While integrated circuit (IC) demand in Mainland China grew 6.9% in 2008, internal IC production dropped 0.4% reaching 24.3% of total IC consumption, according to the report “Mainland China’s Semiconductor and Equipment Markets: A Complete Analysis Of The Technical, Economic, and Political Issues,” recently published by The Information Network.
China's IC industry is expanding rapidly. In 2008, Mainland China produced 42.5 billion ICs, which accounted for 24.3% of domestic demand as a result of massive building programs and the weak economy. In comparison, Mainland China produced only 20.9% five years ago. However, in 2008, consumption of ICs in Mainland China is outpaced production in domestically made ICs. Consumption grew 6.8% to 174.7 billion chips while production decreased 0.4% to 42.5 billion chips.
China’s chip industry, once the wunderkind of the semiconductor industry is broken, a combination of the recession and too little money being spent by the government,” says Dr. Robert Castellano, President of The Information Network. “Only $7 billion was spent on fabs in the past five years, enough to build only two 300mm fabs.
These issues are resulting in consolidation as the mainly foundry-based Chinese industry (SMIC (NYSE:SMI), Grace, HeJian, ASMC, and CR Micro) competes with TSMC (NYSE:TSM), UMC, and other entrenched Asian foundries. Hua Hong NEC Electronics (OTC:NELTY) will soon acquire Grace Semiconductor.
Things are changing. As much as $25 billion is earmarked over the next five years to prop up the industry, including $5 billion for the joint venture between Elpida (OTC:ELPDF) and Suzhou Venture Group and $5 billion for Sino-chip.
Areas propelling the Chinese IC industry are part of the government stimulus program such as projects to supply subsidized electronic goods to rural areas of China. The construction of 3G networks, the expansion of mobile TV operations are big areas of opportunity.
Disclosure: No positions.