Executives from eight major semiconductor companies discuss how to create the future during the industrial transformation period?

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Interview guests (in alphabetical order of guests' last names)

Big companies always get bigger. The huge amount of international semiconductor mergers and acquisitions in 2015 once again illustrates this point. However, the frequent occurrence of international mergers and acquisitions also provides new opportunities for the development of China's semiconductor industry. How will the semiconductor industry develop in the future? In this context, how should China seize the development opportunities? During "SEMICON China 2016", "China Electronics News" specially launched the "SEMICON China 2016 Special", inviting senior executives of leading companies in the fields of semiconductor manufacturing and equipment to express their wonderful views on hot topics in the industry such as policies, innovation, and integration.

Market fluctuates within a narrow range and mergers and acquisitions will continue to occur

China Electronics News: Research institutions generally have pessimistic forecasts for the semiconductor industry's market revenue in 2016. What do you think of this?

Li Zhi: According to IHS analysis data, they are not very optimistic about the semiconductor outlook this year, and have lowered the growth data of the semiconductor industry from a positive growth of 1.7% to -0.4%. This is closely related to the uncertainty of the global economy and weak demand. This trend has continued since the third quarter of 2015. Fortunately, SMIC has maintained a continuous profit trend with high capacity utilization, the promotion of a variety of differentiated products and good customer satisfaction, and its operating indicators such as sales and gross profit margin have repeatedly set new highs. So far, we are still optimistic about the revenue situation in the first quarter of 2016. In the context of the regular first quarter being a low season, we estimate that the quarterly revenue will increase by 1% to 3%. If the time axis is extended further, according to the IHS data report, the global semiconductor industry is slowly "recovering" from 2014 to 2019, with an annual compound growth rate of 1.9%. The growth value of wafer foundries is higher than this value, at 7%.

Shu Qi: The research forecasts for 2016 and the next few years show a trend of narrow fluctuations, which means that the industry, including research institutions, has not found an industry hotspot with strong driving force like the previous wave of mobile Internet, so conservative forecasts are given. No matter which part of the industrial chain in the semiconductor industry is inseparable from the promotion of consumer demand, we are waiting and cautiously predicting some sub-sectors that may have high growth potential, such as the Internet of Things. However, the Internet of Things does not have the significant agglomeration effect of mobile Internet; the Internet of Things is more characterized by a large base, wide coverage, and scattered distribution, and is a slow-heating promotion. We will focus on the emergence of this gradual demand and grasp it.

Su Hua: IHS predicts that the fastest growing application areas in the global semiconductor industry from 2014 to 2019 will be industrial power control, automotive electronics and smart card chips. This is highly consistent with the three major business areas that Infineon focuses on. Based on Infineon's "from product to system" strategy, we discovered opportunities and trends in the market early, so as to provide new solutions quickly and flexibly.

China Electronics News: The semiconductor industry saw a wave of mergers and acquisitions in 2015. Will this trend continue in 2016? Can China still keep pace with the international market?

Chen Jie: As the line width shrinks to below 14nm, not only will the difficulty and cost of production technology increase greatly, but even the traditional laws of physics will no longer apply, and we will enter the world of quantum mechanics. Compared with more than a dozen companies that mastered the advanced process at that time ten years ago, today only three or four companies such as Intel have 14nm technology. Grouping together for warmth and forming alliances have become an important option for the industry to survive and develop. In the past 2015, we saw that the mergers and acquisitions announced by the global semiconductor industry were more than 1.5 times the total amount of mergers and acquisitions in the previous five years. Before the promotion of new heavyweight applications and scalable mass production technologies, I believe that industry mergers and acquisitions will continue to appear. Of course, the targets and participants of mergers and acquisitions may expand from applications, design, and packaging to upstream equipment materials.

Li Zhi: 2015 was the year of the explosion of mergers and acquisitions in the international semiconductor industry, with many mergers and acquisitions involving staggering amounts of money. Therefore, the number of companies left for joint ventures or intended sales has decreased in the future. From past mergers and acquisitions, we can see that the main driving force behind mergers and acquisitions comes from companies shifting from traditional PC-side businesses to future technologies such as mobile and the Internet of Things. In addition, many domestic semiconductor companies are also actively striving to achieve the goal of self-sufficiency in semiconductor components, reducing their dependence on imported semiconductor products, and have "gone global" to launch a series of acquisitions of overseas semiconductor suppliers. Semiconductors are a highly globalized industry, and mergers and acquisitions are a major trend for companies. Some barriers encountered by Chinese companies in the process of going overseas also show that we still need to work hard on our internal strength. Mergers and acquisitions are actually one of the means for companies to adapt to market changes or to make advance arrangements for the future, and the probability of them happening in mature markets is not small.

