China's chip dilemma: foreign capital intensively suppress Chinese chip companies

Once the "one industry" has become a yellow flower. In addition to Shanghai, Beijing, Shenzhen, Chengdu and other cities are still insisting, the city has been enthusiasm for the many cities holding up the chip industry, quietly turned.

The industrial shocks caused by the transfer of cores are far from settled.

On October 22, 2010, the Wuhan Municipal Government and SMIC announced that the two parties will jointly invest capital in Wuhan Xinxin Semiconductor Manufacturing Co. (hereinafter referred to as Xinxin).

This means that both belong to the "core model" and are also poorly run, and the new core, which is also facing threats of acquisition of overseas capital, is exempted from the sale of fate.

Sources revealed that SMIC had already launched the "Wuhan Defending War" after it was determined to sell to TI. The situation once repeated the story of Chengdu. It eventually relied on the appeal of the industry, and there was high-level emergency intervention to ensure a new brand. core.

Both Cheng Xin and Xinxin are SMIC's investments, operating in the same model, and the final outcome is different. The problem that is refracted is that between local government appeals and the development of national industries, between the introduction of foreign capital and the support of local industries, or when making early decisions.

For China's developing integrated circuit industry or even strategic emerging industries, more effective planning and support methods can be found to prevent more core stories from being staged.

Local chip defense

As for the Chengdu government, whether Cheng Xin will ultimately make a profit or a loss, whether it is SMIC repurchase or TI acquisition, will not be the most concerned issue.

The reason is that the primary task of creating cores is not to establish a "very profitable" company, but to use chip concept "card bit" to pull the industry chain together, and this task was already completed after the establishment of the core.

If you look only at input and output, the total investment for the core project is 420 million U.S. dollars, but by July 2010, when it was listed and transferred, the listed price was only 1.188 billion yuan.

What is more important for Chengdu is that before the introduction of Intel in 2003, Chengdu had no production lines for chip manufacturing and packaging, and there were less than 20 IC design companies. At present, the local area has gathered 1 chip factory, 5 assembly and testing plants, more than 80 chip design companies, more than 10 supporting companies and a comprehensive industrial chain; the total investment of chips exceeds 2 billion US dollars, and the output value of 2009 is 24.8 billion yuan. Centrally located in the West.

In the words of a Chengdu government official, Chengdu has become the “fourth pole” of chips after the Bohai Rim, the Yangtze River Delta, and the Pearl River Delta. Among them, the number of cores played a role cannot be estimated.

Some experts believe that there are many reasons why Chengdu has a large number of electronic talents and favorable preferential policies. This has driven the industrial chain even further – but its historical mission has been completed. There is no doubt about this.

In this sense, TI's entry order has allowed Chengxin to “play a good part”. With the ability to drive more chip factories, packaging and test plants, and design centers, Chengdu will naturally be happy to see it happen.

However, if we stand at a more macroscopic point, the acquisition of cores will have a greater impact on the Chinese chip industry.

Although chip design is the most technologically advanced and gold-rich innovation frontier in the chip industry, due to the particularity of the chip industry, the pulling power of chip manufacturing to the industry is far from comparable to other industries, and chip manufacturing is often the core of the industry that “pulls both ends”. .

Unlike chip design companies, which can be “small workshop operations,” chip manufacturing is a high-input and slow-return high-risk industry. It takes billions of RMB to build a line, and the construction cycle takes at least one year to one and a half years, and the failure rate is high. Local companies are willing to do what they can do, and the loss of core hits on local industries is not easily compensated.

According to Gu Wenjun, a senior analyst at the semiconductor research organization isuppli China, there are only three 8-inch production lines in China including analog chips. Since 2010, the chip industry has regained its head. After the production capacity is tight, most of the foundries have secured large orders from international chip makers. Even if Chinese domestic design companies increase their prices by 10% to 30%, they will find it difficult to obtain sufficient production capacity and the development of their industries will be greatly constrained. .

Sun Jiaxing, director of the Integrated Circuit Division of the Ministry of Industry and Information Technology Integrated Circuit Promotion Center, revealed that when the industrial situation in the first half of this year was relatively good, the center had joined hands with industry associations to compete for production capacity for local chip design companies, but the manufacturer did not give too much concession.

Prior to this, many local design companies were able to obtain production capacity in the core, but after the TI acquisition, due to TI's business model is not on the external single, the most advanced technology will not be placed in the core, many local design companies have to return The embarrassing situation of going overseas to seek capacity from foreign-funded factories.

