The Level of Chinese Chips from Apple's Suppliers

I have always wanted to write an article, and I have even thought of a title: "Low-key, a virtue forgotten by China's integrated circuit industry". Seeing that Apple released the 2018 version of its supplier responsibility report on March 8, I took the opportunity of an article I wanted to write but didn't write before to try to briefly sort out the current situation of my country's chip design industry in the world from the perspective of Apple's supplier system. It is not terrible for our integrated circuit industry to lag behind Europe and the United States for a few years. We should be brave and brave after knowing shame. We should not only hold high-profile internally to ignite the passion of the industry, but also keep low-key externally to avoid unnecessary premature and excessive suppression and ban.

Apple has conducted supplier factory assessments in 30 countries and regions, and the suppliers involved account for 95% of Apple's total purchases. Report URL: https://images.apple.com/cn/supplier-responsibility/pdf/Apple_SR_2018_Progress_Report.pdf

756 suppliers belong to 200 suppliers.

Among them, the number of suppliers in mainland China accounts for 15%.

Products supplied by mainland China to Apple include: acoustic components (AAC Technologies, Goertek), glass (Bern, Lens Technology), batteries (BYD, Desay, Xinwanda), printed circuit boards (Ultrasonic, Eaton), structural parts (Lianfeng, Hongteli, Kesen), packaging and printing (Zhengmei, Yutong), antennas (Xinwei), camera modules (Gaowei), functional components and materials (Anjie)...

In the list of Chinese suppliers, many are actually not mainland companies. For example, Cowell Electronics, a well-known Korean company; Hontech, a group based in New Taipei City, Taiwan, etc. Therefore, mainland suppliers account for less than 15% of Apple's total, and the actual share is roughly around 10%.

From the perspective of information security, Apple is unlikely to ban domestic core chip suppliers. For example, acoustic components are purchased in large quantities from AAC Technologies and Goertek. Among my friends, some of them have forward-looking product layouts, and Apple has sent people to discuss the possibility of supplying Apple in batches in 2-3 years. Therefore, as long as mainland suppliers have real skills, there is no big policy threshold to squeeze into Apple's suppliers; it is expected that the core chips of mainland China will enter the three top manufacturers of Apple, Samsung, and Huawei in about 3-5 years; the domestic chip design industry has long been at the level of hundreds of billions, and it has been preparing for many years, and the arrow is on the string, and it is time to launch.

In today's society, the most core and valuable components of mobile phones, cars, and even high-speed rail that everyone cannot live without are chips, which correspond to huge markets such as consumer electronics, automotive electronics, and IGBT. From the supplier list, objectively speaking, except for acoustics and other chip directions (including a variety of sensor products), the technical level of domestic chips has not yet entered Apple's eyes. But from a positive perspective, China's chip development potential is huge, and it should be at the final stage of achieving global competitiveness. It is of great significance for the country to continue to increase its support for the integrated circuit industry at this time!

The actual proportion of Apple suppliers from Taiwan is between 25-28% (some of them are mixed into the list of mainland suppliers). Some people would say that if the two sides of the Taiwan Strait are unified, wouldn’t China’s share of Apple’s suppliers reach 35-40%? That’s right, but most of the products supplied are still peripherals of integrated circuits, and the core chips are mediocre. In 2017, the types of products supplied by Taiwan to Apple included: foundry (6 companies), printed circuit boards (4 companies), various modules (6 companies), batteries (3 companies), keyboards (2 companies), accessories (5 companies), chips (1 company, mixed signal IC)...

The United States has a huge chip industry. There are AMD (SoC chips), ADI (power management chips), ON (power management chips), Broadcom (WiFi), Ingel (baseband chipset), InvenSense (gyroscope), Knowles Electronics (electroacoustic devices), Sandisk (storage), Qorvo (RF), Cirrus (sound chip), Qualcomm (LTE chip), Synaptics (touch)... Basically, they are the only choice for core chips of mobile phones, and they are all varieties that China needs to fill the gaps.

