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China’s semiconductor sector is thriving on investment from the Beijing government’s National IC Industry Investment Fund, Taipei-based market research firm Trend Force says in a media statement in October.
China already has the world’s biggest semiconductor market, so more work on components helps perfect a domestic supply chain and reduces reliance on imports. Annual revenue from Chinese semiconductors this year will reach 517.6 billion yuan ($78 billion), up 19.4% over 2016, Trend Force forecasts. Revenue will grow 20% this year to a new record, the research firm says. Average growth worldwide is expected at just 3.4%.
Semiconductors are supposed to be Taiwan’s sweet spot. At least 130 firms here work on these components, according to the Taiwan Semiconductor Industry Association. Taiwan officials have said semiconductors will keep Taiwan’s estimated $131 billion high-tech industry strong despite crushing competition from China and elsewhere to develop end-user devices such as smart phones. Taiwan’s exports rose 12.5% in July partly on global demand for these chips for electronic devices, per this local news report.
The tech-dependent island semiconductor will face pressure now from China’s growth, just as its tablet PC industry was doing in 2013.
Taiwan lacks the scale, domestic market size and recent infusion of government support that China has. China may also attract the best world talent, impacting Taiwan further, says Charles Chou, analyst with the Market Intelligence and Consulting Institute in Taipei.
“With China investing massively into wafer fabrication and packaging and testing service, it could cause oversupply and eventually lead to a significant price fall.“
China’s semiconductors will have arrived if they starts taking down the industry’s global standard bearer Taiwan Semiconductor Manufacturing Co., or TSMC.
The firm’s Nasdaq-listed share prices have caught investor attention for years as a hassle-free, profitable investment. Share prices had risen about 45% year to date as of Wednesday in Asia.
Over the next year, Chinese manufacturers will need certification that will keep foundry orders coming to Taiwanese competitors, TrendForce research manager Lin Jian-hong says. Over the next two years, Lin says, Chinese chipmakers may “not be technologically mature enough” to build semiconductors for advanced hardware.
But what happens after that depends on the world market for advanced chips under 10 nanometers over the coming five years, Lin says. A declining market for the high-end would favor Chinese producers, which so far specialize in chips for lower-end hardware.
“In the medium and long term, Chinese fabs will eventually be able to exert greater competitive pressure on TSMC and Taiwan’s semiconductor sector in general,” he says. “If the demand for advanced processing is not as strong, then TSMC’s long-term revenue outlook will be less positive due to the competition from Chinese fabs in the mid-range and low-end market segments.”
“As Chinese brands are to prioritize Chinese suppliers, it would likely squeeze their orders placed with TSMC in the future,” Chou says.
The Taiwanese contract chipmaker, with 54% of the world’s market share and a growing net income of $11 billion last year, has led much of the industry in mastering ever smaller semiconductors, such as super-tiny 5-nanometer chips due to be produced in 2019 for mobile and high-speed computing.