This article was originally written by Xingcai Li and published by Shanghai Securities News on 01-03-2020. Translated from the Chinese by First Link LLC. Translator’s notes are provided in brackets.
“Domestic production and 5G will be the main lines of investment for China semiconductors in 2020.” Such was the sentiment repeated by multiple industry insiders interviewed for this report.
With the localization of information and communications technology (ICT) and the shifting of supply chains from companies like Huawei, the domestic production of semiconductors has been increasing at an accelerated pace. Industry insiders are especially optimistic about opportunities for locally produced semiconductor materials and core components such as etch equipment, coater/developers, memory, power amplifier chips and radio frequency (RF) equipment.
“You can’t go too wrong with anything related to 5G,” said one person interviewed, who placed optimistic market estimates for 2020 5G phone shipments at up to 300 million units. 5G-related components such as RF filters and antennas are all hot areas of growth, while capacitators, inductors, and CIS cameras also worth following.
As the global semiconductor market continues to grow, China’s own semiconductor industry has been facing a shortage in production capacity since the latter half of 2019. Two driving factors in this shortage have been 5G and trends towards domestic production. Industry insiders told us that wafer fabrication plants and IC packagers will be operating at capacities under market demand lasting through Q3 of this year.
A New Hope for IC Entrepreneurs
With domestic enthusiasm and innovation at an all-time high, this is a new era for domestic microchip production.
Xiaoyang Zhou, former China GM for Amkor Technology, the world’s second largest IC packaging company, sent shockwaves through the microchip world when he joined startup Accopower Semiconductors Ltd. (广州芯聚能半导体有限公司).
“I want my last shift to be worked at a Chinese company,” Zhou said of his decision. According to Zhou, Chinese semiconductors are now an important component of the global industry, and are in a phase where international management styles are needed. He wants to contribute his 30 years of experience with foreign companies to the improvement of China’s domestic industry.
But not all of his peers are so optimistic. Yanzi, another semiconductor entrepreneur, is more vexed. “Just when the packager finally had the capacity to process our order, we found out the domestic supplier we were ordering NOR flash from had raised their prices again.”
Three years ago, Yanzi started XinChip (新向远微电子) with her husband. For them, the Bluetooth craze brought about by True Wireless Stereo (TWS) has been both a blessing and a curse. “The blessing,” she says, “is that everyone is facing a shortage and customers are more willing to give us a chance. The curse is that chip suppliers and packagers are working at such limited production capacities.”
“We’ve already secured investment from Sunlord Electronics (顺络电子),” says Bin Jia, Chairman and CEO of EpicMems (开元通信). Within two years of its founding, EpicMems introduced EP70N41, the first domestically produced high performance BAW filter for application with 5G n41 frequency bands. Now, when Jia answers his phone, the words he finds himself saying the most are, “I’m on my way to meet a client.”
A New Investment Destination
With a clear concept, a proven track record and growing interest, prospects for domestic microchips in 2020 are looking better than ever.
“In the coming Spring Festival, we’ll be back to work only four days into the new year”, said the chairman of one memory company.
“We anticipate Zhaoxin’s shipments will increase several times over in 2020,” said someone close to domestic CPU maker Zhaoxin (兆芯). As China moves towards domestic production, companies like Jingjia Microelectronics (景嘉微) and Goke Microelectronics (国科微) all have great opportunities for growth. Numerous and small in size, Chinese IC companies are even more suited to take on the fragmented IoT marketplace. ETC has turned all eyes on Beken (博通集成), for example, while TWS has led to the success of chip designers like Bluetrum (中科蓝汛), Heng Xuan (恒玄) and JieLi Technology (杰理).
Financial data indicates significant growth for Jingjia Microelectronics in 2019, with a year-on-year increase in net income attributable to parent of 24.71%. In a recent research survey, Jingjia indicated a strategy to use their footing in the specialized market to develop products for general consumption. Currently, the company’s JM7200 chip is used in both specialized and general markets and has been developed into Blue Tooth and audio chips for general use.
GigaDevice (兆易创新), the third largest global supplier of NOR Flash chips, was surveyed by a total of 521 market research firms in the second half of last year alone. Their third quarter gross profit margin rose by 3 percent last year, boosted by product structure adjustments and demand for NOR flash from IoT and 5G. GigaDevice also recently began a collaboration on DRAM product development with ChangXin Memory Technologies (合肥长鑫), underpinned by a 300 million debt-to-equity swap agreement.
Choice Data records show that in the past six months, 39 domestic chip producers have been surveyed by research firms. HTC, Sino Wealth(中颖电子) and Shennan Circuit Company(深南电路) were each surveyed 18, 16 and 14 times, respectively, while domestic semiconductor device and material companies NAURA Technology Group(北方华创), Konfoong Materials International (江丰电子) and ANJI Technology (安集科技) were surveyed 11, 7 and 4 times. In total number of times surveyed, SG Micro (圣邦股份) comes in behind GigaDevice at 286 times.
The establishment of the national Sci-Tech Innovation Board (STIB) has also helped lay the foundations for the rapid rise of domestic microchip companies. In an interview with Shanghai Securities News, ANJI Technology Chairman and CEO Shumin Wang said that they were extremely lucky to become one of the STIB’s first listed companies. The company was able to execute their capital plan ahead of schedule and is poised to quickly grow from a small operation with promise into a financially transparent, technologically strong and developmentally robust Chinese semiconductor company.
Semiconductors: A New Force in China
One industry insider described the semiconductor industry with an analogy to chess: “Once the opening moves are made, the board is set.” The board is now set; all that remains is for the industry to develop and mature, which is a game of opportunity.
“China’s share of the global integrated circuit market will only continue to grow,” says Zhou, “while the discrepancy in [global to domestic] technology will continue to shrink.” According to Zhou, it’s only a matter of time before Chinese companies gain an advantage in most mature tech industries.
Bin Jia agrees. It was 5G and IoT that provided the opportunity to start his company. “Smart technologies and IoT have created an enormous long tail market. Integrated circuits have gone from large orders of a few universal products to small volumes of multiple product types. This market trend is perfect for Chinese integrated circuit companies, who with their small size are well-positioned to quickly change course based on changes in market direction.”
What worries Zhou is the cutting edge of IC manufacturing processes. “When you get into 5 nm or 2 nm, large-scale investment isn’t enough. You also need a large-scale and endogenous workforce of skilled researchers.” According to Zhou, more investment is needed from China in many semiconductor fields, especially advanced manufacturing processes.
“Industry needs to work with academia to produce more skilled personnel.” To solve this personnel shortage, Qun Ge, China Chairman and Global Senior VP at Synopsys, has come up with a simple solution based on his own career experience.
Faced with opportunity and challenge, global semiconductor companies are all searching for more Chinese partners.
“Synopsys built its global R&D center in Wuhan, China, to service the global industry.” During the center’s opening ceremony, Synopsys President and co-CEO Chi-Foon Chan told reporters that 25 years ago Synopsys only had one customer in China. Now, as Chinese integrated circuit companies are enjoying widespread success, Synopsys is very optimistic about future growth for China’s semiconductor industry.
One industry insider thinks that 2020 will mark the beginning of a sustained era of innovation for China. Tech will become the main driving force of progress, and the next decade will be the era of the 5G information revolution and smart tech.
2019 was an exciting year for investors. Now, China’s semiconductor industry is poised for an even more promising 2020.