News and New Products

China Report: Capacity reserve challenges small fabless companies

By Amy Wang, Contributing Writer -- Electronic News, 7/3/2007

Semiconductor manufacturing is booming in China, but small indigenous fabless companies are turning to foundries outside of China to get their chips manufactured.

The reason: Large fabs in China will not turn out small volumes of chips for startups. While many claim to have multi-product wafer services for prototyping, they are leveraging the large contracts they have instead. That, in turn, has pushed an increasing amount of small manufacturing projects to foundries outside of China.

China is home to 47 fabs, according to the China Semiconductor Industry Association. The bulk of those produce four-, five-, six- and eight-inch wafers, (30 percent, 19 percent, 26 percent and 21 percent of total fab capacity, respectively) but new investment is flowing into 12-inch wafers, currently comprising four percent of fab capacity. Most of the newer fabs are financed by Taiwanese companies or investors.

Many fabs in China provide multi-product wafer or small-volume prototyping services, including Semiconductor Manufacturing International Corp. (SMIC), Shanghai Huahong NEC Electronics Co. Ltd., and Hejian Technology (Suzhou, Jiangsu). These fabs have programs to help start-up fabless companies manage small volume prototyping.

Many of China’s fabs, however, are focused on large-volume customers. Huahong NEC Electronics, for example, has committed itself to making China’s next-generation resident identification card, a combination of memory and CPU. Hejian Technology has mainly served Hong Kong-based Solomn Systech (LCD driver ICs), and Zhuhai Actions Semiconductor is focused on MP3/MP4 chips. Wuxi-based CSMC Technologies Corp., meanwhile, is focused on fabricating power management ICs for local Chinese fabless companies.

SMIC, China’s top foundry with a monthly capacity of 125,000 wafers, has strong relationships with some of the larger Chinese semiconductor companies. Many local Chinese semiconductor companies have their IC prototyped and manufactured in SMIC such as Beijing based Vimicro Electronics, which specializes in developing digital multi-media chips and SoCs, multi-media processor and SoC maker Chipnuts Technology Inc. and ZTEIC Design Co. Ltd., to name a few. SMIC has aggressively increased its capacity in Chengdu, Sichuan province and plans to open a new fab in Wuhan, Hubei province, as well.

"We use SMIC because of its quality service," said Bicheng Zhang, account manager at ZTE IC Design Company Ltd. He said that although fabs in China have multi-product wafer or special services for small volume, the services are very much dependent on the availability of capacity. Fabs usually give service priority to big orders, although they will service small orders in difficult situations. ZTEIC does not have problems reserving foundry capacity.

It helps that Shenzhen ZTEIC Design Company is a subsidiary of ZTE Corp., one of China’s top telecom equipment manufacturers. The company mainly serves its mother company’s demand on telecom and consumer electronics ICs. However, it also develops ICs for third parties, such as security chips for banking applications.

The Yangtze River Delta (Shanghai, Jiangsu and Zhejiang provinces) is home to most of the top fabs in China, such as SMIC (Shanghai), Shanghai Huahong NEC, Hejian Technology (Suzhou, Jiangsu province), Advanced Semiconductor Manufacturing (Shanghai), CSMC Technologies Corp. (Wuxi, Jiangsu), TSMC Technology (Shanghai). TSMC Technology (Shanghai) a capacity of just 30,000 wafers per month in its Shanghai fabs, however, the company plans to increase its capacity to 90,000 wafers through purchasing NXP’s 8-inch fab equipment and transferring it to Shanghai.

Fabs also are beginning to expand west and north to cut costs and better serve an emerging market. Due to labor and land cost increases over the past decade, many electronics manufacturers have opened new manufacturing facilities in less-developed areas. Intel invested $2.2 billion in Dalian, Liaoning province, for its first Chinese fab, which will use 90-nm processes for CPU chipsets.

In 2006, China’s fab sales revenue reached $4.18 billion, representing 38.9 percent growth year over year. Growth is expected to continue this year because of the growth of local semiconductor companies. However, for many start-up semiconductor companies, it still may be difficult to find fabs in China to produce their chips.