Opportunities for China's semiconductor industry

opinion March 26, 2012 00:00

By Suwatchai Songwanich

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For two decades China has been trying to develop its semiconductor industry, but with mixed results.

That may sound surprising, given China purchases a third of the world’s silicon chips (worth around $100 billion) to use in products sold both locally and exported. But what has frustrated Chinese leaders is that most of the industry competes in commoditized areas such as chip assembly and testing, and Chinese companies hold 4 per cent or less of the most prized segments of the global value chain in chip design and manufacturing. 

However, now the environment is changing for the better, as noted in a recent report by management consultancy McKinsey & Company. Four of the key obstacles to the industry’s development are steadily being whittled away, suggesting a more promising future for this key industry.
The obstacles have been:
1. Most of the chips in the world are designed by Western and Japanese companies to their design and functionality preferences, to meet the preferences of their consumers. Chinese companies have had little influence on semiconductor design, technology standards or chip selection for major product categories such as mobile phones, laptop computers and LCD televisions. But this is changing, with companies in China are moving to the forefront of a “Made in China, For China” movement.
2. Export controls are losing their bite. While the governments of countries home to major semiconductor manufacturers have long banned the sale of leading-edge manufacturing technology to China, this is not so much of a problem now. That’s because the domestic consumer market for entry-level devices which can use older chip technology has grown big enough to be profitable for Chinese producers.
3. China’s planners have rectified earlier missteps and established high-tech zones which concentrate investment in a smaller number of cities, such as Chengdu, Dalian and Shanghai, with a strong base of expertise and a critical mass of manufacturers and suppliers.
4. China has a new, two-pronged policy for acquiring the semiconductor know-how and IP mostly owned by foreign players. The country is putting pressure on global companies to share their IP, encouraging large, next-generation technology platforms such as cloud computing, the Internet of Things and hybrid electric vehicles, all of which represent billions of dollars in opportunities for global and domestic semiconductor companies. In addition, the Chinese government has set targets for indigenous innovation, with the goal of reducing dependence on foreign technologies to 30 per cent from the current 50 per cent.
When you take these four factors into consideration, you can see that China’s position in the global semiconductor industry is going to become stronger each year. Just what impact this will have on Thailand, which is home to many semiconductor assembly and test operations of multinational manufacturers, remains to be seen – but our industry here would do well to pay close attention.
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