Shu Qi: Due to the strategic attention and support from the state to the semiconductor industry, I believe that the wave of mergers and acquisitions that began in 2015 will not stop abruptly in 2016, but there will be new trends and changes. After the game between industrial capitals throughout the past year, I believe that the earliest batch of mergers and acquisitions have or are undergoing post-merger integration. Mergers and acquisitions in the semiconductor industry are not just about capital, but also involve many issues such as the culture, ideology, industry characteristics, corporate culture and talent retention of the country where the acquired companies are located. If any of these issues are not handled properly, it will affect or cause the acquired companies to fail to develop healthily, resulting in a result of 1+1<2. I believe that mergers and acquisitions in the semiconductor industry in 2016 will tend to be stable and rational, and tend to pursue the effects of mergers and acquisitions rather than the mergers and acquisitions themselves. China will continue to be the main force in mergers and acquisitions in the international semiconductor market.

Liu Weiping: In 2015, the scale of semiconductor M&A transactions exceeded 120 billion US dollars, setting a record high. This is the second time in 25 years that IDM has outperformed fabless. Although government-led M&A has gradually subsided, in the pan-semiconductor industry, strong alliances between large companies and almost crazy M&A actions will continue. Even private enterprises, foreign-funded enterprises, and joint ventures will follow market trends to carry out M&A and become the main force in the future. This is also a reasonable market reaction after the government guided consumption policy.

Facing international competition pressure, we must catch up with advanced technology

China Electronics News: Facing the competitive pressure from international manufacturers, what is China's strategy in tracking the international advanced level?

SMIC: We will not be absent in advanced technology. In terms of the most advanced process, some companies are ahead of SMIC, but in terms of financial returns, SMIC's performance is still very good. From the efficiency value of capital expenditure, we are only 0.01 behind the most advanced companies, which is higher than our peers in the industry. For a company, it is necessary to maintain a reasonable return on capital while maintaining technological progress.

Shu Qi: To put it simply, it is strategically following. Guided by Moore's Law, the semiconductor industry cannot fail to keep up with the pace of technological development as long as you are in the industry. There is no choice. If you do not keep up, the capital and R&D investment paid in the early stage will become meaningless. But for Chinese semiconductor industry followers, while keeping up, they also need to pay attention to strategy. The so-called strategy is to make predictions without falling behind, avoid price competition in the red ocean, develop in a dislocated way, and survive in a differentiated way. Do not fall behind in major nodes, and even take the lead in special process fields.

Zhou Weiping: The core of the competition in the integrated circuit industry is not only the competition of capital, but more importantly the competition of technology accumulation and talents. Shanghai Advanced has accumulated rich experience in chip process technology and wafer manufacturing through nearly 30 years of introduction, digestion, absorption and innovation, and has a group of strong professional technical teams. In particular, it is in the leading position in China in the field of special process technology of integrated circuits such as analog circuits and power devices. I am fortunate to lead my team to participate in this round of industry development. According to the characteristics of Shanghai Advanced, we do not have the basic conditions (funds and technical factors) to pursue Moore's Law. We can only insist on taking a differentiated path and focus on the research and development, manufacturing and equipment of special process technologies such as high-voltage analog circuits represented by BCD and power devices represented by IGBT in the field of integrated circuits. The development of Shanghai Advanced in the field of special semiconductor processes is as important as the industry's mode of reducing line width and improving. According to my judgment, China's special process technology of integrated circuits will take the lead in breakthroughs and take the lead in entering the world's leading ranks.

Su Hua: In the Internet big data environment, whether it is a traditional industry or an emerging industry, whether it is an industry giant or a growing enterprise, it needs its own business ecosystem. Now many industries have established ecosystems, such as e-commerce ecosystems, financial ecosystems, Internet of Vehicles ecosystems, O2O ecosystems, etc. If the traditional business model is to compete with the core competitiveness of the enterprise, then the new business model will undoubtedly be a competition of ecosystems. In 2010, Infineon began to build a local ecosystem.

