(iTers News) - Years after China had glutted global LED chip and solar cell photovoltaic markets with excessive capacity, the country is back in the spending spree, raising concerns that it would risk creating another rout of supply gluts in global semiconductor chip markets.

China's central government has earmarked 120 billion yuan or US$19.5 billion for a national   investment fund to finance the country's wafer chip fabrication capacity build-up project and technology development between 2014 and 2017. About 40% of the fund will be spent to build wafer manufacturing capacity, while 30% is earmarked for chip design technology developments. The remaining 30% will go to chip packaging and testing capacity build-up projects.

More menacingly, Chinese local governments and private equity fund companies are joining forces to pool private equity investment funds. Collectively, they are expected to raise US$97.4 billion locally across the country.

For example, Beijing IC industry equity investment was set up to raise and earmark US$4.9 billion for the local IC industry. Wuhan, Shanghai, and Shenzhen are joining the race to support their respective local IC industries.

“We feel that the Chinese companies will acquire significant amounts of intellectual properties related to manufacturing technologies until they will have fully built factories on their own. That may happen very fast through acquisition. Related to the overcapacity, there is strong concern. For us, we have strong historic involvements in photovoltaic and LED investments in China that led to overcapacity, “ said Risto Puhakka, ,president with market research firm VLSI research.

He predicts that 6 to 8 300mm, or 12-inch wafer fabrication facilities will be built in China over the next 2 to 3 years. One or two new fabs are to be built by local Chinese companies.

semicon korea 2016_press conference

semicon korea 2016_press conference



True enough, the Chinese heavy involvement into the semiconductor chip business is in due course, as it is part of “Made in China 2025” project that was initiated by China’s State Council in May 2015. The objective of the project is to raise its self-sufficiency rate for ICs to 40% in 2020 and 70% in 2025, added

China’s sudden jump into the global semiconductor manufacturing equipment comes as big threat to Korea’s supremacy in the memory chip business, as China will mainly invest in wafer capacity build-up projects for memory chips and microprocessors.

China's vast reach of manufacturing capacity from PCs to smart phones will serve as a breeding  ground for Chinese chip makers, feeding huge enough demand to reach economies of scale earlier than expected.

"(This chart) shows how actively U.S. based companies are participating in the action in China. You can see Intel and Micron, and we can see Western Digital and SanDisk with their own activities. There is Microsoft, and Qualcomm somewhere here, and NXP. U.S. semiconductor companies are taking very active role in China related to investments, and establishments of joint-ventures to benefit from this change in the industry landscape," explained Risto Puhakka

Especially, he expects that there would be lots of joint activities between Chinese local companies and foreign chip makers to jointly design and fabricate microprocessor, brain of PCs and smart phones.
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