In this regard, a person in charge of a high-tech zone stated that the Chengdu government has already agreed with TI that TI will continue its core business and accept orders from local design firms during the transitional period (approximately one year) in the future.

Although Chengdu has some considerations, after the transition period, no one can guarantee that these manufacturers will go from here.

This is also the key reason for the local chip industry to launch the "Wuhan Defending War": At present, the production line is still the only 12-inch storage chip foundry in China, although the production capacity is small, but for the local chip industry and the storage industry It is of great significance. If it is acquired by foreign capital, the industry will be inaccessible and there will be no place for compensation.

Catch the championship

One chip practitioner said that the most concern to the industry is that the chip industry, once the “one industry,” is being abandoned by the local government.

China's chip industry started in the 1950s and has since been plagued by various twists and turns. It has gradually opened up the gaps internationally. Although it has been catching up since the 1990s, it has been driven by fragmented financial support and lack of leading companies. Its overall strength is still lagging behind the U.S. generation (2 years) or even more.

In 2000, the State Council announced the No. 18 document and increased its support for the chip industry. It was the most favorable support policy for all industries at that time. At the same time, both inside the industry and the analysis of investment institutions, the Chinese chip industry is full of expectations: the average annual growth rate of the market before 2010, there is no market expectation of less than 30%, much higher than the GDP growth over the same period.

The advantage of the policy and the "brightness" of the industry's prospects are in the eyes of local governments, equivalent to a "shortcut to catch up" with high-tech industries to increase GDP.

A crazy tournament kicked off. Together with the "high-tech" industries represented by electronic information, new materials, and biomedicine, the chip quickly set off the third wave of repeated construction in China following color TVs, refrigerators, and automobiles.

In 2001, when applications were submitted to the Ministry of Industry and Information Technology for submission of the chip project, companies ranging from chip manufacturers to complete machine manufacturers, from home appliance companies to trading companies, and even unrelated industries such as food were rushed into the company.

At that time, the big cities of the country almost said to be "Silicon Valley," and the chips were even more competitively categorized by local governments as "No. 1 industry". Local investment by well-known manufacturers such as Intel and SMIC has also become the “No. 1 Project” that all local governments are striving for.

Under the stimulus, the advantages of local investment were used to the extreme: In addition to the support policies of No.18 Document, Western Development and other countries, local governments also introduced various local preferential policies. Almost all government departments must give way to “Project No. 1” and even It also promotes local attractiveness through "ultra-conventional methods".

In 2000, there were only 98 chip design companies in the country, which doubled to 200 in 2001 and 465 in 2003. During the “10th Five-Year Plan” period, the number of newly-built chip production lines is equivalent to the sum of the past 50 years, far exceeding the “10th Five-Year Plan”.

During the peak period of development from 1999 to 2003, the scale of China's chip industry has increased fourfold, with an average annual growth of 45%, and the average annual growth rate of the market in the five years is 35%. It has quickly become the third largest market after the United States and Japan. In this process, the "enthusiasm" of the local government contributed.

Unpleasant "One Industry"

What the local government did not expect was that the chip market is not as “fun” as it looks.

Although a large number of packaging and testing plants have been built around the country, they are at the low end of the industry chain. High-end chip design and chip production are still the biggest short boards in the Chinese chip industry. According to industry sources, in foreign countries, the proportion of chip design, chip production, and packaging and testing companies is generally 3:3:4, but in China, up to now, it can only reach 2:3:5.

In the field of design, China has been lagging far behind, and in the manufacturing process, the industry interest division of the chip industry has also been basically completed: Intel, TI and other IDM (integrated component manufacturing) manufacturers are self-sufficient in design, manufacturing, and packaging testing. Overdue demand will overflow some of the business to other foundries; DRAM has been a basic monopoly of Japanese and Korean companies, and often through the adjustment of supply and demand to manipulate market prices, suppress competitors; and in the field of chip foundry, TSMC and UMC also occupy the absolute In most markets, there is little room for other companies.

This is destined to China's growth in the chip industry requires a brutal fight.

An industry source stated that until now, representatives of local companies such as Hua Hong NEC, SMIC and SMIC have not yet found a real breakthrough and are still being suppressed by market leaders.

At the time of fierce investment, Chengdu’s investment has been relatively stable. Local industrial development has not violated the principle of comparative advantage. No matter whether it is talents, water, electricity, gas, or transportation, it is enough to support the “chip-based market”. The development strategy, even if it encounters many changes, can still seek the takeover of other manufacturers.

