By Dr. Adam He, director of Industry Research and Consulting, SEMI China
In June 2014, the State Council of China issued the “National Guideline for the Development and Promotion of the IC Industry,” to support the domestic semiconductor industry. The document addresses development targets, approaches, and measures. It has echoed strongly across the semiconductor industry and attracted global attention due to the ambitious development targets and sizeable support for a national IC industry investment fund.
(1) The Ambitious Development Target
According to the Guideline, the China IC industry revenue should reach RMB350 billion in 2015, and maintain a CAGR of more than 20 percent through 2020. In other words, 2020 revenues are expected to reach US$143 billion, which is 3.5 times that of the US$40.5 billion in 2013. (Note: China IC Industrial revenue refers to the total IC companies’ sales revenue within China, including IC design companies, foundries, IDMs and OSAT companies.)
Technical and product targets in each segment of the IC industry are clearly defined in the Guideline. The major targets of each segment are listed below.
- IC manufacturing: mass production for 32/38 nm process shall be realized by 2015 and 16/14 nm process shall be realized by 2020.
- IC design: certain key technologies (e.g. mobile smart terminal, network communication) shall approach international first-tier level by 2015, and other strategic technologies shall achieve international leading edge by 2020.
- IC packaging and test: revenue from mid-end to high-end technologies shall be more than 30% of total revenue by 2015, and key technologies shall achieve international leading edge by 2020.
- Material: 12-inch silicon wafers produced in China shall be ready for use in device production by 2015, and enter global supply chain by 2020.
- Equipment: 65-45nm key equipment manufactured in China shall be used into production line by 2015, and enter global supply chain by 2020.
(2) National IC Industry Investment Fund Establishment
The manner of industry support has markedly changed from previous policies. The new policy will be adopted with a market-based approach and implemented through national IC industry investment funds to support industry development.
As of December 16, 2014, the latest information indicates that ordinary share-raising for a national IC industry investment fund has been completed and RMB 98.72 billion (US$ 15.9 billion) has been raised. Preferred shares amounting to RMB 40 billion (US$ 6.5 billion) will be further issued in the first quarter of 2015, accumulating to more than RMB130 billion (US$ 21 billion).
Meanwhile, local IC industry investment funds have been established by the cities of Beijing, Shanghai, Wuhan, and Hefei. Of these, Beijing took the lead in establishing a fund in June 2014, totaling RMB 30 billion (US$ 4.8 billion). It is structured as a “fund of funds” and two sub-funds. One sub-fund, supporting for IC manufacturing and semiconductor equipment, is managed by CGP Investment (the “fund of funds” is also managed by CGP); the other sub-fund, supporting IC design and packaging, is managed by Hua Capital. In addition, the Shanghai IC industry fund, named Shanghai Summitview Capital IC information industry merger fund, totaling RMB10 billion (US$ 1.6 billion) was established in November 2014.
The total government funds are estimated to reach to US$100 billion with the implementation of local industry funds.
What will happen?
It is anticipated that the new policies will exert a significant influence on the semiconductor ecosystem in China.
China’s semiconductor industry will be dramatically expanded given the scale of industry equity funds that are leveraged by government investments. The existing semiconductor industry in China is estimated to have more than 10 percent of global fab capacity and more than 20 percent of global packaging capacity. The new investments will contribute to a powerful expansion in China-based capacity and create a stronger and more globally prominent semiconductor industry in China.
Secondly, the investment and merger activity in the semiconductor industry in China has been very dynamic and will continue to be so with the new investment funds. These newly established national and local IC industry investment funds will not only directly focus on the Fab and IC design companies, but also stimulate the IC industry merger and acquisition activity in and outside of China. For example, shortly after its establishment, Hua Capital (the investment company of IC design and packaging sub-fund of Beijing IC industry fund) proposed to buy Omnivision with Shanghai Pudong Science and Technology Investment Co. Ltd.
In addition, the new policies will also promote marketization development and global cooperation beyond previously implemented investment activities. In the 1990s, the Chinese government established two semiconductor production lines directly through National Engineering Project 908 and 909. In the beginning of the 21st century, SMIC was co-established by state-owned enterprises and an entrepreneurial team. Now, relying on the new capital, the Chinese government is going to support the industry development through equity funds, which is in line with the marketization reform philosophy of the new government and places investors and entrepreneurs at center stage in implementing industry growth. Experienced investors and entrepreneurs with international vision will lead China’s semiconductor industry to a broader global cooperation.
How should international companies respond?
China IC industry investment funds will likely drive market share gains for China players and also more buyout offers from China. Therefore, it is increasingly critical for international companies to consider their strategy and cooperation objectives with China’s semiconductor industry in the light of a huge application market and a dynamic industry ecosystem.
The first step is to better understand China. Companies need to recognize that China is not only the largest semiconductor market — and not just a manufacturing base with a cost advantage. The most important point is that China’s economy and semiconductor industry is changing dramatically, and this will affect the global semiconductor industry ecosystem. Second, China is a diversified economic body, with the developed metropolitan areas such as Shanghai, Beijing and Shenzhen, and the to-be-developed middle and west regions. Each of these regions will offer specific opportunities for companies in the semiconductor supply chain.
To participate in China’s industry ecosystem, it is essential to establish connections with the stakeholders in China, such as government, customers, suppliers, and even competitors, and to seek opportunities in cooperation and development through mutual understanding and engagement.
During SEMICON China 2015 (March 17-19), SEMI China will host the Tech Investment Forum-China 2015 on March 18. The Tech Investment Forum has already become an important platform between investment and pan-semiconductor industry in China. This year, Mr. Wenwu Ding, the CEO of China National IC Investment Fund will give a keynote speech. There will also be a session where startup companies can pitch to venture investors for project funding.
SEMI China’s Industry Research and Consulting team provides market research, supply chain surveys, investment site evaluations, and partner matching services (visit www.semi.org.cn/marketinfor/exclusive.aspx) or visit the SEMI Industry Research and Statistics website at www.semi.org/en/MarketInfo.