China’s Semiconductor Catchup is Critical to Future Technology Competition
Semiconductors are critical to global technological competition. The world-class semiconductor companies are in the USA, South Korea and Taiwan. Japan and Europe have solid semiconductor technology as well. China lags about 5-10 years behind in this critical technology. China will invest hundreds of billions to catch up. AI, 5G, Internet of things and other technological competition have semiconductor technologies as the foundation for competitive advantages.
China has put $170+ billion into its semiconductor industry. The government gave $20 billion to private equity to fund semiconductor companies and technology. There was another $97 billion from commercial sources and regional government. There is a new $47 billion funding.
However, China is still fabricating at 14 nanometers while the leading edge is at 7 nanometers. China is two generations behind but has leading edge designs. The leading edge designs from Huawei and other companies are fabricated at Taiwan Semiconductor.
Deloitte Global predicts that revenues for semiconductors manufactured in China will grow by 25 percent to approximately US$110 billion in 2019 from an estimated US$85 billion in 2018. China still only supplies 30% of its domestic demand of about $330 billion in 2019.
Growth is increasing to meet the increasing domestic demand for chipsets driven in part by the growing commercialization of artificial intelligence (AI). Deloitte Global further predicts that in 2019, a Chinese chip foundry will begin producing semiconductors specialized to support AI and machine learning (ML) tasks.
China’s Potential to Catch Up
Why is China better positioned than ever before? Five current conditions make China’s ascent in semiconductors more likely:
1. Domestic demand. China is now the largest global consumer of semiconductors, importing about US$200 billion worth each year. It has large population with 800 million internet users.
2. There is huge state and private funding is tens of billions per year. At the end of 2017, China had plans to build at least 14 new chip foundries.
3. China is trying to keep pace with the new age of AI hardware and software. Many of China’s largest companies are hoping to win an edge in the market for AI. Baidu, Alibaba and Tencent have a combined market capitalization of over US$1 trillion. They have invested billions in other companies, both domestically and overseas. They positions in more than half of China’s 124 unicorn startups, including SenseTime, the world’s most valuable pure-play AI company.
4. Onshoring foreign operations and hiring foreign talent.
Yangtze Memory Technologies has invested US$24 billion to build China’s first advanced memory chip factory and has lured thousands of engineers away from foreign chipmakers. They announced progress on its 32-layer NAND memory chip—a good sign which is still behind the state-of-the-art 64-layer chip that other memory manufacturers are achieving. SMIC hired a senior executive away from Taiwan’s TSMC, the world’s largest contract foundry and one that is considered to be two to three generations ahead of SMIC. TSMC has begun constructing a foundry in Nanjing to gain a stronger foothold in the Chinese market.
5. Chinese designs and IP for chip architectures are now globally competitive. Huawei designed its new mobile chipset at 7 nm and claims that it performs better and uses less energy than its top competitor.
China goal is to grow domestic chip production as a percentage of total chip consumption to 40 percent by 2020 from 30%.
SOURCES- Mentor, DARPA, Deloitte
Written By Brian Wang. nextbigfuture.com