Taiwan is an enlarged version of the mainland. Although it does not have very advanced chips, it ranks ahead of the mainland in Apple's supplier system.

Japan seems to be lacking in stamina. It has optical filter chips (NDK), CMOS sensors (Sony), and storage (Toshiba). A lean camel is bigger than a horse. Sony's CMOS alone is enough to kill most chip companies in terms of technology.

In South Korea, Samsung is king. Samsung's chips have always been a barrier that Apple cannot avoid.

Germany is a country with few chip companies, but it is a leader among them. Infineon's baseband chipset and Bosch's sensors.

Netherlands, same as above, slimmer version. Philips, NXP.

Austria, the shopping-oriented AMS, a world-class leader in sensors.

For Switzerland, one ST is already impressive enough.

In fact, among Apple's suppliers, only Singapore, Ireland, Saudi Arabia, Belgium and the UK have lower chip quality than mainland China. Considering that the UK has ARM, which Chinese chip companies generally cannot avoid, the current level of Chinese chips is not ranked high and should be classified as potential stocks. It cannot be regarded as a blue chip stock, let alone a super blue chip that can change the market trend at a moment's notice!

On the one hand, as China's chips have just emerged, the products of emerging companies need a process of market recognition, and this cycle will last for several years. On the other hand, Apple is extremely demanding on the batch capacity of suppliers; for example, many years ago, Samsung has proved that its AMOLED quality is far better than LTPS, but Apple has been unable to obtain the required large-scale supply and has been forced to use LTPS screens for many years; similarly, domestic BOE, Tianma, and Hehui Optoelectronics all have the ability to supply AMOLED screens, but there is still a big gap from Apple's mass production needs.

We often see that Apple will build its own chip capabilities and abandon suppliers, causing the suppliers' stock prices to drop in half in an instant. But we should also see that they will also develop suppliers, including paying the bulk of R&D funds and mass production funds, providing technical guidance, helping to purchase equipment, etc. Such suppliers will grow with Apple, and of course the inevitable result is that the suppliers are subject to Apple to some extent.

The biggest advantage of our country is that we have the strongest terminal manufacturing capability in the world. Huawei, Xiaomi, OPPO... How to develop suppliers and how suppliers rely on them to grow are similar to the Apple model. However, the upstreamization of terminal manufacturers has always been an inescapable nightmare for independent chip companies. Huawei has HiSilicon, Xiaomi has Pinecone...

There are many qualitative evaluations of my country's integrated circuit industry, but quantitative descriptions are relatively lacking. Therefore, China urgently needs to quantitatively evaluate the current level of chip products to provide a reliable reference for policy making. One approach I personally advocate is to subdivide chips into dozens or even hundreds of subdivisions, and score each direction: 5 points for those that account for more than 10% of the global high-end market, 3 points for those that account for more than 20% of the mid-end market, 1 point for those that have the ability to supply in batches at the low end, and 0 points for those that are struggling to survive at the low end; and add 2-5 times the weight to the particularly important directions of CPU and GPU. Finally, calculate the proportion of the total score in the full score, and you will really have a good idea of ​​my country's independent innovation capabilities in integrated circuits.

I hope someone will try to do a systematic analysis.

About the Author

The author Feng Jinfeng is a visiting professor at the National Key Laboratory of Application-Specific Integrated Circuits and Systems at Fudan University, a Ph.D. in Engineering in Machine Learning from Shanghai Jiao Tong University, a Bachelor of Engineering, a Bachelor of Engineering, and a Master of Management from Tsinghua University. In 2000, he participated in the translation and publication of "Silicon Valley Advantage" edited by Mr. Wu Jinglian. From 2005 to 2017, he worked in the High-Tech Industry Department of the Shanghai Development and Reform Commission. He is currently engaged in semiconductor industry investment (jinf@139.com).

*This article only represents the author's personal views and does not involve any organization; you are welcome to communicate with the author via email. If you need to reprint the content of this article, you must obtain the author's authorization. Thank you for your cooperation.

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