© filipefrazao84 dreamstime.com_ Analysis | November 11, 2016
China’s Semi sector to undergo rapid consolidation in 2017
Numerous major participants in the global semiconductor sector are engaging in deal-making to make themselves larger and more competitive. As a result, different industries within the sector will be controlled by fewer companies in the future.
In China, consolidation will also take place within the three broad sections of the semiconductor sector, namely foundry, IC testing/packaging and fabless design. According to the global market research firm TrendForce, various Chinese semiconductor enterprises will be integrated under the “virtual IDM” model during 2017. At the same time, the trend of integration will also become more noticeable among Chinese providers of semiconductor manufacturing equipment. In the foundry industry, Chinese participants are lagging behind international competitors. Leading domestic foundry SMIC is currently using the 28nm process as its most advanced technology for mass production. While most international foundries have achieved mass production on the 16/14nm processes, the 10nm process is also expected to become available very soon. Hence, SMIC as the major representative of Chinese foundries is technologically behind by two to three generations. Making rapid transition to the next-generation manufacturing technology is a fundamental part of a foundry’s strategy. However, TrendForce believes the Chinese government prefer that all participants across the domestic semiconductor supply chain are able to make major leaps in development together. The Chinese approach is to have domestic foundries collaborate closely with compatriot IC design houses and testing/packaging companies, thus forming a virtual IDM behemoth. Under this model, domestic companies across the supply chain can respond faster to market trends and improve efficiency in their production. SMIC’s collaboration with another domestic IC packager JCET on flip-chip bump packaging technology is an example of foundries coordinating efforts to develop both upstream and downstream sections of the supply chain. In sum, Chinese foundries have the central role of fostering closer ties among all domestic industry participants and driving their development. The Chinese government furthermore require deep relations among the three broad sections semiconductor manufacturing, especially with regard to NAND Flash and storage products. In the IC testing/packaging industry, Chinese participants urgently need to develop or obtain technologies related to the production of mid-range and high-end packages. Having these IPs will give them a strategic edge in the market in the near future. TrendForce points out that as some IDMs and foundries have crossed into the business of supplying high-end packages, dedicated packaging/testing companies are using mergers and acquisitions as a way to maintain their competitiveness. Deal-making among packaging/testing companies worldwide, however, has also contributed increased market share concentration. Well-known cases include Amkor’s acquisition of J-Devices and the ASE-SPIL merger. Chinese packaging/testing companies likewise have also made moves to strengthen their positions. JCET, for example, acquired STATS ChipPAC, while Nantong Fujitsu Microelectronics acquired from AMD two packaging facilities respectively located in Suzhou China and Penang, Malaysia. TrendForce believes the Chinese government will continue to support major domestic packaging/testing enterprises in their quests to gain additional IPs and market channels via acquisitions. At the same time, these companies will be required to merge, reorganize and improve their operations. Targets for reorganization in particular are domestic packaging/testing companies that have developed the necessary technologies but have not performed well market-wise. Chinese companies accounted for just 2.1% of the revenue from the worldwide sales of semiconductor manufacturing equipment in 2015 The most noticeable weakness in China’s semiconductor sector lies in the supply of manufacturing equipment. Currently, this market is an oligopoly dominated by a few international enterprises. According to TrendForce, Chinese equipment providers generated a combined revenue of about RMB 4.7 billion in 2015, representing only 2.1% of the global total. In the same year, the Chinese market accounted for about 14% of the annual revenue from equipment sales worldwide. The Chinese government is very concerned about the technology gap between domestic and international equipment makers as well as the country’s dependence on imports in this area. Hence, there has been a strong push to consolidate domestic equipment makers as this will eliminate unnecessary competition and rationalize resources for research and development. It is expected that mergers will take place among domestic equipment makers and research institutions that are working on thin-film deposition technologies. They include Sevenstar, AMEC, Ideal Energy and Shenyang Piotech. ----- Read more at © Trendforce.