However, in some cities, talents, industry support, and other basics are not available, and they have already decided to “get ready for work.” Chip makers use the enthusiasm of the government to attract high-tech projects and pass on the business risks to the government. It is not uncommon for people to go empty when taking advantage of profits or experiencing market setbacks.

A chip industry source said that this is most obvious in the field of chip design where the funding threshold is relatively small. At that time, many companies were teams of “sea returnees”, or with the help of the government, they were looking for investments to build land at low prices. Make a product. A few years later, after the money was burned out and sold directly to buildings, there was a lot of money for investors to recover the cost. Many local officials had also been promoted to leave office. The team also relies on "experience" to refinance or change jobs, so "all happy."

In contrast, the transfer of cores can be described as a good beginning.

Today, "No. 1 industry" has become a yellow flower. In addition to Shanghai, Beijing, Shenzhen, Chengdu and other cities are still insisting that many large-scale development of chip cities have been no longer enthusiastic, quietly turned.

Hope to focus on leaning

Another key reason for the backwardness of China's chip industry lies in the intensive industrial repression and capital infiltration of foreign chip companies in China.

In the local investment boom of 2000, although the starting point of China's No. 18 document was to develop the competitiveness of China's chip industry, the path of local development of the chip industry still more imitates the “manufacturing model” that TSMC started and hopes to pass. A large number of OEMs and actively attract foreign capital, relying on external forces to accumulate industrial bases, further opportunistic surpass. The scale of the chip industry has rapidly expanded. The vast majority of foreign companies only shift foreign production capacity to China, and most of the real chips need to rely on imports. The growth in the strength of local companies is relatively limited.

In the meantime, although local governments have introduced large amounts of foreign capital, the investment in China is only a relatively low-end link, or a relatively backward process, and the core link has not yet landed in China.

At the same time, China's enterprises with competitive strengths in the manufacturing and design sectors have been subject to foreign capital in varying degrees. The larger the scale, the greater the pressure on them. Or by means of low-price dumping or other methods, the market may be smashed, or litigiously attacked, or capital may be used to buy at the bottom. Regardless of technology, market, and even capital, Chinese chip companies are still far behind. In the absence of state protection, the strength of local chip companies has been disintegrated.

Now, a new round of foreign investment is being carried out. In addition to the core has been transferred to TI, in the most critical design and chip production process, TSMC took the lawsuit to take away SMIC (with Morgan Stanley participating in the rights to become the fourth largest shareholder), the United States Silver Lake Capital has become a major shareholder of Spreadtrum , MediaTek borrowed the overseas investment fund curve to enter the main TD design company Suzhou Pride Worldcom, Microtune acquired Shanghai Weiwei International, Atheros acquired Shanghai Puran Communication... If there is no external intervention, it will be a foregone conclusion for Micron to enter Wuhan Xinxin.

“The current chip industry policy is actually very rampant.” An industry expert said that in the field of chips, the competent authority has no prior powers of approval and is in control. After the lack of support measures, it is impossible to reduce the share. “The role is only at the start of construction. Representatives cut a lot."

At present, most of the chip policies and supports that have been issued are "Preferential System". Although it is conducive to the cultivation of the whole industry, at the current stage, cultivating leading enterprises still lacks effective support. For example, in the manufacture of chips, a production line needs to invest billions of yuan. If the government subsidizes tens of millions of dollars, it may seem like a lot, but it's a lot of money to use.

According to industry insiders, for the time being, China's chip industry is relatively weak and it is difficult to face up against foreign companies. The pressure on the manufacturing sector is particularly great. However, in the chip design process, because there are many fields, complex technologies, and many companies with potential, they are the first to occupy the frontier of technology. In the future, the possibility of looking for opportunities to surpass the industry is greater than other links in the industrial chain.

But it also means greater market risk. Whether it is R&D or market cultivation, these cutting-edge technologies need more support to avoid the strong pressure from foreign companies.

"Actually, with the country's current financial strength and support for integrated circuits, we must say that we must take tens of billions or even billions of yuan out of the country to support several companies in building production lines. This is what we can get, but the problem is that it is now lacking. Key support policies, said Qiu Shanqin, director of the Software and Integrated Circuit Promotion Center of the Ministry of Industry and Information Technology.

This is also the direction of the country's future chip industry support. According to people involved in the drafting of the new No. 18 document, some of the provisions in the upcoming new No. 18 document will be revised soon, and the support of key links will be tilted.