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Wafer Foundry Industry Report, 2007 (Chinese Version)
Research In China, Oct 2007, Pages: 110
Wafer foundry industry is closely relevant to prosper of IC design industry. In 2005H2-2006H1, IC design industry enjoyed a period of fast growth, but crisis turned up then. Presently, wafer fabs have a faster production speed than the sales, which led to the increasing inventories. Semiconductor suppliers march towards their sales goals. Yet, the originally predicted growth rates of PC, handset and semiconductor were lowered because of economic uncertainty.
In Jan-Sep, 2006, inventories in supply chain kept a fast consecutive growth. Since chip producers wish to reduce production for effective control on inventories, capacity utilization ratio of Fabs dropped. Afterwards, inventories in supply chain declined. With the situation of American market, they increased production capacities again, which resulted in an increase in inventories. In March of 2007, the inventories in industry chain increased to the highest level since the year 2001. There is a steady growth of handset related chip inventories. Inventories in analog field are at normal level. Most manufacturers obtain increasing orders particularly for high-performance analog parts.
The semiconductor industry in mainland China also declined.
In the first half of 2007, the total output of IC chips in mainland China arrived at 19.274 billion units or so, up 15.2% from a year earlier. The sales income of IC industry amounted to RMB 60.72 billion, with an annual growth rate of 33.2%. But the figure sharply dropped compared to the high growth rate of 48% in the first half of 2006. As far as IC industry chain is concerned, the sales income of IC design industry in mainland China got to RMB 9.532 billion, with an annual growth rate of 22.8%, far behind the high growth rate of 50.8% in the first half of 2006. This is mainly affected by the saturation trend and price falling of terminal (MP3 and digital camera, etc.) markets. The performance of such representative IC design companies as Vimicro, Actions Semiconductor Co., Ltd., and Solomon Systech can reflect the development of China IC design industry.
In 2006, the net revenue of Vimicro amounted to USD 126.6 million, while the figure in 2005 was USD 95.3 million. Abide by the Generally Accepted Accounting Principles, the net profit of Vimicro in 2006 reached USD 9.7 million, while the figure in 2005 was USD 16.4 million. In the first quarter of 2007, the net income of Vimicro was up to USD 16.9 million, and the figure got to USD 26.4 million in the same period last year.
In the first quarter of 2007, the net loss of Vimicro came to USD 3.8 million according to the Generally Accepted Accounting Principles. Vimicro started early from PC camera lens IC. After its fast growth in 2003-2005, the rapid development of the company slowed. The supply exceeded market demand, and the price got greatly reduced. Another product lineup of Vimicro is handset multimedia IC, mainly the polyphonic IC and application processor. Yet, the company is faced with two disadvantages in mobile phone field. First, domestic handset producers with possibly adoption of China-made IC have declining business performance, particularly in market shares. Those enterprises make unrelenting efforts for exporting markets and the prices are greatly reduced. The rising of smuggled handsets further inflicted those domestic mobile phone producers. In addition, handset processor is apt to be highly integrated. Photo shooting by single IC or the playing and recording of MP4 can be realized by single baseband. Since polyphonic IC is a sort of mixed signal, it is hard to be integrated. So far, polyphony has been replaced by MP3 ring. Vimicro is hard to survive in the market.
Business income of Actions Semiconductor Co., Ltd arrived at USD 27 million in the second quarter of 2007, lower than USD 30.3 million in the first quarter and USD 39.3 million in the same period last year. Besides, the net profits of Actions Semiconductor Co., Ltd amounted to USD 9.8 million in the second quarter of 2007, while the figure was USD 18.1 million in the same period of preceding year. Actions Semiconductor, like Vimicro, is heavily dependent on single market, but it relies upon MP3 player. Despite Actions Semiconductor takes the majority of market shares, the strong growth of MP3 player market fades away. Downstream manufacturers force upstream producers to lower product prices, and upstream producers have no choice but to yield.
As the largest IC design company in China, Solomon Systech obtained USD 254 million in 2006, down 36% compared to previous year. And the gross profit margin dropped by 30% to 23.3%. Furthermore, there was a sharp drop of 71% in net profit. The company is highly dependent on LCD display drive IC market. Mobile phone was converted from STN to TFT in 2005. But the company could not catch up with the times. 20% of the revenue came from mono-color STN-LCD; 55% from color STN-LCD drive IC. Handset TFT display takes a share of over 60% for the moment. There is a higher price and gross profit margin of TFT drive IC than STN. The shipment, revenue and profit of Solomon Systech all dropped sharply.
Chinese local IC design companies can not afford the normal operation of an 8-inch wafer fab with monthly output of 30,000 slices. There is a decreasing number of IC design companies in China, while it takes three to five years for a new IC design company from establishment to maturation. IC design companies in mainland China are all set up by overseas Chinese, who are apt for the introduction of overseas patterns and their investments are nearly from venture capital. Affected by the stagnant market, the stock value of Chinese listed IC design companies had poor performance. For instance, the stock value of Spectrum dropped by 30% of issued price shortly after it was listed. So did Vimicro and Actions Semiconductor.
So, wafer fabs have to rely upon overseas business. In reality, 80% of revenue of wafer fabs in China are from overseas clients. This means the competition with UMC and TSMC. Since Taiwan's technical blockage, technical level of wafer fabs in mainland China is at least two or three years behind Taiwan's. And such gap is hardly bridged in short term because there is a serious shortage of talents in this field. Therefore, domestic wafer fabs have to undertake business (DRAM and NVM, etc.) that UMC and TSMC unwillingly carry.
However, China advances triumphantly in filed of wafer foundry. Investors range from enterprises to governments. Chengdu, Wuhan and Xi'an governments have invested huge capital into wafer foundry. How will those invested wafer fabs develop in 2008, let's wait and see.
This title is also available in the following language
Wafer Foundry Industry Report, 2007 (English Version)
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