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Semiconductors are often called ‘new oil’ in the context of geopolitics due to their increasing use in almost all facets of our life. Former US President Donald Trump believed sanctions would isolate Chinese tech firms from accessing high-end chips, but instead, the China semiconductor industry has received a push as they strive to develop on-par chips domestically.
China is far from becoming a leader in semiconductor supply but makes up for around 60% of the global consumption of chips, as per data from China-focused research firm Daxue Consulting. However, the country does not have the technological prowess to produce high-end chips used in flagship electronic devices of various consumer-focused companies.
Efforts to boost China semiconductor sector
Beijing’s efforts to improve its domestic chip supply and become independent is being hampered by the US, as seen by its efforts to block Dutch firm ASML Holding NV from selling China its chip manufacturing equipment. Despite this, trade group SEMI in a report said that China was the world’s largest semiconductor manufacturing equipment market in 2021, with sales increasing 58% to $29.6 bn.
China’s efforts to become self-sufficient saw its domestic chip manufacturing growing by 33.3% in 2021, as per data released by the National Bureau of Statistics. This is a big jump compared to 2020 when China’s integrated circuit (IC) output rose 16.2%. Separately, the Semiconductor Industry Association (SIA) sees China’s chip-making industry to contribute 17.4% to total global sales by 2024, up from 9% in 2020.
Semiconductor manufacturing has jumped in the country as companies are enjoying additional benefits from the government in the form of tax breaks, incentives, and subsidies to scale up production. Last year, Beijing limited tax breaks and state support only to companies that have a breakthrough. Earlier this year, Shanghai’s municipal government announced new policies to attract semiconductor talent and is introducing a new subject called Integrated Circuit Science and Engineering.
Overall, China plans to invest about $150 bn by 2030 to ramp up its semiconductor manufacturing capacity. The only issue is that while China looks to catch up with Taiwan, South Korea, and the US — these countries are already on the way to developing advanced chips and expanding manufacturing capacity.
“All indications are that China’s rapid growth in semiconductor chip sales is likely to continue due in large part to the unwavering commitment from the central government and robust policy support in the face of deteriorating U.S.-China relations,” says SIA in a report. “While there remains a long way to go for China to catch up with existing industry leaders – especially in advanced node foundry production, equipment, and materials – the gap is expected to narrow over the next decade…”
Semiconductor manufacturers to keep an eye on
China is building out its semiconductor manufacturing supply chain at a very fast pace, and in 2021 announced 28 additional fab construction projects totalling $26 bn in new funding. Several major chip makers are working with the local government and have formed joint ventures. China has set a target of 2035 to be fully self-sufficient in tech by 2035, lets us explore some of the listed companies that might lead this revolution.
HiSilicon: HiSilicon Technologies is a fabless semiconductor manufacturer based in Shenzhen and owned by Huawei, the technology company blacklisted by the US. A research report by Gartner found that the company’s revenue fell by 81% year-on-year in 2021, a direct result of the US sanctions. Most recently the company launched the Kirin 9000 processor based on 5nm manufacturing technology which won accolades internationally for being one of the best 5G chips. However, the company does not have its own chip manufacturing facility and relies on domestic and other small foundries. Instead, HiSilicon is investing in companies focused on light source technology for semiconductor manufacturing, electronic design automation (EDA) software, 5G RF chip companies and so on. The company is also promoting optoelectronic chips which it says would bypass US technology.
Will Semiconductor: This chip design firm made it to the top 10 list of the world’s IC design firms in 2022, with its profits rising 60% y-o-y in 2021. The company recently acquired camera chips maker OmniVision and Superpix. Late last month, Will and OmniVision announced that they are adopting EDA solution from Beijing Huada Jiutian Technology Co for chip design reliability. The solution is also used by companies such as US-based Diodes Incorporated and Monolithic Power Systems and Japan’s Renesas and Ricoh.
SMIC: Semiconductor Manufacturing International Corporation is China’s state-owned foundry company which manufactures chips for HiSilicon and others. It is the most advanced foundry in China and manufactures chips based on the 14-nm process, which the US intends to block by stopping equipment export to SMIC. While SMIC is quite small when compared to global peers, it has managed to double its revenue over the past 18 months.
ZhiXin: A fairly new company, ZhiXin Semiconductor manufactures low- and high-end chips for the automotive sector. Most recently, ZhiXin raised fresh capital in a Series A funding round. The company is likely to benefit from China’s electric vehicle push as it manufactures analog as well as mixed-signal ICs for applications such as comfort control, powertrain, security, infotainment, and cluster connectivity.
Wingtech: This Shanghai-listed is focused on chip design, wafer manufacturing, and making communications equipment. Wingtech owns the Dutch chip firm Nexperia, whose deal to acquire British chipmaker Newport Wafer Fab is under investigation by the UK. A notable project is the company’s smart cockpits for smart cars which it says will soon be ready for mass production.
UNISOC: This Shanghai-based fabless semiconductor company makes IoT module chips and came in second behind Qualcomm for global market share. UNISOC filled in the gap left by HiSilicon and is working on advanced cellular technologies. A notable customer is China Mobile.
These are only some of the interesting companies from China, and investors can also explore some other firms such as Sanchips, YTMC, GigaDevice, CR Micro and Silan, which are leading innovations in China’s chip manufacturing sector.