"Made in China 2025" and "Internet Plus" will move from concept to reality

China Electronics News: In 2015, the country issued a series of policies to boost the industry, such as Made in China 2025 and Internet Plus. What impact do these policies have on the semiconductor industry?

Li Zhi: The answer is yes. Made in China 2025 and Internet Plus provide consumer demand and market space for the development of the domestic integrated circuit industry. The realization of Industry 4.0 itself requires the transformation and upgrading of the manufacturing industry. For the semiconductor industry that provides the underlying technology, since it involves automatic robots, cloud computing, the Internet of Things, and big data analysis technologies, the process transformation of industrial production, manufacturing, inventory, logistics, etc. requires the extensive use of microelectronic products, such as processors, sensors, and microcontrollers. The new market demand indicates a broad development prospect for semiconductor companies. Against the background of weak demand in the PC market and slowing mobile terminal consumer market, these emerging demands will become the driving force for the development of the semiconductor industry in the future. And many technical applications suitable for the Internet of Things, such as microcontrollers and sensors, do not need to rely on the most advanced process, but continue to optimize products on the existing mature processes, such as the demand for low power consumption, high voltage, and non-volatile memory, which provides more market opportunities for us and domestic design and manufacturing companies.

Su Hua: As a founding member of the German "Industry 4.0" Council, Infineon participates in the formulation of relevant rules and standards. It is also a practitioner of "Industry 4.0". Its own factory is the world's most advanced wafer manufacturing automation factory. Infineon is willing and capable of supporting "Made in China 2025". Infineon's Wuxi security chip back-end intelligent manufacturing project was rated as "2015 Wuxi Top Ten Internet of Things Application Cases". In order to support "Made in China 2025", Infineon proposed a very innovative triangular business model. On the one hand, by receiving local manufacturing companies to visit Wuxi's smart factory, it will share successful experiences with local manufacturing companies; on the other hand, it will cooperate with production system integrators to provide consulting and implementation services to local manufacturing companies, helping the local manufacturing industry to transform and upgrade to intelligence.

Chen Jie: After the national big fund was launched in 2014, we saw that the semiconductor industry, which requires long-term and large-scale investment, has attracted more and more attention and investment from industrial capital and social capital. The three major links of design, chip manufacturing, and packaging have not only experienced extensive growth in quantity, but also made great progress in technology level. The semiconductor industry is open and global in terms of technology, application, market, and supply chain. In 2016, with the continued support of the country and local governments for the industry, going out and bringing in will help improve the competitiveness of local industries.

Jian Shanjie: UMC is building a 12-inch fab in Xiamen, Fujian. The UMC Xiamen Fab12X structure is under construction and the progress is in line with expectations. The 55/40 nanometer process will be mass-produced in the fourth quarter of this year, with a maximum capacity of 50,000 wafers per month. UMC is building a 12-inch fab in Xiamen to closely meet the needs of local or foreign design companies, and combine with the local back-end packaging and testing industry to provide advanced and diversified processes.

China Electronics News: Specifically, which applications in China do you think will perform better in 2016?

Shu Qi: Made in China 2025 and Internet Plus will surely move from the concept to real market application, and this process will be very fast. For example, China's industrial automation foundation is weak. The proposal of Made in China 2025 will prompt China's industry to upgrade and transform by leaps and bounds, which will bring huge market demand for semiconductors, including industrial sensors, microcontrollers, electronic tags, power devices and other chips. For our pure logic foundry companies, automotive electronics and industrial semiconductors will be the most promising market areas in the future.

Jian Shanjie: The IC chip market is expected to grow moderately in 2016, with the categories with the largest growth rates being mobile computing processors, signal converters, 32-bit microcontrollers, flash memory, communication/mobile communication chips, automotive logic chips, dynamic random access memory chips, and power management chips, etc. Therefore, there should be good market performance in applications such as smart phones, 4G mobile communications, smart cars, smart cards/bank cards, industrial automation/robots, smart meters/street lights, security monitoring, and drones.

