Although China’s demand for semiconductors from fabless chip suppliers is expected to suffer a double-digit percentage decline in revenue 2009, government stimulus efforts are set to spur a recovery in the second half of the year, according to iSuppli Corp.
China’s fabless semiconductor demand will contract to $22.2 billion in 2009, down 12.1 percent from $25.3 billion in 2008. The main factors causing the contraction in revenue is the market’s focus on price reduction, which led to overall declines in pricing.
However, the Chinese government is implementing policies designed to spur the domestic economy. These efforts include a stimulus program allowing farmers to buy appliances like TVs and cell phones. This will cause the local design market to start to recover starting in the second half of 2009, and then to grow by 17.5 percent in 2010 to reach $26.1 billion.
Furthermore, China is taking steps to promote its domestic design industry, i.e., the nation’s fabless semiconductor suppliers. With China’s relatively youthful fabless industry able to supply only 13.5 percent of the nation’s demand in 2008, a gap currently exists between fabless semiconductor demand and supply that will reach $21.9 billion by 2013. To close this gap, the Chinese government plans to initiate policies that will help local design companies succeed in creating their own chipsets in the future.
Revenue from China’s domestic IC fabless industry will reach $4.2 billion in 2009, up 21.9 percent from 2008, mainly driven by expanding local demand especially from mainstream consumer products using domestic chipsets.
Beyond the government stimulus, other factors are contributing to the rise of demand from domestic fabless semiconductor makers in the coming years.
One major element is the so-called “lipstick effect,” i.e., the phenomenon of buyers continuing to purchase goods during an economic crisis—but switching to less expensive alternatives. Equipment makers now are focusing on purchasing less expensive domestically designed chipsets instead of their more expensive foreign counterparts due to the economic crisis.
Furthermore, domestic design firms that previously enjoyed strong investments from venture capitalist firms abroad now are moving toward more localized company structures in order to gain government support and to pursue Initial Public Offerings (IPOs) on China’s Growth Enterprises Market (GEM). Operating like a Chinese version of the NASDAQ, GEM will seek to stimulate more investments in the Chinese Integrated Circuit (IC) industry.
Other factors promoting the growth of the fabless market in China include the entry of more non-semiconductor companies into the IC field and the buy-out by some successful domestic companies of their foreign counterparts and competition.
On the demand side, the ramping up of various Chinese communication standards is contributing to the expansion of the fabless industry. China’s ABS-S—the first commercially successful satellite transmission standard in the country—will ramp up and reach 11.1 million set-top boxes in 2009. The success of ABS-S will help the Chinese government implement other standards—including TD-SCDMA, DTMB, CMMB, AVS, and DRA—in the future.
iSuppli forecasts that China will promote more standards in the next five years that apply only to the country, shutting out foreign competition and helping the domestic semiconductor industry attain greater success.
Given these significant polices and anticipated developments, China’s semiconductor market and fabless industry are expected to bounce back robustly from this economic downturn.
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