Amid the slow growth of the global semiconductor market and the slowdown of China's IT industry, the country's IC industry posted steady growth in 2007 with sales revenue of $18.23 billion (CNY125.13 billion), up 24.3 percent over 2006. This is according to an analysis report by CCID Consulting.

Among China's semiconductor industry segments, IC design, chip manufacturing, and packaging and testing industry, the packaging and testing industry showed the most rapid growth with revenues of $9.146 billion (CNY62.77 billion), up 26.4 percent over 2006. As for chip manufacturing, the new projects such as Hynix-ST Semiconductor drive the rapid development of the overall sales revenue in the country. Revenues of the chip manufacturing enterprises hit $5.79 billion (CNY39.79 billion), up 23 percent over 2006. Meanwhile, revenues of the IC design industry fell to 21.2 percent from 49.8 percent in 2006. This is the first time the country's growth rate is lower than that of the IC industry, noted CCID.

Because of the rapid development of the package and testing industry and the slow growth of the IC design industry, the structure of China's IC industrial chain has changed. The market share of IC design fell to 18 percent from 18.5 percent in 2006. The market share of chip manufacturing fell to 31.8 percent from 32.1 percent in 2006. Meanwhile, the market share of the package and testing industry increased to 50.2 percent from 49.3 percent in 2006.

Industry characteristics

CCID identified four features of China's IC industry in 2007:

Industrial development slows down, some key vendors' performances are unfavorable—The growth rate of China's IC industry slowed down, especially for the IC design industry. Meanwhile, the operating performances of some IC design enterprises such as Actions Semiconductor and Vimicro, some chip manufacturing enterprises such as SMIC and Huahong NEC, as well as some package and testing enterprises such as STS had a downslide in 2007.

Affected by the global semiconductor market downturn, China market's slow development and high Yuan exchange rate, the country's IC industry developed slowly for the past year, said CCID. Major sales revenue of China's IC industry comes from export; the Yuan's continuous appreciation directly drives China's IC industrial sales revenue by 5 percent.

Product line construction gets new results, investment becomes the major impetus to drive industrial development—As for product line construction and investment, China's IC industry kept a strong momentum in 2007.

In the chip product line segment, the Hynix-ST Semiconductor 12-inch product line rapidly reached its production target in 2007, and its sales revenue hit $1.363 billion (CNY9.359 billion), up 2.4x over 2006&#increasing China's chip manufacturing scale. Moreover, China's IC chip product lines are constructing or in the process of reaching production target. SMIC's Beijing factory and Tianjin factory, Huahong NEC, TSMC Shanghai and Grace Semiconductor plan to extend capacity.

In the package and testing field, major manufacturers are carrying through large-scale expanding production. Jiangsu Changjiang Electronics Technology invested $291 million (CNY2 billion) to construct a new IC factory with 5 billion sets annual capacity and was opened in 2007. Samsung Electronics (Suzhou) Semiconductor's second factory also became operational. Freescale, Qimonda, RFMD and Renesas also increased investment to their package and testing enterprises in China. New projects also drive the rapid development of package and testing field.

Enterprises' reorganization and reform make new progress, public listing becomes a development trend—In 2007, many semiconductor enterprises such as Spreadtrum, Nantong Fujitsu and Tian Shui Hua Tian get listed in Nasdaq and China. China has 19 semiconductor listing companies, which cover IC design, chip manufacturing, packaging and testing, discrete devices and semiconductor materials.

Competition is heating up, IC design enterprises face challenges—In 2007, second generation ID cards' chip market hasn't increased, which directly affects related enterprises' performance in 2007. Affected by standards, license and carriers' integration, new markets such as 3G and DTV have not formally started. Many IC design enterprises with many years of R&D are still being sustained in China.

The vagueness of differences between enterprises and identical trends of products are cited as major reasons for the intense price competition in China's IC design industry. At present, most of the enterprises' products focus on low- and middle-end consumer chips. This also dictated that price wars are the most important means of China's IC design enterprises.

2008 forecast

According to CCID, China's IC market will hit its peak in 2008, exceeding the growth rate in 2007. Driving this market development are DTV and 3G. However, the development speed of China's IC industry will slow down in the future. Because China's IC market accounts for a large share of the global IC market, the development speed of the global IC market will also slow down. In general, the compound growth rate of China's IC market will reach 16.3 percent from 2008 to 2012. China's IC market will reach $157,5 billion (CNY1,080.63 billion) in 2011.

The price will have a downslide trend in the future, noted CCID. Because the capacities of DRAM and NAND flash are mastered by some major enterprises, the strategies of these enterprises and their price adjustment impact market prices. These major enterprises will be more rational in the future. DRAM prices will be steady in 2008; the price drop speed of NAND flash will be faster than DRAM. In addition, analog components won't have large fluctuations.

As for industrial development, China's demand continuously increases; improvements in industrial policy and investment environments, talent training and introduction drive the development of China's IC industry. However, the future of the global market is unclear; industrial competition is heating up; industrial chain connection is not smooth, which hinders industrial development.

Integrating these factors, China's IC industry will keep steady growth in the future. It is forecasted that the compound growth rate of the sales revenue of China's IC industry will hit 23.4 percent from 2008 to 2012. The sales revenue of China's IC industry will reach $52,128 billion (CNY357.66 billion) in 2012.

Source:EE Times