WOW ! Semi markets to be flooded with Chinese chips in 2005
When Beijing designated the semiconductor industry as one of China's pillars of economic growth, the industry was sure to take off, and what has occurred is unprecedented on any scale. From virtually nothing a few years ago, Chinese fabs hold about 9 percent of the foundry market's capacity today, and they are expected to produce 15 percent of the industry's chips by the end of the year, and well over 20 percent in 2005.
China is sitting on a mountain of wafers. Take, for example, Semiconductor Manufacturing International Corp, China's largest manufacturer. It currently has three eight-inch-wafer fabs in Shanghai that will increase capacity by 70 percent this year. Add a recently purchased Tianjin eight-inch fab, a 12-inch fab in Beijing that is expected to go online in the fourth quarter, and two more 12-inch fabs scheduled for 2005 and 2006, and China is sitting on a mountain of wafers that the market is just not ready to absorb.
"The overcapacity will be massive. And taken with a modest fall in global chip sales, there will be a rough landing for the industry," said Rick Hsu, semiconductor analyst at Nomura Securities.
As part of the government's strategy, Chinese foundries aim to supply the local market. Currently almost 80 percent of China's chip demand, which totaled about $22 billion last year, is being met by foreign makers. The Chinese government hopes to raise the country's self-sufficiency above 50 percent in the coming years, and has invested heavily in a few of the companies. Advanced Semiconductor Manufacturing Corp, for instance, is 62 percent government-owned, and Grace Semiconductor Manufacturing Corp is partially held by the son of former Chinese president Jiang Zemin.
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