Ties That Bind - Bay Area Council Economic Institute

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Ties That Bind
IDMs such as Intel, Texas Instruments and NEC). The next largest foundries are China’s Semiconductor
Manufacturing International Corp. (SMIC), Singapore’s Chartered Semiconductor
Manufacturing, IBM, Japan’s NEC Corp. and two South Korean foundries. Taiwan chip companies,
designers and producers earned $34 billion in revenues in 2005—nearly four times the $8.7
billion total for mainland firms.
China’s Growing Industrial Might
Semiconductor Capacity (millions of units)
1.0
0.8
0.6
0.4
0.2
0
Semiconductor Capacity
(8-inch chip equivalent)
2004
2005 2006 2007 2008
BusinessWeek estimate
Sources:
Credit Suisse First
Boston, iSuppli Corp.,
BusinessWeek
Competition across Greater China is heating up. SMIC has quickly grown to become the world’s
third largest foundry with more than 6% of the global market. In early 2006 Germany’s Infineon
Technologies AG announced it would share its 90-nanometer memory chip and 300mm silicon
wafer technologies with the Chinese foundry. In August 2006 Taiwan’s Ministry of Economic
Affairs lifted a ban on transfer of 0.18-micron chip technology and plant equipment to the
mainland by Taiwanese firms. Still, analysts expect that it will take 5–10 years for the mainland to
match Taiwan producers and global IDMs in terms of scale and quality of production runs.
Foundries account for 69% of total Chinese wafer plant capacity.
A growing share of chip manufacturing capacity has migrated to China from elsewhere in Asia—
including Taiwan—as well as from the U.S. TSMC, for example, has a $900 million fab plant in
Shanghai. Intel, with help from tax breaks under China’s “Go West” incentive program to help
interior provinces, completed one $375 million assembly and testing plant in Chengdu in 2005,
and plans three others; it has been assembling and testing flash memory and other PC chips at a
$500 million Shanghai plant since 1999, and has three R&D centers throughout China.
In addition, PriceWaterhouseCoopers reports that at least five significant Chinese fabless design
firms each reported revenues ranging from $30–56 million in 2004. Two of them, Vimicro and
Zuhai Actions Semiconductor Co., launched successful NASDAQ placements. It should also be
noted, however, that in 2004 the top 26 Chinese semiconductor companies had combined reve-