China is all set to share a larger chunk to the global semiconductor market. The country has lately reported to invest more than $100 billion in its indigenous semiconductor market.
It is reckoned that nearly 55 percent of the world’s memory, logic and analog chips will flow to (or through) China by 2020, according to Bain & Company’s report, China Chases Chip Leadership.
However, only 15 percent of these semiconductors will be produced by China. This is even up from approximately 10 percent a few years ago amidst the country’s biggest trade deficit of silicon. The report suggests that the country is a long way from closing the widening gap between supply and demand.
“China is making a run at capturing the semiconductor market globally by producing more of the microprocessors and memory chips that go into locally produced consumer devices and industrial equipment, both for domestic consumption and export,” said Kevin Meehan, who leads Bain’s Technology Practice in Asia-Pacific and co-authored the report.
“But global market share is not something that can be reliably captured through deep pockets and long patience. To close the gap, China will need to work in tandem with established international players,” he added.
The research firm asserted that in the semiconductor industry, quality, technology, value and brand all determine who leads the market; the government has limited control over end demand.
To gain a substantial share in the global market, it said Chinese semiconductor manufacturers must catch up with foreign players in terms of technology and production costs. Yet, market requirements such as foundational IP and ongoing innovation make entry difficult even for the most well-funded challengers, and incumbents have few incentives for sharing their core IP with potential competitors from China or elsewhere.
These circumstances suggest that China is likely to partner with existing firms. “There’s no denying that China’s vast market, deep pockets and long patience in pursuing economic goals will require international companies to adopt a clear strategy to collaborate – and eventually compete – with Chinese semiconductor manufacturers,” said Florian Hoppe, co-author of the report and a partner in Bain’s Technology Practice. “Executives who understand China’s goals and adopt a mix of both offensive and defensive strategies stand to win as the market develops.”