Chinese Integrated Circuit Industry Stepping into Scaled and Intensive Development Phase

In recent years, the growth rate of the Chinese integrated circuit industry has exceeded the growth rate of its electronic information manufacturing industry and the global integrated circuit industry. However, there was a big difference in 2008, the growth rate of which was slower than the growth rate of the electronic information manufacturing industry and slightly faster than the growth rate of the global integrated circuit industry, according to a new market research report from Reportlinker.

Facing the impact from the international financial crisis, the Chinese integrated circuit enterprises all tightened their capital flows and took different measures to reduce or stop production and suspended projects in the process, thus leading to the slowdown of the yield increases in the integrated circuit industry. During the former eleven months of 2008, the yields of the integrated circuit were 39.43 billion pieces, up by 4.8 percent YoY and the growth rate down by 19 percent compared with 2007.

The Chinese integrated circuit industry is strongly characterized as export oriented. However, the international financial crisis and recession of the global economy shrank demand in the global integrated circuit industry. From the aspect of the Chinese domestic market, the international competitiveness of Chinese integrated circuit products and foundry was greatly damaged because of the up-valuation of the Chinese currency in 2008 and increases in the costs of raw materials and labor. At the same time, new important application areas of integrated circuits in the domestic market are hard to startup and newly developed chips are poorly applied in the market, resulting in weak demand growth in the domestic and overseas market. In 2008, sales revenues of the integrated circuit industry only increased by 2.86 percent, 10 percentage points less over the previous year.

Due to the slowdown of demand for integrated circuits, operating costs of the Chinese integrated circuit industry were high for the most of 2008. In the latter half of 2008, enterprises all cut prices in droves to promote their products, leading to the sharp reduction in the general profits of the integrated circuit industry. In 2008, profits of the integrated circuit industry totaled 3.841 billion yuan - a negative growth for the first time with the negative growth rate reaching 43.54 percent.

This sharp reduction in profits reveals the problems in the Chinese integrated circuit industry, such as the weak foundation, low technical level of the products and the shortage of the core competitiveness. In 2008, under the influences of international financial crisis, the fixed asset investments in the integrated circuit industry dropped rapidly and many integrated circuit enterprises announced that they stopped the yield capacity expansion and projects in process while declaring that they would also reduce investments in 2009. For example, Semiconductor Manufacturing International Corporation, the largest integrated circuit enterprise in China, announced that its capital expenditures will be about 200 million USD in 2009, down by 75 percent compared with the 790 million USD in 2008.

The Chinese integrated circuit industry is stepping into a scaled and intensive development phase. Since 2008, some enterprises in the integrated circuit industry had been negotiating in mergers and acquisitions, thus forming a new industrial pattern.

In 2008, the major merger and acquisition events included: SinoMOS Semiconductor (Ningbo) Inc was merged by BYD after bankruptcy; Shanghai Belline Co Ltd officially joined Advanced Semiconductor Manufacturing Corporation Limited; Datang Telecom Technology & Industry Holdings Co Ltd merged 16.6 percent of equity of Semiconductor Manufacturing International Corporation with 172 million USD and became the biggest shareholder of the company; Shanghai Huahong Group was also negotiating mergers and acquisitions with Grace Semiconductor Manufacturing Corporation.

In 2008, the memory was still occupying the largest market share in Chinese integrated circuit industry, but the reduction in the prices of the NAND Flash and DRAM cut down the market shares of the memory. With the influences of the fast growth in the personal computers, the proportion of the CPU and Micro peripheral was rising, but the ASSP and ASIC showed the slow growth because of the sharp decline in the yield growth rate in the telecommunications products as well as the decline in the proportion. Besides, the logic devices, analog devices, MCU and the CPU products kept stable.

In recent years, the fast growth of computers, mobile phones, consumer electronics and automotive electronics supported the fast development of the Chinese integrated circuit industry. However, from the third quarter of 2008, the economic depression caused unfavorable influences on the downstream industry as well as the reduction in the sales of mobile phones, MP3s and MP4s. Since the latter half of 2008, the major business revenues of Chinese electronic information manufacturing industry was cut down month by month, the growth rate in October was down by 18.4 percentage points compared with that in the same period of 2007. From January to October 2008, the growth rate of mobile phones, microcomputers and pocket computers dropped by 18, 19.5 and 11.3 percentage points YoY respectively compared with the same period of 2007.

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