China consumed one-third of chips in '07

Study: China consumed one-third of chips in '07

Dylan McGrath
EE Times
(11/18/2008 1:02 PM EST)

SAN FRANCISO—Semiconductor consumption by electronics manufacturers in the Chinese market grew by 23 percent last year, when China consumed more than a third of the chips produced globally for the first time, according to a report released Tuesday (Nov. 18) by PricewaterhouseCoopers.

Driven by growth in electronics manufacturing, China has become the dominant consumer of semiconductors with the total consumption estimated at $88 billion in 2007, according to the report, China's Impact on the Semiconductor Industry: 2008 Update.

"Semiconductor consumption in the Chinese market is growing at a faster pace than what the industry anticipated," said Raman Chitkara, global semiconductor leader at PricewaterhouseCoopers, in a statement.

But growth in semiconductor production in China is not keeping pace with consumption, Chitkara added. "While the Chinese government is implementing initiatives in the hope of increasing local production, we predict that this disparity is likely to continue in the near future," Chitkara said.

Growth in exports is the dominant driver of consumption of semiconductors in China, according to the report. About 69 percent of chips consumed in China in 2007 were used in various electronics products manufactured for export, up from 64 percent in 2005, it said.

The Chinese semiconductor industry remains widely scattered with no dominant players, PricewaterhouseCoopers said. This is likely to change as the Chinese semiconductor industry further matures within the next five years with the likely emergence of a dominant player in the market, the firm said.

This assumption contrasts with the opinion advanced by Bill McClean, president of market research firm IC Insights Inc. Earlier this year McClean questioned China's commitment to semiconductor manufacturing as some of the country's top chip makers have hit the skids.

Silicon foundry Semiconductor Manufacturing International Corp. (SMIC) is the largest manufacturer of chips in China and the fourth-ranked foundry in the world by revenue. But SMIC has struggled in recent quarters, leading to speculation about its future. Last week it received a $172 million investment from Datang Telecom Technology & Industry Holdings Co. Ltd.

According to the PricewaterhouseCoopers study, buying decisions for semiconductors consumed by the electronics manufacturing industry in China are often made outside the country in places like Taiwan and Japan. PricewaterhouseCoopers said it predicts that as the Chinese industry matures, this business practice will diminish, benefiting the companies with greater local presence in China.

While many of the largest semiconductor suppliers to the Chinese market are multinational companies, 32 of the top 70 global suppliers have below average market penetration in China, the fastest growing semiconductor market in the world, according to the report.

"Over the near term, established multinational semiconductor companies may find an unparalleled market opportunity in China, but over the long term the widening gap between consumption and production of semiconductors represents a domestic industry void that will inevitably be filled," Chitkara said.