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Research Report of Chinese Integrated Circuit Industry, 2009

WWW.SHCRI.COM -- In recent years, the growth speed of Chinese integrated circuit industry has exceeded the growth speed of Chinese electronic information manufacturing industry and the global integrated circuit industry. However, there was a big difference in 2008, the growth speed of which was slower than the growth speed of the electronic information manufacturing industry and slightly faster than the growth speed of the global integrated circuit industry.

 

Facing the strikes from the international financial crisis, Chinese integrated circuit enterprises all tightened their capital flows and took different measures to reduce and stop the production and suspended the projects in process, leading to the slow-down of the yield increases in the integrated circuit industry. During the former eleven months of 2008, the yields of the integrated circuit were 39.43 billion pieces, up by 4.8% YOY and the growth speed down by 19% compared with 2007.

 

Chinese integrated circuit industry is strongly characterized as export-oriented. However, the international financial crisis and the recession of the global economy make the global integrated circuit industry in slow growth speed suffer from heavy hits as well as the reduction in the orders from abroad and the shrank of the demands in the international market. From the aspect of Chinese domestic market, the international competitiveness of Chinese integrated circuit products and foundry is greatly damaged because of the up-valuation of Chinese currency in 2008 and the increases of the costs for the raw materials and labor force. Meanwhile, the new important application areas of the integrated circuit in domestic market is are hard to start and the newly developed chips are poor applied in the market, resulting in the weak demand growth in the domestic and oversea market. In 2008, the sales revenues of the integrated circuit industry were only increased by 2.86%, 10 percentage points less over the previous year.

 

Chinese integrated circuit industry is mainly concentrated in East China, Central South and North China, accounting for 90% of the integrated circuit enterprises, in which half of the integrated circuit enterprises is centered on East China; Central South only follows behind East China and accounting for about 30% of the integrated circuit enterprises all over China; North China, however, occupies about 7%.

 

From the part of the sales revenues, the sales revenues in East China, Central South and North China account for 97.5% of the total sales revenues. For the variation trend side, the sales revenues in East China increase at first and then cut down; the Central South is the converse and the sales revenues in North China are comparatively steady without great fluctuation; the sales revenues in the northwest and southwest regions are gradually rising, but the sales revenues in the northeast regions show the decline tendency.    

 

Due to the slow-down of demands for the integrated circuit, the costs of Chinese integrated circuit industry were operated high in the most time of 2008. In the latter half of 2008, the enterprises all cut down the prices in droves to promote their products, leading to the sharp reduction in the general profits of the integrated circuit industry. In 2008, the profits of the integrated circuit industry totaled 3.841 billion Yuan, the negative growth for the first time and the negative growth rate reaching 43.54%.

 

On the one hand, the sharp reduction in the profits is affected by the general macro-economic situation; on the other hand, the sharp reduction in the profits reveals the problems in Chinese integrated circuit industry, such as the weak foundation, low technical level of the products and the shortage of the core competitiveness.

 

The investments have been the forces driving Chinese integrated circuit industry to realize the scaled expansion. It can be seen from the recent investments in the integrated circuit industry and the variation trends of the industry scale, the investment scale had reached the peak in 2004 as well as the peak of the growth speed of the industry scale in 2006 (generally, the construction period of the integrated circuit projects is one and half years or two years). In the later three years (05, 06, 07), the investment scale was cut down gradually. In 2008, under the influences of international financial crisis, the fixed asset investments in the integrated circuit industry were dropped rapidly, and many integrated circuit enterprises announced that they stopped the yield capacity expansion and the projects in process and they also declared that they would reduce the investments in 2009. For example, Semiconductor Manufacturing International Corporation, the largest integrated circuit enterprise in China, announced the capital expenditures will be about 200 million USD in 2009, down by 75% compared with the 790 million USD in 2008.

 

Chinese integrated circuit industry is stepping into the scaled and intensive development phase. Since 2008, some enterprises in the integrated circuit industry had been negotiating the mergers and acquisitions and the new industrial pattern was being formed, which could be regarded as the first year of the mergers and acquisitions in Chinese integrated circuit industry.

 

In 2008, the major merger and acquisition events concluded: SinoMOS Semiconductor (Ningbo) Inc was merged by BYD after bankruptcy; Shanghai Belline Co., Ltd officially joined in Advanced Semiconductor Manufacturing Corporation Limited; Datang Telecom Technology & Industry Holdings Co. Ltd merged 16.6% of equity of Semiconductor Manufacturing International Corporation with 172 million USD and became the biggest holder of Semiconductor Manufacturing International Corporation; Shanghai Huahong Group was also negotiating the mergers and acquisitions with Grace Semiconductor Manufacturing Corporation.

 

In 2008, the memory was still occupying the largest market share in Chinese integrated circuit industry, but the reduction in the prices of the NAND Flash and DRAM cut down the market shares of the memory. With the influences of the fast growth in the personal computers, the proportion of the CPU and Micro peripheral was rising, but the ASSP and ASIC showed the slow growth because of the sharp decline in the yield growth rate in the telecommunications products as well as the decline in the proportion. Besides, the logic devices, analog devices, MCU and the CPU products kept stable.

