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One of the more interesting topics of the GSA US Executive Forum last week was on China:
Last year, China announced that it will invest $100B over the next decade to further indigenize the semiconductor industry through domestic development and foreign acquisition. China’s immediate goal is to achieve domestic revenue increases in excess of 20% per year over the next five years. Beyond this, China’s target is to compete on the global stage as tier 1 suppliers and technology leaders at world-class OEMs, and develop the technological independence that allows them to locally source up to 40% of their semiconductor consumption. Today’s panel will discuss the likelihood of China’s success in meeting these ambitious goals and the pivotal role the rest of the industry will play along the way.
Moderator: Scott McGregor, President & CEO, Broadcom Corporation
Lip-Bu Tan, President & CEO, Cadence Design Systems, Inc.
I would like to put it to a discussion here as I think it is one of the more important topics the semiconductor industry will face in the coming years. Who wants to start?
It depends on where the $100B is invested. If it goes into expansion where technology including IP and semiconductor design can create new value to sustain for years to come, then definitely it can pay off. But if it is used up in just consolidation, doesn't matter who leads, then the total sum will remain the same. I am looking from the overall semiconductor industry perspective irrespective of regions. It might be that in either case it can pay off China, but on a global scale it depends on how the dollars are spent.
To expand a bit upon Pawan's comments, the success of the Chinese government's investment in a much expanded local IC industry will depend upon several factors:
- a captive market (check!)
- financial capital (check!)
- human capital (check! Chinese universities are graduating some of the best engineers and computer scientists.)
- intellectual property (please read on)
There has traditionally been a significant concern over the consideration for IP licensing and security rights within the Chinese industry. (I haven't heard much on this subject lately, though.)
Yet, some American industries are taking a different approach. For example, the Open Power Consortium is making a concerted effort to encourage participation from Chinese firms. So, perhaps the requisite IP to enable this government initiative will be readily available. If that is the case, there is every expectation that this program to significantly increase market share for local manufacturers will be successful.
As an aside, there is one item in the Morgan Stanley report on this program that would be unfathomable outside China. This initiative will select a single company as "national champion" in each major technical discipline, to be the dominant recipient of this funding -- e.g., SMIC for semiconductor technology.
This monopolistic approach is somewhat worrisome, as it will no doubt make for a very one-sided "competitive playing field" among all potential suppliers.
There two aspects of China's drive toward gaining clout in the semiconductor design. First, cultivate local chipmakers through technology transfer. Second, acquire western chip firms and their technology. The first approach has worked quite well, as shown by the advent companies like Rockchip (working closely with Intel) and Qualcomm (partnership with Allwinner). The second approach, however, has regulatory stumbling blocks.While the purchase of OmniVision has moved ahead, other efforts to acquire top U.S. companies like Micron and Atmel haven't been successful. So we'll more likely see closer collaboration between chipmakers from China large semiconductor outfits from the U.S. and Europe.
