Shakeout looms for Chinese chip firms, iSuppli says

Shakeout looms for Chinese chip firms, iSuppli says

Dylan McGrath
EE Times
(11/18/2008 10:27 PM EST)

SAN FRANCISCO—There are more than 550 fabless semiconductor companies competing in China today, but at least 100 of them will disappear within two years, according to market research firm iSuppli Corp.

"Many companies presently are seeking buyers and a total of four companies already have been acquired by foreign semiconductor firms during the past 12 months," said Vincent Gu, China research analyst at iSuppli (El Segundo, Calif.) "China's fabless IC industry is polarized with about 50 companies achieving success and the remainder struggling to survive."

Most of China's fabless companies are young and small, iSuppli said, and more than 88 percent will generate less than $10 million in revenue during 2008.

"Some companies are losing money and have no mature products available to deliver the revenues needed to continue doing business," Gu said. "Most companies have announced layoffs, cut production lines or have shut down entirely."

After years of double-digit annual growth, China's semiconductor sales revenue in 2008 is expected to rise by only 6.7 percent to reach $81.7 billion, up from $76.6 billion in 2007, iSuppli predicts. But China's fabless IC industry is expected to perform better, by 12.3 percent to reach $3.5 billion in 2008, the firm said.

"This growth in fabless IC revenue is being driven by domestic sales of wireless and consumer electronics products, rather than by exports," Gu said.

China's domestic market situation improved in 2008 despite regulatory restrictions and an incomplete supply chain, according to iSuppli. Popular applications supporting new domestic standards will appear in 2009 as the country's industrial ecosystems mature, the firm said.

Continued revenue growth for China's IC industry is anticipated in 2009, despite substantial economic uncertainty, iSuppli said.

The majority of China's semiconductor firms are short of capital and face cash flow problems, iSuppli said. The launch of an alternative stock market in Shenzen has been postponed due to the global economic financial crisis, iSuppli said, and venture capitalists generally lack interest in China's IC industry. But iSuppli expects at least five companies will seek initial public offerings on the Nasdaq stock exchange and at least 10 companies will be involved in mergers next year.

A new iSuppli report, Semi Suppliers of Leading OEMs: A Closer Look at Risk Management, is now available through the firm's web site.

A separate report issued Tuesday by consulting firm PricewaterhouseCoopers conculuded that semiconductor consumption by electronics manufacturers in the Chinese market grew by 23 percent in 2007, when China consumed more than a third of the chips produced globally for the first time.