China’s semiconductor demand expected to outpace supply for some time

Production of semiconductors in China has not kept pace with demand—not due to domestic demand, but rather from the export market’s appetite for chips—according to a recent 62-page report from PricewaterhouseCoopers (PwC) entitled “China's Impact on the Semiconductor Industry.”


Production of semiconductors in China has not kept pace with demand—not due to domestic demand, but rather from the export market’s appetite for chips—according to a recent 62-page report from PricewaterhouseCoopers (PwC) entitled “China's Impact on the Semiconductor Industry.” Actually, the gap between production and demand has widened from $5.7 billion in 1999 to $20 billion in 2003, says PwC. “Domestic integrated circuit consumption and production gap will continue to accelerate in the next several years, strengthening the Chinese government's resolve to increase domestic production.”

PricewaterhouseCoopers ’ report explains that cost-related factors heavily impact Chinese production capability. The country’s “de-verticalized, fabless/foundry model” enables lower cost structures, creating another dimension in the long-running, cost-efficiency competition among chip suppliers, particularly those with an Asia-Pacific focus. “Additionally, many Chinese companies are supported by state-owned financial institutions and are able to continue their operations in spite of losses for many years,” according to the PwC report.

China's export market will continue to be a primary demand driver for semiconductors through 2010. "Though growing rapidly, China's domestic market as measured in GDP will be only half that of Japan's by 2010," remarks Raman Chitkara, global head of PricewaterhouseCoopers' semiconductor group. "In terms of chip demand, two thirds of the chips consumed in China are used for products that wind up being exported—a proportion that isn't expected to change significantly in the near future."

Concerns about protection of intellectual property will remain as the biggest hurdle in the near term as companies contemplate where to locate future semiconductor fabrication plants globally, according to the PwC report, which also:

  • Evaluates the current status of China’s semiconductor industry and its prospects through 2010;

  • Assesses specific motivations behind industry migration to China;

  • Reviews major steps in the semiconductor value chain;

  • Provides a detailed look at semiconductor demand in the country; and

  • Concludes with a consideration of three different IC production growth scenarios.

PricewaterhouseCoopers provides industry-focused advisory services for public and private clients. To download a copy of the full report, click here .

—Frank J. Bartos, executive editor, Control Engineering,

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