IC Insights’ new 250-page Mid-Year Update to the 2013 McClean Report (to be released by the end of July), describes why a very clear distinction should be made between the IC market (i.e., consumption) in China and IC production within China. Although China has been the largest individual market for ICs since 2005, it does not necessarily mean that large increases in IC production within China would immediately follow, or ever follow. As shown in Figure 1, IC production in China represented only 11.1% of its $81 billion IC market in 2012. Moreover, IC Insights forecasts that this share will increase only about three percentage points to 14.4% in 2017.

Figure 1

Figure 1

China-based IC production is forecast to exhibit a very strong 2012-2017 CAGR of 17.6%.  However, considering that China-based IC production was only about $8.9 billion in 2012, this growth will come off a relatively small base. In 2012, SK Hynix, TSMC, and Intel were the major foreign IC manufacturers that had significant IC production in China (Figure 2).  In fact, SK Hynix’ China fab had the most capacity of any of its fabs last year. In 2012, Intel continued to ramp-up its 300mm fab in Dalian, China (it started production in late October 2010), which is expected to give a noticeable boost to the China-based IC production figures over the next few years.  This fab currently has an installed capacity of 30,000 300mm wafers per month with a maximum capacity of 52,000 wafers per month.

Figure 2

In early 2012, Samsung gained approval from the South Korean government to construct a 300mm IC fabrication facility to produce NAND flash memory in Xian, China.  Samsung started construction of the fab in September of 2012 with production set to begin in the first half of 2014.  The company expects to invest $2.3 billion in the first phase of the fab with $7.0 billion budgeted in total.  This facility is targeting NAND flash production using a 10-19nm feature size process technology.

If China-based IC production rises to $20.0 billion in 2017 as forecast, it would still represent only 5.6% of the total forecasted 2017 worldwide IC market of $359.1 billion.  Even after adding a significant “markup” to many of the Chinese producers’ IC sales figures (since many of the Chinese IC producers are foundries that sell their ICs to companies that re-sell these products to the electronic system producers), China-based IC production would still represent less than 10% of the global IC market in 2017.

Historically, the lack of consistent intellectual property protection has been a major deterrent for foreign firms seeking to establish state-of-the-art IC fabrication facilities in China.  The lack of intellectual property protection is also a reason many large fabless IC suppliers (e.g., Qualcomm, Broadcom, etc.) have not brought leading-edge IC designs into China for the indigenous Chinese IC foundries to manufacture.  It should also be noted that, thus far, Chinese IC foundries have also been unable to offer large amounts of IC production using leading-edge feature sizes.

IC Insights believes that the future size of the IC production base in China is more dependent upon whether foreign companies continue to locate, or re-locate, IC fabrication facilities in China than on the success of indigenous Chinese IC producers (e.g., SMIC, Hua Hong Grace, etc.).  As a result, IC Insights forecasts that at least 70% of IC production in China in 2017 will come from foreign companies such as SK Hynix, TSMC, Intel, and Samsung.

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