re: China's in the chips
(article describes PRC fab projects - SMIC and GSMC rather well)
Semiconductor investment heats up in China, despite business hurdles and trade concerns. (Business Trends).
Electronic Business
July, 2002
Beverly, MA-based Axcelis Technologies Inc. sold its semiconductor manufacturing tools in China through a local representative for nearly 20 years before deciding to launch a full-fledged subsidiary there in March. So what prompted the change?
China, where Axcelis garnered 6% of its sales last year and has installed more than 50 ion-implant machines, is simply too important a market for the company to rely on indirect sales. "Things are starting to heat up in China, and we decided we need to have a more direct presence there," says CEO Mary Puma.
Heating up indeed. During the recent chip-industry slump, China was one of the few places where new chip fabrication plants were still being built. Numerous new fabs have been announced, and about a half-dozen appear to be under construction. Others are expected soon, following Taiwan's recent decision to allow its domestic chip makers to invest in mainland China. Meanwhile, manufacturing equipment makers, contract chip assemblers and other support services are arriving in droves to supply the country's burgeoning chip industry.
China has long hoped to become a major semiconductor manufacturing power. Its latest strategic plan calls for 25 new fabs to be built there between 2001 and 2005. But it has been hampered by a lack of capital, infrastructure and technology. Numerous hurdles still exist, including widespread intellectual property (IP) theft, inadequate infrastructure in many areas and Western countries' restrictions on exporting the latest chip technology to China. But a recent influx of foreign investment suggests that those obstacles are shrinking, and that the lure of easier access to China's booming electronics industry is becoming stronger.
Last year, China's semiconductor market was worth about $11 billion, or about 7% of the world's $155-billion total, according to San Jose, CA-based Dataquest, a market researcher and unit of Gartner Inc. By 2006, Dataquest expects the China market to double to $22 billion, or 9% of the world's $245-billion total. Accurate data on China's domestic chip production is still lacking, but analysts estimate that imports account for 90% of the country's chip consumption. The government hopes to decrease that to 80% or less by 2005 and to eventually make the country self-sufficient.
Chinese chip makers, many of them government owned, already operate more than a dozen fabs. Until recently, most have relied on older technology, using 100-millimeter or smaller silicon wafers and circuit widths above 1 micron. The new crop of fabs, however, are run mostly by foreign investors and will use wafers up to 200 millimeters and process technology as fine as 0.18 micron. Besides easier access to China's markets, they are attracted by lower production costs, cheap land and utilities and hefty tax breaks.
Two Shanghai-based projects have attracted much of the recent attention. Semiconductor Manufacturing International Corp. (SMIC) recently started pilot production at its new $1.6-billion, 200-mm fab and plans to equip a second new fab starting this summer. Grace Semiconductor Manufacturing Corp. (GSMC) is building its own $1.6-billion, 200-mm fab, scheduled for production next year. Both companies will be strictly foundries, building chips under contract for outside customers.
SMIC and GSMC have gained notoriety, in part, from their key executives and backers. SMIC was launched by Richard Chang, a former executive with Dallas-based Texas Instruments Inc., who ran Taiwan's Worldwide Semiconductor Manufacturing Corp. before it was sold. SMIC's initial technology comes from Japan's Toshiba Corp., while Singapore's Chartered Semiconductor Manufacturing Ltd. has agreed to license its 0.18-micron logic process to the company. "These guys are positioned to be the largest pure play foundry supplier in China," says Len Jelinek, principal analyst for El Segundo, CA-based iSuppli Corp.
Winston Wong, the son of a Taiwanese plastics tycoon and Jiang Mianheng, the son of Chinese President Jiang Zemin, head GSMC.
NEC Corp., Tokyo, opened China's first 200-mm fab in Shanghai several years ago through a joint venture called Hua Hong NEC Electronics Co. Another NEC joint venture operates a smaller fab in Beijing, but last year's market conditions prompted it to delay plans for a new 200 mm fab there. Motorola Inc., Schaumburg, IL, however, is reportedly proceeding with a long-awaited $1.9-billion chip plant in Tianjin.
Advanced Semiconductor Manufacturing Corp. (ASMC), a chip maker partly owned by Philips Electronics NV, Eind-hoven, Netherlands, operates two chip plants in Shanghai and recently broke ground for a new 200-mm fab there. Shanghai Belling Co., which runs a 100-mm fab in Shanghai, is reportedly building a 200-mm fab there. And in Suzhou, He Jian Technology (Suzhou) Co. is building a $1-billion fab.
Several of the new fabs are lowering their start-up costs by installing used production equipment. "There's a huge market here for used equipment," says Dorothy Lai, a Hong Kong-based Dataquest analyst. While that shrinks the current market for suppliers selling new equipment, Axcelis' Puma notes that much of the used equipment going to China will be replaced elsewhere with newer models. "At the end of the day, the semiconductor equipment manufacturers are going to sell equipment; it's just a matter of who they sell it to," she says.
Marketing opportunities aside, China's growing semiconductor industry is raising concerns. Taiwan, Singapore and Malaysia worry that it may steal away jobs and investment and create tough new competition. "The other [Asian] regions are very concerned," says Mary Clsson, chief analyst for Dataquest in San Jose.
Nonetheless, Taiwan's government finally caved in to commercial pressure in late March and allowed its chip makers to build up to three 200-mm fabs in China by 2005, provided that they first build 300-mm fabs in Taiwan.
U.S. officials are concerned about the military risks posed by Chinese chips. A February report by the General Accounting Office (GAO) warned that the gap between U.s. and Chinese semiconductor manufacturing technology has narrowed dramatically, with China's latest fabs soon to produce chips just one generation behind the current state of the art.
U.S. chip makers, represented by the San Jose-based Semiconductor Industry Association (SIA), also are watching developments in China. Daryl Hatano, the SIA's vice president of public policy, says the SIA is monitoring China's progress on eliminating tariffs, protecting IP, allowing foreign companies to directly distribute products and preventing state enterprises from favoring domestic producers. "We want to avoid a repeat of trade problems that we've seen with other countries," he says.
Angelou Angelos, an Austin, TX-based economic development consultant, says China is "near the top of the list" for technology companies considering overseas expansion. But it's still a difficult environment for foreign companies. "Companies are drawn to China because of the market opportunity, not because it's the easiest place to do business," he says.
Axcelis' Puma notes, for instance, that checks are not commonly accepted even in cosmopolitan cities like Shanghai, forcing companies there to pay many of their bills in cash. She adds, however, that the risk of nor investing in China outweighs any such complications. "We're viewing it like Taiwan of 10 years ago," she says. "If you're going to be in this industry, you need to be there." |
