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Semiconductor Value Chain

China Local Design Chip Industry to Grow 4 Percent by Year-End

08 November 2013

China’s domestic semiconductor design industry is set to reach $39.84 billion as the close of 2013, spurred by the extensive use of semiconductors on the part of Chinese-based original equipment manufacturers (OEM) for both local consumption and exports, according to a new China Electronics and Media report from IHS Inc.

Chip revenue representing the China local design market will rise by 4 percent this year, a rate comparable to the projected increase in 2013 for the global semiconductor space. Yet China is the world’s single largest market for chips—a position it has sustained since 2004—which means the rest of the worldwide semiconductor trade is affected by any developments in China, positive or otherwise.

For the next four years, China’s local design market is expected to hold steady with growth ranging from 3 to 6 percent, with revenue reaching $47.8 billion by 2017. The huge domestic market will continue to be a potent source of chip consumption, but the export market, especially to Third World countries, will also gain a higher profile within the next three years.

The China local design market—defined as the market covering chips consumed by local Chinese OEMs—is extensive and covers more than 350 active products. The total available market in 2013 for the Top 50 products is approximately $35 billion, or nearly 88 percent of the overall local design market.

Of the six chip markets by application, wireless will be the biggest this year at $14.2 billion, followed by data processing at $11.2 billion and then by consumer electronics at $9.6 billion. The three other application markets representing wired communications, industrial electronics and automotive electronics enjoyed combined revenue of $4.8 billion. Five of the six segments are projected to grow this year compared to 2012, with consumer electronics as the lone declining sector on an annual basis.

In terms of devices, mobile handsets represent the largest single category for chip consumption among Chinese manufacturers, projected to account for $8.1 billion in revenue at the close of 2013, up 7 percent from $7.6 billion last year. The LCD TV space is in second place with $3.0 billion, up 3 percent from $2.9 billion. Meanwhile, the largest growth was in PC tablets, up a colossal 236 percent to $222 million from $66 million. Media tablets also did well, with chip consumption equivalent to $555 million, a projected 37 percent increase from $404 million last year.

A large portion of the Chinese chip market continues to go to the so-called gray market—knockoffs and illegal copies of devices like smartphones that proliferate in the domestic underground economy, or flow out as exports to developing countries. Chinese and Taiwanese semiconductor companies have achieved great success in the gray market by offering complete turnkey chip solutions and enterprising strategies for marketing. For global firms wishing to compete with this shadow segment of the chip market, they will do best to step up advanced technology for their own chips, providing a superior alternative, IHS believes.

Chinese companies as a whole remain weak in product design, and global semiconductor firms can help by partnering with appropriate local design firms to impart know-how and expertise. Such partnerships, in turn, can allow global firms currently locked out or relegated to the margins in the Chinese chip-making industry to recover lost ground, or even gain a foothold.

By adjusting their own strategies for operating in China, global chip firms also won’t lose out to the already enormous gray market thriving in the country.



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