China’s Fabs will Increase R&D Money to Chase the Trend
By Samuel Ni, SEMI
For years, mainland China-based semiconductor foundries relied heavily on their overseas partners for both production order and process technology. By transferring or licensing the process IP and recipes from their international clients, the leading foundries in China have made progress in closing the technology gap with the world’s leading fabs (Figure 1).
Figure 1. Process Technology Progress by Semiconductor Manufacturers in China
Source: ITRS,DIR,SMIC,SEMI, October 2007
For example, SMIC has advanced its process technology by making alliances with Elpida, Fujitsu, Infineon/Qimonda, Freescale, Toppan, TI and many others. Other leading fabs and foundries in China follow a similar pattern. Joint ventures with overseas technology companies is another way for fabs in China to make some headway in terms of advancing technology, like HHNEC and its first partnership with Japanese NEC, followed by adding Jazz Semiconductor as both a stakeholder and a technology provider.
But there are trade-offs for this business approach as the technology partner desires lower price per wafer for providing the technology know-how. Lacking enough “muscle” for R&D results in a reliance on the original partners, and potentially leaves China fabs vulnerable if foreign governments tighten their export control on “advanced kitchenware for cutting-edge wafer process technologies.”
Beyond these considerations, the Chinese government has high expectations towards the local fabs where the state-owned banks have invested multi-billions in U.S. dollars over the last few years.
However, in the past few years, R&D spending by the leading foundries in China is far less than expected. On average, its R&D spending-to-sales ratio is estimated at only 6%–7%. The same ratio by the world leading fabs has averaged about 15%. With this low spending limiting R&D, Chinese fab and foundries will never gain an equal opportunity when competing on a global scale.
Are Chinese fabs sensing urgency with this situation? Yes, for most of the leading fabs in China, increased R&D budgets are planned in the coming years (Figure 2). By 2010, the R&D spending-to-sales ratio is projected to reach about 10%. Though this projected increase in R&D spending is not very aggressive when compared to Intel and TSMC R&D investments, this effort demonstrates a more serious R&D commitment by the fabs in China over the next three years.
Figure 2. Leading Local Fab’s R&D Spending vs. Sales Revenue (2003–2010)
Source: Company report, CSIA, SEMI Estimation, October 2007
Looking beyond R&D spending, a new trend of collaboration amongst fabs, domestic equipment companies and chip design houses in China are quietly taking shape to co-develop the critical tools and process recipes for 200 mm and 300 mm wafer (for 0.25 µm to 0.09 µm process technology). This kind of collaboration may eventually evolve into a formalized technology group in China similar to the ones formed in the U.S. and Japan.
As China is further assimilated into the global economy, its semiconductor industry will continue to grow as it is considered vital for China’s security and sustained long-term economic growth. The future of fab projects by well-established semiconductor manufacturers is more promising than for green startup fab projects. Processes with 0.18 µm to 90 nm feature sizes will become mainstream in China over the next three years and spending on 300 mm tools will dominate the new equipment market.
For additional information and market insights on the China fabs, please refer to the updated China Semiconductor Wafer Fab and Foundry Outlook report. Please also visit www.semi.org/store for information on this and other marketing reports.