Three Key Factors Influencing the Growth of Semiconductor Industry in China 2019

Tuesday, January 22, 2019

The industry has carefully observed the development trend of China's semiconductor industry in 2019, with "uncertainty" in one word.This paper intends to explore the growth of China's semiconductor industry in 2019 from the following three aspects: the weakness of the global semiconductor industry in 2019; the transition of China's IC industry development from the stage of capacity expansion to the battle of product growth; and the impact of psychological factors under the trade war.

Global Semiconductor Industry Enters Decline Cycle in 2019

Due to the strong growth of memory, the global semiconductor industry has been growing rapidly for two consecutive years. According to the law of the development of memory industry, this year will turn into a decline cycle, which has become the consensus of the industry.

At the 2018 Q4 Speech Conference held on January 17, although last year's operating results handed in brilliant report cards with innovative high revenues and profits, there was a negative outlook for semiconductor prospects in 2019. Wei Zhejia, president of TSMC, said that, excluding memory, global semiconductor output value was estimated to be 1% annually in 2019, so this year is "Slow year".

Gartner, a well-known market analyst, released preliminary results showing that, thanks to DRAM's boom, global semiconductor revenue totaled $476.7 billion in 2018, an increase of 13.4% over 2017.

Gartner pointed out that computer memory chips accounted for 34.8% of total semiconductor revenue in 2018, up from 31% in 2017, and continued to rank first in all categories of semiconductor. The revenue of the memory industry grew by 27.2% year-on-year, which was also the strongest. The main reason was that the average price of DRAM rose steadily during 2018 and began to decline in the fourth quarter.

IC Insights, another well-known Market Research institute, recently predicted a 77% increase in DRAM sales across the industry in 2017, a 39% increase in 2018 and a 1% decline in 2019.

The global semiconductor industry has entered a downward cycle. Although China's semiconductor industry has its unique characteristics, it is still in the stage of investment growth, but it can not be alone, because semiconductor is a global industry.

Transition of China's Semiconductor Industry is in the Struggle Stage
The development of China's semiconductor industry is not synchronized with that of the world. It has its unique characteristics. When the global semiconductor industry has matured, monopoly intensified and mergers slowed down, China's semiconductor industry has gone the opposite way, actively investing and expanding production capacity under the main impetus of state funds and so on.



According to SEMI statistics, there are 27 12-inch Crystal Garden factories and 18 8-inch Crystal Garden factories in mainland China, including 10 12-inch Crystal Garden factories and 6 8-inch Crystal Garden factories under construction.



In recent years, China's semiconductor industry has concentrated on three IDM memory factories, the 28-14 nm SMIC factories in Shanghai, the second phase of Hualiwei Shanghai, and the 12-inch Huahong factory in Wuxi.



Obviously, most of these factories are in the stage of equipment installation or trial production. As we all know, as long as there is funds, it is relatively easy to make up our minds to build production lines. The difficulty is the climbing stage of capacity expansion. It not only needs strong technical strength, but also will face the pressure of competitors. It is a tough battle. No matter how difficult it is, China's semiconductor industry must go through a hard journey and move forward step by step. Therefore, the capacity climbing period of China's semiconductor industry is relatively long, which is a matter of great probability.



For the three memory factories, we should have a rational understanding. Both 3D NAND flash memory and 19 nanometer DRAM are milestones for the semiconductor industry in China. We believe that they will be successful in the trial production stage. The difficulty lies in the capacity climbing stage. For the memory industry, capacity, cost, and IP are the key components. It will inevitably be subject to the pressure of competitors in the future, which is one of the compulsory courses in the growth process.



Therefore, even if there is no trade war, China's semiconductor industry from the stage of capacity expansion to product battle is also a hard battle.
Psychological stress increased sharply under the trade war
Under the trade war, China's semiconductor industry is facing a new situation. The United States is pressing forward step by step. After ZTE and Jinhua, it is putting pressure on Huawei. Because we are on the defensive, the suppression of the United States seems to be somewhat unsuitable. I believe that this trend will continue for a long time in the future. We must take up the same weapons to actively meet it.



Although the trade war is still going on and it is estimated that agreement can be reached on Tariffs and other aspects, they will not stop the crackdown on China's semiconductor industry and may face a more severe situation. As a result of many uncertainties, the development of China's semiconductor industry will bear greater psychological pressure.



Under the new situation, China's semiconductor industry should keep a low profile, especially the three memory factories. Over-publicity will arouse their special attention and cause passivity. Waiting for China's memory factories to be able to initially autonomous and have a certain capacity base is the most critical.



Therefore, in the trade war, we should learn to be smart, do more, say less, complain is useless, and can not solve any problems. Only by transforming pressure into motivation, transforming crisis into opportunity, striving to be strong, striving to get products out, enhancing competitive strength and market share is fundamental.
Epilogue
The "Troika" of industrial development includes mergers, joint ventures, cooperation and R&D. At this stage, the international merger of China's semiconductor industry has been almost blocked, and the transfer of advanced process technology in joint venture projects will slow down or even stop. Therefore, only strengthening R&D is the fundamental way, but the R&D cycle is long and the risk is high, and it is difficult to return in a short period of time.



China's semiconductor industry has been growing at an average annual rate of more than 20% for many years, and has made some achievements. However, these achievements are at a low base and do not deserve to be overly optimistic. Recently, China's imports of semiconductor industry exceeded 300 billion US dollars in 2018, without any reduction, reflecting that the road of IC localization is still a long way to go.



Therefore, under the influence of three key factors, we should be cautiously optimistic about the future of China's semiconductor industry in 2019. In addition to IC design, packaging industry may maintain high growth, the growth rate of chip manufacturing industry is likely to decline slightly, whether in three memory factories or advanced process, such as 28-14 nanometers, because China's semiconductor industry is still in a breakthrough in industrial development. Stage, leaving the real market, the possibility of return on investment is still small, it takes time to suffer, so it is expected that China's chip manufacturing industry will take 3-5 years to take a firm foothold.
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