China plans to invest more than $100 billion to pursue a bigger share of the semiconductor industry, a new report from Bain & Company reveals.
The report, “China Chases Chip Leadership,” estimates the quantity of silicon that is destined to flow to (or through) China will amount to nearly 55% of the world’s memory, logic and analog chips by 2020.
It produces only about 15% of these semiconductors today. This is even up from approximately 10 percent a few years ago.
The report suggests that the the country is a long way from closing the widening gap between supply and demand.
“China is making a run at capturing the semiconductor market globally by producing more of the microprocessors and memory chips that go into locally produced consumer devices and industrial equipment, both for domestic consumption and export,” said Kevin Meehan, who leads Bain’s Technology Practice in Asia-Pacific and co-authored the report.
“But global market share is not something that can be reliably captured through deep pockets and long patience. To close the gap, China will need to work in tandem with established international players.”
The research firm emphasised that in the semiconductor industry, quality, technology, value and brand all determine who leads the market; the government has limited control over end demand.
To gain a substantial share in the global market, it said Chinese semiconductor manufacturers must catch up with foreign players in terms of technology and production costs.
Yet, market requirements such as foundational IP and ongoing innovation make entry difficult even for the most well-funded challengers, and incumbents have few incentives for sharing their core IP with potential competitors from China or elsewhere.
Such high barriers to entry suggest that in most cases China is likely to partner with existing firms – a trend reflected in the country’s increased level of semiconductor M&A activity.
“There’s no denying that China’s vast market, deep pockets and long patience in pursuing economic goals will require international companies to adopt a clear strategy to collaborate – and eventually compete – with Chinese semiconductor manufacturers,” said Florian Hoppe, co-author of the report and a partner in Bain’s Technology Practice.
“Executives who understand China’s goals and adopt a mix of both offensive and defensive strategies stand to win as the market develops.”
Source: http://www.telecomasia.net/content/china-invest-100b-semiconductor-industry