China Semis
In terms of overall semiconductor wafer capacity, Taiwan is the leader and has been for many years (Fig. 1), although Korea is a close second. Based on Fig. 2, it looks like capacity has remained fairly static over the last three years, although we believe that the data depicted in Fig. 2 is a bit deceptive. If we break down the regional growth rates for each region from 2018 tom 2020, it looks anything but static, with the overall industry wafer capacity growing 10.1% during the period and all regions showing positive wafer capacity growth. The table below gives a better understanding of wafer capacity growth on a regional basis, with almost all of the growth coming from China, up 34.9% over the period. Without China global capacity growth would have been 6.6%.
2020 Global Wafer Capacity Share By Region - Source: IC Insights
Global Wafer Capacity By Year - Source: IC Insights
Going one step further, while the revenue growth rates for a number of Chinese semiconductor companies are above the industry capacity growth rate, sustaining those growth rates means both continued funding from either the government or China’s capital markets, as the US seems to be on a course to limit their exposure to US financial markets, and an increasing share of the global market , with the latter being the most problematic. As the cost of producing products in China continues to increase and other Southeast Asian countries offer similar or greater incentives, it becomes more difficult for China to attract attention in the global markets. While those global companies that have production bases in China will look toward local semiconductor suppliers when possible, China needs to be a semiconductor producer on par with other leaders and that has yet to happen.
When looking at China’s semiconductor producers, only one has a global share over 1%, and that company, HiSilicon (pvt) is an affiliate of Huawei (pvt), a prime target of US trade sanctions against China., keeping it essentially out of the global market. While most of the other larger semiconductor suppliers in China do not fall under the US trade sanction guidelines, they need to maintain very high growth rates to push China’s overall global revenue share further, while others outside of China are doing the same. There are those that expect China to displace Korea in the number 2 spot within the next 4 years, and while there is certainly growth in China’s semiconductor market and its global reach, we are in the midst of a semiconductor ‘up’ cycle, which has helped to move China’s semiconductor industry a bit faster than what might be normal. What happens after this cycle is over could push out China’s ability to capture revenue share, despite increasing wafer capacity, and make that target a bit harder to reach, and as a few Chinese semiconductor companies have found out over the last few years, throwing money at a problem does not always result in success.
When looking at China’s semiconductor producers, only one has a global share over 1%, and that company, HiSilicon (pvt) is an affiliate of Huawei (pvt), a prime target of US trade sanctions against China., keeping it essentially out of the global market. While most of the other larger semiconductor suppliers in China do not fall under the US trade sanction guidelines, they need to maintain very high growth rates to push China’s overall global revenue share further, while others outside of China are doing the same. There are those that expect China to displace Korea in the number 2 spot within the next 4 years, and while there is certainly growth in China’s semiconductor market and its global reach, we are in the midst of a semiconductor ‘up’ cycle, which has helped to move China’s semiconductor industry a bit faster than what might be normal. What happens after this cycle is over could push out China’s ability to capture revenue share, despite increasing wafer capacity, and make that target a bit harder to reach, and as a few Chinese semiconductor companies have found out over the last few years, throwing money at a problem does not always result in success.
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