Consequently, he expects to see more Chinese companies collaborating with leading U.S. companies and more overseas M&A from China.
China has been more successful in industries with low R&D intensity such as steel, aluminum, rail and wind energy. However, sectors such as biotech, semiconductors and semiconductor capital equipment have much greater R&D intensity. R&D and intellectual property represent more significant barriers that may forestall rapid domestic semi development.
Over the longer term, Chinese companies could become bigger threats as the country develops local capabilities. Therefore, Pitzer concluded that it is important for companies competing with Chinese interests to maintain technology lead through research and development.
Source: graphic images courtesy of Credit Suisse
May 5, 2015