Liu Weiping: Fields directly facing mass consumption, such as communications and digital TV, will still be the main application markets in 2016; the application market driven by the Internet of Things has gradually become clear after years of chaos, and will become another market development opportunity for semiconductors in 2016; and the market demand for automotive, medical, and industrial semiconductors is also gradually booming. Huada Jiutian will also develop EDA solutions and IP core products that are more suitable for designers based on the demand characteristics of application markets such as communications and the Internet of Things. At present, we have nearly 100 mature high-speed interface and ultra-low power IP cores, and maintain good cooperation with the world's leading foundries. In addition, Huada Jiutian has deployed advanced EDA solutions and intelligent manufacturing upgrade technologies for panel design and manufacturing in advance, and has become an important partner of BOE and Huaxing Optoelectronics.

Equipment demand is expected to grow substantially, and domestic equipment manufacturers have made great progress

China Electronics News: How do you assess China's demand for semiconductor equipment in 2016? In which areas will it be mainly concentrated?

Zhao Jinrong: In 2016, under the influence of many favorable factors such as the policy support of the National Integrated Circuit Fund, the IC industry investment boom, and the downstream application market, the Chinese integrated circuit equipment market is expected to flourish. The continuous advancement of China's 28-nanometer process technology will strongly drive the demand for 28-nanometer related equipment. With the forward-looking exploration and development of 16/14-nanometer advanced technology, the corresponding demand for 16/14-nanometer equipment will begin to appear. The TiNHardmask PVD equipment, Al Pad PVD equipment, STI etching equipment, and single-wafer anneal equipment produced by Northern Microelectronics, as well as the cleaning machine, diffusion furnace and other equipment produced by Seven Star Electronics have passed the production line verification and obtained subsequent orders.

North Microelectronics is a high-tech enterprise focusing on the R&D, manufacturing and marketization of high-end semiconductor equipment. The core products we developed, such as etching equipment (ETCH), chemical vapor deposition equipment (CVD), physical vapor deposition equipment (PVD), etc., have been widely used in integrated circuits, semiconductor lighting, micro-electromechanical systems, and other cutting-edge fields. Seven Star Electronics is the cradle of my country's electronic special equipment and electronic components. After the experience and progress of different historical periods, it has grown into a high-tech leader in my country's electronic basic products in the new era. Currently, North Microelectronics is integrating with Seven Star Electronics. After the integration is completed, we will become China's largest semiconductor equipment manufacturer with the widest range of fields and the most complete products. It is also the only listed company that mainly engages in semiconductor equipment manufacturing.

Li Zhi: The demand for semiconductor equipment in mainland China in 2016 has increased significantly compared with 2015, and is expected to be about 5 times the scale. The demand growth mainly comes from the rapid expansion of wafer foundries, including some newly built foundries in China. The expansion areas are mainly concentrated in 12-inch lines of 28nm PS/HK, Flash and Image Sensor. In addition, the demand for 8-inch line expansion is mainly concentrated in CIS, fingerprint recognition, Internet of Things and other fields. Application demand is mainly around mobile terminals. Overall, in 2016, the demand for semiconductor equipment in mainland China will show a rapid increase with the help of the big fund, and the 12-inch line and 8-inch line will bloom at the same time. This also provides a good demand environment for the research and development of domestic equipment and its entry into the market.

Chen Jie: In the next few years, whether it is the market forecast of sales or wafer sales, we see that the proportion of advanced processes and mature processes is equal. As an equipment supplier, in addition to continuing to maintain the competitiveness of advanced process equipment, Tepco will work hard to improve the production capacity and energy efficiency of our nearly 50,000 equipment in use worldwide. For example, TELeMetrics, as a comprehensive high-value-added work package, can effectively help our customers improve performance and production efficiency.

The weak demand and the strong dollar in 2016 may have some negative impact on the semiconductor industry, but the storage industry and Internet of Things applications for big data are expected to perform better, and China's newly installed capacity will not drop much from last year's increase. At the same time, we see that China's demand for semiconductor equipment is also relatively large, for power management. The demand for equipment for applications such as fingerprint recognition and LCD drivers will also account for a considerable proportion. Second-hand equipment that has been refurbished with original certification or new equipment produced for this demand will meet the urgency of customers' time to market and effectively reduce customers' operating and maintenance costs. Tepco will further expand its production in China, increase the purchase of components and seek local partners to enhance the competitiveness of China's semiconductor ecosystem.

Source: China Electronics News, Electronic Information Industry Network

Author: Chen Bingxin