 

In the past years, the fast growth of the computer, mobile phone, consumption electronic, automobile electronic industries supported the fast developement of Chinese integrated circuit industry. However, from the third quarter of 2008, the economic depression caused unfavorable influences on the downstream industry as well as the reduction in the sales of the mobile phones, MP3 and MP4. Since the latter half of 2008, the major business revenues of Chinese electronic information manufacturing industry was cut down month by month, the growth speed in October was down by 18.4 percentage points compared with that in the same period of 2007. From January to October 2008, the growth speed of the mobile phones, microcomputers and pocket computers was dropped by 18, 19.5 and 11.3 percentage points YOY respectively compared with the same period of 2007.

 

In 2008, China totally imported 135.538 billion pieces of the integrated circuit and the import amounts reached 129.26 billion USD, up by 1.2% YOY and the import amounts accounting for 11.4% of the annual total import values. The integrated circuit is the largest single product in terms of import amounts, about the same compared with the import amounts of the crude oil. In 2008, the growth speed was also decreased. From the aspect of the historic trends, the import growth of the integrated circuit showed the decline trend. It is predicted that the imports of the integrated circuit will keep slow growth, which will be recovered after 2010. With the transformation of the integrated circuit industry to China and the extension of the yield capacity of Chinese integrated circuit industry, it is hard for the integrated circuit import to keep growth at speed of over 20%.

 

For the import sources, China mainly imports the integrated circuit from East Union, Taiwan and South Korea, the import amounts from these three markets accounting for over 65% of the total import amounts.

 

In 2008, China exported 48.48 billion pieces of the integrated circuit and the exports amounted to 24.32 billion USD, up by 19.1% and 3.3% respectively and the growth speed of the import volumes exceeding the export amounts by 15.8 percentage points, which means that Chinese integrated circuit enterprises take the price reduction measures so as to expand the exports and strengthen the competitiveness. Similar to the variation trends of the imports, it is predicted that the exports of the integrated circuit will keep growth at slow speed in 2009 and the growth speed will go up after in 2010; meanwhile, the growth speed of the exports will be faster than the growth speed of the imports; the trade deficit in Chinese integrated circuit industry will be narrowed down.

 

Due to various reasons, Chinese local enterprises did not realize the production and sales of the 12-inch silicon polished wafer in scale and most of the required 8-inch and 12-inch silicon chips need importing from Siltronic, ShinEtsu, SUMCO and MEMC, which occupy large market shares and have strong technical advantages.

 

The global integrated circuit manufacturing equipment market also shows the highly monopolized situation. There are only several manufacturers able to produce the high-end equipments. For example, there are only three enterprises in the globe providing the immersion lithography machines, that is, ASML, Canon and Nikon. Chinese enterprises can not provide the similar products. However, the price of an immersion lithography machine is about 400 to 500 million Yuan. Under such highly monopolized situation, Chinese integrated circuit industry is in the obvious weak position.

 

The integrated circuit industry is obviously characterized as scaled economy. The larger the enterprises scale, the less the unit production costs and the more helpful to strengthen the competitiveness. The scales of the international integrated circuit giants are expanding continuously. However, Chinese integrated circuit enterprises are all in low yield capacity and small in the scale. Therefore, when numerous domestic manufacturers strive to enhance the technical level, they also formulate the yield capacity expansion plans, standardize the newly built production lines so as to enhance the yield capacity and expand the production scale.

 

Under the influences of international financial crisis, Chinese integrated circuit industry steps into the bottom. Many enterprises have to stop the projects in process, cancel the expansion plans and cut down the yield capacity due to the shortage of the capitals. However, the depression of the integrated circuit industry also brings the merger and acquisition opportunities. Chinese integrated circuit enterprises are planning to carry out the large-scale mergers and acquisitions. After the economic recovery, a new industrial pattern will be formed and the enterprise scale will be enhanced. Meanwhile, with the international integrated circuit manufacturers establishing factories in China, the international integrated circuit manufacturing industry will shift to China and the competition in Chinese integrated circuit industry will become fiercer. 

 

For a long time, Chinese integrated circuit enterprises lack the core technologies; the products are mainly the medium and low class with low added values. With the speed-up of international integrated circuit industry transformation to China, the competition in Chinese integrated circuit industry will become fiercer, resulting in the slow-down of the growth speed of the sales revenues in Chinese integrated circuit industry and the decline of the general profitability, which indicates that Chinese integrated circuit industry is facing the unprecedented difficulties with the influences of international financial crisis.

 

More following information can be obtained in this report:

- Market Scale of Chinese Integrated Circuit Industry

- Technical Situation of Chinese integrated Circuit Industry

-Mergers and Acquisitions of Chinese Integrated Circuit Industry

- Imports and Exports of Chinese Integrated Circuit Industry

- Development Situations off Chinese Integrated Circuit Industry Chains

- Major Enterprises and Their Operations of Chinese Integrated Circuit Industry

- Prediction on the Development Trends of Chinese Integrated Circuit industry

 

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Source: China Research and Intelligence

Tel: 86-21-5842-6733

Email: report@shcri.com