iSuppli: China bypasses the DRAM industry
By Nam Hyung Kim, iSuppli [Monday 14 March 2005]
Despite the boom in semiconductor production in China, DRAM manufacturing has not taken off on the mainland yet – and probably will not during the next few years, iSuppli believes.
China’s participation in the DRAM business is presently limited to foundry manufacturing conducted on behalf of two global foundry suppliers: Infineon Technologies AG and Elpida Memory. This manufacturing is performed by joint ventures between domestic Chinese and large overseas concerns.
The major reason for China’s marginal participation in the DRAM industry is the inherent risk involved in competing in the highly volatile memory market. The massive swings in DRAM supply and demand cause corresponding oscillations in profitability among memory suppliers.
Because of this, the major worldwide foundries, i.e. Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics Corporation (UMC) and Vanguard International Semiconductor (VIS), have no – or very little – DRAM business. Instead, they concentrate on producing logic parts, whose margins are fatter and whose business conditions are less volatile.
China’s chip strategy has been focused squarely on the foundry business. The nation’s chipmakers are modeling themselves on foundries like TSMC and UMC, and not on memory suppliers like Micron Technology and Hynix Semiconductor.
Because of this, iSuppli expects the Chinese foundries to continue to have little or no participation in the DRAM market during the next five years.
However, starting in the 2010 timeframe, the opportunity exists for Chinese-brand DRAM manufacturing to expand. There are two reasons for this:
First, the Chinese semiconductor manufacturers should be able to marshal the resources needed to enter the DRAM market. Entering and participating in the DRAM business requires massive investments from suppliers. However, with funding help from the Chinese government, this should not be an obstacle.
Second, with China being not only a worldwide center for PC manufacturing, but also a major market for computers, it makers sense to locate DRAM manufacturing in the nation.
With little foundry production of DRAM, the near-term future of memory production in China is in the hands of joint ventures between domestic and overseas suppliers.
However, even this limited level of participation is somewhat shaky.
On the positive side, a new joint venture between Hynix and STMicroelectronics soon will commence operations at front- and back-end DRAM facilities in China. This will be the first non-foundry DRAM fab in China to use smaller than 0.11-micron process technology.
iSuppli believes this joint venture could emerge as a potential threat to non-Chinese DRAM suppliers – not only because it could close the technology gap between domestic and overseas facilities, but because if it succeeds, it could accelerate the emergence of a real Chinese DRAM industry.
On the negative side, Shanghai Hua Hong NEC Electronics, a joint venture between China’s Shanghai Hua Hong Group and Japan’s NEC, decided to exit the DRAM foundry business due to market volatility.
Thus, while the near-term outlook for DRAM production in China looks bleak, the opportunity exists for greater participation in the next decade, iSuppli believes.
Nam Hyung Kim is a principal analyst with iSuppli.
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