How is China's domestic chip industry doing under the global market expansion and "squeeze"?
Latest update time：2021-09-01 18:01
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Mainland China has become the most important part of the global semiconductor market. The reason for this is, first of all, the consumption capacity of the semiconductor market here is amazing and the industry scale is huge. Secondly, because the market is in its growth stage and has great development potential, almost no one will give up such a high-quality cornucopia. At the same time, the role of the Chinese mainland market as a chip "distribution center" seems to be becoming more and more prominent: whether it is chips produced locally or chips produced outside the market, as well as electronic devices processed and assembled with chip components, some are consumed locally, and a large number are exported. All of these have led to a large number of chips being produced, processed, exported, and imported in mainland China, forming a complex chip production and trade ecology every year.
Consistency in global market expansion
As the global semiconductor industry continues to develop, grow and expand, the Chinese mainland chip market will also benefit from it, and the corresponding chip design companies and wafer fabs are expanding and growing. In this process, the correlation between the Chinese mainland market and the global semiconductor market is getting higher and higher, and there is a high degree of consistency at many macro levels.
For example, according to IC Insights statistics, the Chinese IC market is divided by product type, as shown in the figure below. In terms of market share, the top four chip types are logic devices (accounting for 26% of the Chinese IC market last year, US$37.5 billion), MPU (22.8%, US$32.7 billion), DRAM (18.8%), and NAND flash memory (11.1%).
Another statistical data from IC Insights gives the market growth rate of each of the 33 IC product categories defined by the World Semiconductor Trade Statistics (WSTS) organization. Among them, the top ten fastest growing IC subcategories in 2021 are particularly highlighted, as shown in the figure below.
As can be seen from the figure, DRAM and NAND flash memory are expected to be the two fastest growing product categories in 2021, with sales increasing by 18% and 17% respectively.
Two automotive-specific IC product categories, automotive-specific analog and automotive-specific logic chips, are expected to be among the fastest-growing segments in 2021.
In addition, as the growth of smartphones slows, many system-on-chip MPU suppliers such as Qualcomm, Samsung and MediaTek have turned more attention to 64-bit embedded processors that integrate security features and machine learning AI acceleration as well as graphics capabilities. These make MPUs have good development prospects in 2021.
From the above two statistical data, we can see that the top four product categories in terms of market share are memory (DRAM and NAND flash memory), logic devices, MPU and analog chips, whether in the Chinese market in 2020 or the global market in 2021. From this point, we can see that the demand, pattern and development prospects of the Chinese and global chip markets are highly consistent.
It can be seen that the top-ranked chip products are directly or indirectly related to mobile phones, which have the largest market size, such as memory, MPU (in mobile phones, it is the baseband and AP chips), and analog chips (such as RF chips and power management chips). Only by entering the huge mobile phone market can we gain the upper hand in market share.
There are also some chips that are closely related to mobile phones even if they are not directly used in mobile phones, such as data centers in the field of high-performance computing (which require a large number of high-performance server processors and memory). Many data centers provide hardware support and services for Internet companies, and the user terminals of Internet companies are mainly mobile phones. There are also mobile cellular network base stations (which require a large number of MPUs, logic chips, memory, and analog chips).
Not only are the top-ranked chip categories consistent, but the bottom-ranked ones are also very similar, with MCU being a typical example. It can be seen that in the Chinese market, MCU has a relatively low market share, ranking sixth. In the predicted global market in 2021, MCU ranks eighth in the top ten, and the situation is very similar.
It is also obvious that MCU has almost nothing to do with mobile phones and related equipment. Whether it is mobile phones or the high-performance computing and base stations mentioned above, MCU is rarely used. The main battlefield of MCU is automobiles, home appliances and the Internet of Things. Although a large number of MCUs are used in automobiles and home appliances, the unit price of MCU is much lower than that of MPUs, analog chips, etc. Taking high-end mobile phone basebands as an example, Apple’s latest iPhone 12 uses Qualcomm products, which cost up to US$80, even more than the US$70 OLED screen (in most cases, the screen is the most expensive among all the components of mobile phones). For high-end 32-bit MCUs, even in the current situation of severe global chip shortages and sharp price increases, the unit price of high-performance MCUs does not exceed US$5. The gap is obvious. This also explains from one aspect why MCU lags behind the top four categories of chips in terms of global sales price market share.
Another important application scenario of MCU is the Internet of Things. Traditionally, a large number of sensors are deployed on the edge of the Internet of Things to collect various signals from the real world, and MCU is the best match for sensors for control. In recent years, the concept of the Internet of Things has been very popular, but its specific implementation does not seem to be as widespread as advertised. The sales market share of MCU also seems to indicate to some extent that we are still a long way from the era of the Internet of Everything.
Let's look at the above situation from the perspective of chip manufacturing, taking TSMC as an example. Since the company is the world's leading wafer foundry with a very high market share, its relevant data is representative and convincing.
The above figure shows the proportion of TSMC's revenue by application in 2020. It can be seen that mobile phones and high-performance computing are the two largest parts, which is consistent with what was mentioned above, because most of the various memories, MPUs, logic chips and analog chips are used in these two fields. It can also be seen from the figure that TSMC's revenue from consumer applications accounts for a very small proportion, which is very similar to the situation in the home appliance field mentioned above, which mainly uses MCUs. The small proportion of automotive revenue is largely related to the impact of the epidemic in 2020, which has caused global automotive chip manufacturing this year to pay off last year's debts.
