Remember when China's rise to become a semiconductor manufacturing powerhouse seemed inevitable? That hasn't exactly panned out.
In the 2000s, a number of indigenous Chinese foundries, including Semiconductor Manufacturing International Corp., sprang to life. With China's relatively low labor costs and a steady flood of new engineers being churned out by Chinese universities, many believed that it was only a matter of time before the bulk of semiconductors were made in China.
Last year, on a value basis, chips made in China accounted for only about 3.5 percent of the $292 billion global chip market, according to market research firm IC Insights. China-based IC production is forecast to rise to $20 billion by 2017, but it will still make up only about 5.6 percent of the forecasted 2017 global chip market value of $359.1 billion, according to a mid-year update to the firm's 2013 McClean Report, set for release at the end of this month.
What's more, most of the chips built in China are being built by fabs set up by foreign companies, not indingenous Chinese foundries or IC vendors. According to the IC Insights report, 58 percent of IC production in China last year came from fabs owned and run by companies based outside of China, including Intel and SK Hynix. With Intel continuing to ramp up its 300mm fab in Dalian and Samsung set to build a 300mm fab in Xian, that percentage is expected to rise to 70 percent in 2017, according to the report.
"Most of the production in China is Intel, Hynix, and soon to be Samsung," said Bill McClean, president of IC Insights, in an interview with EE Times.
According to McClean, the Chinese government did everything it could to create a vibrant, home-grown semiconductor manufacturing industry, including fast-tracking permits and granting substantial tax holidays to the likes of SMIC, Hua Hong, Grace Semiconductor, and others. "I think they had their shot at it and it really hasn't worked out for them," McClean said.
Facing stiff competition and technology hurdles, the indigenous Chinese foundries have had a tough time gaining meaningful marketshare. SMIC, which IC Insights currently ranks as the world's No. 5 foundry by sales, is at least two years behind market leader TSMC in process technology, McClean said. SMIC's 2012 sales of about $1.7 billion were less than one tenth of TSMC's $17.2 billion, according to IC Insights.
McClean said China's best hope now is to try to entice more foreign companies to set up fabs in China, creating a larger semiconductor production base, even if it's not by indigenous Chinese companies. He noted that China has given life to several successful fabless chip companies, including Spreadtrum and Hisilicon, each of which is ranked among the top 20 fabless chip suppliers.
Samsung got the approval of the South Korean government to build an advanced 300-mm fab in Xian in April 2012. The firm started construction of the fab late last year and expects to invest some $7 billion in the project, according to IC Insights.
McClean said China's ability to attract more foreign fabs -- especially by Intel and Samsung -- will depend largely on the experiences Intel and Samsung have with their first two fabs there. Concern over intellectual property protection in China remains very much an issue. According to McClean, the lack of adequate IP protection in China is one reason that many large fabless chip vendors such as Qualcomm and Broadcom have not brought their leading-edge chip designs to Chinese foundries. (Though, he added, so far SMIC and other Chinese foundries haven't really had the production capability to build those chips, anyway.)
"I think a lot of people are going to see what happens with this Samsung fab," McClean said, noting that Samsung plans to produce sub-20nm chips there.
McClean added that it was bold of both Intel and Samsung to open fabs in China. For the most part, he said, Intel likes to have its fabs in the US and Samsung likes to have its in South Korea. Opening up a factory in China was "stepping a little out of the comfort zone" for both, McClean said.
If Intel and Samsung have success with their Chinese fabs, they might be open to building more there, McClean said. "But I don't think this is opening the flood gates to foreign investment," he added.
