I must admit that Edelstone makes some good points.....
Understand China or lose edge, analyst warns
By David Lammers
Silicon Strategies
08/05/2004, 4:00 PM ET
AUSTIN, Texas — The semiconductor industry will enjoy relatively strong growth over the rest of this decade, but taking advantage of that growth will require that managers work to understand where China's electronics industry is heading, said Mark Edelstone, the San Francisco-based stock analyst who follows the chip industry for Morgan Stanley.
In a presentation here at a Fabless Semiconductor Association forum Thursday (Aug. 5), Edelstone said he expects the worldwide semiconductor industry will grow from about $215 billion this year to $350 billion by the end of the decade. As much as one-third of all chip manufacturing will be outsourced by then, up from about 18 percent now.
"We will see a lot of growth, but China is where a lot of the growth will be coming from, and it behooves us here in the United States to understand it. We need to be cognizant of it or we will lose dominance of this industry," Edelstone said.
While China's government is "serious" about semiconductor manufacturing and is providing training and financial backing, Edelstone said he believes "relatively few" fabs will be built in the United States from now on. Only a few companies, with annual revenues in excess of $5 billion, can afford to build 300-mm fabs, he said.
Asked if IBM Corp.'s foundry strategy would result in the kind of volume capacity that is being installed in Asia, Edelstone said IBM "definitely has the technology" to compete with Taiwan Semiconductor Manufacturing Co. (TSMC), United Microelectronics Corp. (UMC), and China's Semiconductor Manufacturing International Corp. (SMIC). However, he said IBM's senior management "is not comfortable with putting large amounts of capital at risk" in the foundry initiative. Moreover, original device manufacturers that make their own chips, such as IBM, have "inherent conflicts" which will make it difficult for them to succeed in the volume foundry business, said Edelstone, who has been tracking the industry for about 15 years.
Taiwan's foundry industry also has its challenges. With earthquakes and typhoons common, and its security under threat, Taiwan is a fragile place for companies to base most of their manufacturing.
"Growth has got to come from somewhere else than Taiwan," Edelstone said. "It is frightening how fragile this industry is, given its importance to the world economy."
Long term, the U.S. chip industry will be challenged by the much lower salaries in Asia. Engineers in China make "80 percent less" than U.S.-based engineers, he said, with educational levels that are rising quickly. |