Challenges of global market “squeeze”
The development of China's semiconductor industry has benefited from the growth of the global market. At the same time, the Chinese mainland market seems to be "squeezed" by the global market. Specific manifestations include the United States' semiconductor trade restrictions, the current state of chip "distribution centers" in the Chinese mainland market, and the contradiction between the capacity expansion of local companies and the entry and expansion of international manufacturers.
The semiconductor trade between China and the United States will not be discussed in detail here. Let’s take a look at the last two situations mentioned above.
According to IC Insights, in 2020, the size of China's integrated circuit market increased to US$143.4 billion, a 9% increase from US$131.3 billion in 2019. Of this US$143.4 billion integrated circuit market, 60% ($86 billion) was integrated into exported electronic system equipment, and 40% of ICs ($57.4 billion) were used in domestically consumed electronic system equipment.
IC Insights believes that China has been the largest consumer of ICs since 2005, but China is not necessarily a major producer of ICs now or in the future. Of the $143.4 billion of ICs sold in China in 2020, only 15.9% of them, or about $22.7 billion, were produced in China. Of these, the total output value of companies headquartered in China was only $8.3 billion, accounting for only 5.9% of the country's total IC market last year. Non-mainland Chinese companies with wafer fabs in mainland China (e.g., TSMC, SK Hynix, Samsung, UMC, etc.) still account for the majority of China's IC production.
In this context, IC Insights believes that although China has been the largest IC consumer since 2005, this does not necessarily mean that China's internal IC production will increase significantly. China's IC production accounted for 15.9% of its $143.4 billion IC market in 2020, but IC Insights predicts that by 2025, this share will increase by 3.5 percentage points from 2020 to 19.4%. (An average annual increase of 0.7 percentage points).
If China’s IC manufacturing industry increases to $43.2 billion by 2025 as IC Insights predicts, China’s IC production will still only account for 7.5% of the forecasted $577.9 billion global IC market in 2025. IC Insights believes that even after some Chinese producers’ IC sales increase significantly, China’s IC production may only account for 10% of the global IC market by 2025. This will be far below China’s previous goal of achieving a 70% localization rate for chips by 2025.
One important reason for this concern is that international giants are continuously expanding production in mainland China by virtue of their technological, scale and financial advantages, thus creating a "squeeze" situation on local chip manufacturers.
Another reason for being squeezed is the lack of local non-memory technology. China is very short of large-scale analog, mixed-signal, server MPU, and dedicated logic IC manufacturers. These chips account for more than 50% of China's IC market share. IC Insights believes that it will take decades for mainland Chinese companies to gain competitiveness in the non-memory chip field.
Semiconductor equipment is a barometer
In order to increase the production capacity and market share of local chip manufacturing companies in mainland China, it is necessary to build wafer fabs with mass production capabilities, which has been lacking in the past few years. For the chip manufacturing industry, purchasing semiconductor equipment is an important indicator for achieving production capacity. The purchase of semiconductor equipment can largely reflect the actual situation of wafer fab production capacity.
Data released by the Chinese mainland customs showed that from January to November 2020, the overall import value of the semiconductor equipment industry in mainland China reached US$16,857.6 million, among which imports of front-end semiconductor manufacturing equipment and packaging auxiliary equipment continued to grow significantly.
The import value of front-end semiconductor manufacturing equipment reached US$12,730.5 million, a year-on-year increase of 38.4%, accounting for 75% of the industry's total import value; the import value of silicon wafer manufacturing equipment reached US$781.2 million, a year-on-year decrease of 17.8%, accounting for 5% of the industry's total import value; the import value of packaging auxiliary equipment reached US$3,345.9 million, a year-on-year increase of 9.4%, accounting for 20% of the industry's total import value.
From this set of data, we can see that the import volume of equipment used for chip manufacturing has increased significantly. Of course, among the wafer factories that purchased the equipment, there are both multinational giants and local companies, but the specific proportion is not clear. Overall, the construction of wafer factories in mainland China is booming.
Compared with the continued rise in wafer fab equipment, imports of silicon wafer manufacturing equipment have shown a significant decline. The reason for this is that in the semiconductor industry, the upstream of the industrial chain, the more stable the structure, and the more difficult it is for latecomers to break. Silicon wafers are semiconductor materials, and their corresponding position among the top five in the world is very stable and extremely difficult to shake.
In addition, in the past few years, several emerging silicon wafer companies in mainland China have been ambitious, quickly built factories, and introduced a lot of equipment. After the hustle and bustle, they have gradually calmed down and are on the right track. Compared with the huge market size of chip manufacturing equipment, the scale of silicon wafer manufacturing equipment is much smaller. For local companies, they have reached a stage of steady development step by step, and there is no need to expand production on a large scale in a short period of time.
Chip manufacturing is closely related to semiconductor equipment. China's local chip manufacturing industry has benefited from the development of the global market, but it will also be "squeezed" accordingly. The same is true for the semiconductor equipment market. As the global semiconductor market continues to expand, local semiconductor equipment also has a relationship of benefiting and being "squeezed". In the current international environment, this relationship will to a certain extent affect the scale expansion and market share increase of the local chip manufacturing industry.
*Disclaimer: This article is originally written by the author. The content of the article is the author's personal opinion. Semiconductor Industry Observer reprints it only to convey a different point of view. It does not mean that Semiconductor Industry Observer agrees or supports this point of view. If you have any objections, please contact Semiconductor Industry Observer.
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