China's chip-making ambitions face setbacks

When 8.8 isn't as lucky as one hopes

Trade restrictions, sanctions, and other challenges are putting a dampener on China's ambition to become a chip manufacturing hot spot.

Research firm IC Insights is projecting the Chinese semiconductor foundry market share to remain flat through 2026, while rival manufacturers in the US, Taiwan, Korea, and other countries grow.

Chip makers in China held an 8.5 percent market share in 2021 by revenue, and that will grow to just 8.8 percent in 2026.

Worldwide foundry revenue in 2021 was $110bn, with IC Insights projecting revenue to grow to $132bn by the end of this year. The research firm has projected global double-digit market growth to 2025. China's market share peaked at 11.4 percent in 2006, but has since slowly declined. In 2020, China had a market share of 7.6 percent, but grew a year later.

Beijing is investing billions of dollars in processor development and manufacturing infrastructure in its goal to be a chip powerhouse. It's been a mixed bag so far, with major chip maker Tsinghua Unigroup declaring bankruptcy, and scammers taking advantage of the freely available money.

The trade wars and sanctions placed by America on Chinese chip companies won't help the Middle Kingdom, either. Companies, including Intel, are building factories in the US and Europe and rolling out the red carpet for these facilities through proposed subsidies and legislation.

China's largest chip manufacturer SMIC is on the US Entity List, which will stunt its expansion despite double-digit sales growth over the past two years, IC Insights said. SMIC has four fabs in China, and makes dies down to a 14nm process node. It is also laying the groundwork to make 7nm node parts, cutting a gap with companies like Taiwan-based TSMC, which is now onto its 4nm node.

That said, China-based foundries aren't in trouble of running out of business given the the huge amount of government and private investment. SMIC has set its capital expenditure at $5.4bn for 2022, which will spent on factory upgrades and the like.

Beijing blues

China remains highly reliant on the US for semiconductors despite the trade wars and sanctions on companies including Huawei.

Apple and Qualcomm are expecting a boom in demand for their products in China this year. The chipsets designed by those two are some of those most advanced of their kind, and fill a gap Chinese silicon engineers can't meet.

"They are both important to China," Dan Nystedt, a financial analyst based in Taiwan, told The Register. "Nobody has the tech Qualcomm has. China needs it for 5G and its own smartphone companies – Oppo, Vivo, Xiaomi, etc. So it is a combination of engagement and usefulness."

China is an important market for those corporations, so they actively donate to causes, such as relief funds during floods in Shanxi Province last October.

Qualcomm has been able to sell 4G parts to Huawei, which is on the US Entity List, though not 5G, Bryan Ma, an analyst at IDC, told The Register.

"Things like the SD888 [Snapdragon 888] which normally are a 5G part get shipped as 4G to Huawei," Ma said.

The more expensive chips like processors and graphics accelerators are made on cutting-edge nodes, and generate the most revenue. Chips made in the less advanced nodes can sell for under $1, and many of them, like power-management ICs and analog chips, are in short supply.

Intel CEO Pat Gelsinger has said 80 percent of semiconductors are made in the Asia-Pacific. TSMC has big operations in Taiwan, and Samsung is based in Korea. Semiconductor industry players are now concerned that the geopolitics of Russia invading Ukraine will spill over, raising the possibility of China seizing Taiwan.

"Although the China-based foundries plan to take advantage of the huge amount of government and private investment that will be flowing into the Chinese semiconductor market infrastructure over the next five years, it is unlikely they will be able to compete for leading-edge foundry business," IC Insights added.

While China strives to improve its semiconductor manufacturing, it has reduced imports. The South China Morning Post, citing data from the General Customs Administration of China, reported a 4.6 percent year on year import dip in January 2022, the first such drop since 2020. The dip is not seen as a sign of increased capacity, with seasonal factors and worldwide supply chain wobbles suspected as the cause. ®