Executives make the case for China’s big chip bet

Article By : Rick Merritt

China, along with private investors, will spend as much as ₹10.67 lakh crore over the next few years growing the country's semiconductor industry.

Two senior China executives are defending the country’s big bet on its semiconductor industry a week after a White House report has called for international action against practices it has called unfair. Executives from fab and capital equipment companies said the China government is not being unfair in the way it supports its still-infant industry.

The China national and provincial governments along with private investors aim to spend as much as ₹10.67 lakh crore ($160 billion) over the next few years growing China’s semiconductor industry. U.S. chip makers are concerned the government help puts an unfair finger on the scale in what is seen as the largest growth market for semiconductors for the next several years.

Executives from foundry Shanghai Huali Microelectronics Corp. and etch-system vendor Advanced Micro-Fabrication Equipment (AMEC) made the case both for China’s efforts and their companies at the Industry Strategy Symposium, an annual event sponsored by the SEMI trade group.

As the assembler of the vast majority of the world’s smartphones, digital cameras and other products, China runs a huge trade deficit in semiconductors. It buys about 45% of the world’s chips but makes only 13% of them.

[China chip trade deficit (cr)]
__Figure 1:__ *China runs an estimated ₹10 lakh crore ($150 billion) annual trade deficit in chips. (Source: Huali)*

A market-based policy set in June 2014 aims to close an estimated ₹10 lakh crore ($150 billion) annual trade deficit, but it will take years, the China execs said. Its goals include getting China fabs in mass production of 16/14nm chips by 2020 with a robust local equipment and materials industry to support them.

“If we don’t have these key [component] technologies we may have trouble in the future,” said Jack Qi Shu, vice president of sales and marketing for Huali in an interview with EE Times after a presentation.

Inside Huali’s ₹39,330.71 crore bet on Fab 2

For its part, Huali recently announced it secured ₹39,330.71 crore ($5.9 billion) to build a 40,000 wafer/month fab in Shanghai to build 28-14nm chips. Nearly 40% of the funds came from the China national government with nearly 7% from the Shanghai government.

About 54% of the money was from Huali which has an existing 55-40nm fab. The government funds are loans Huali must pay back, said Qi Shu of Huali.

“If I were running the fab, I would not aim for advanced technologies [such as 28-14nm] but increase capacity for our current [55-40nm] technology because I can increase revenues quicker, but the government wants to support the industry,” he said.

[Huali tech expansion (cr)]
__Figure 2:__ *Huali aims to shift to 28 and 14nm nodes with Fab 2…*

The high cost and seven-year deprecation times of advanced tools mean Huali will not see profits for many years. “It’s not a very good business, although you can make money in the future—only the government would invest in something like this,” he said.

More investments may be coming. Qi Shu showed plans for three fabs on the new site in Shanghai’s Pudong district where the Huali Fab 2 is planned.

Huali had revenues of more than ₹2,999.80 crore ($450 million) last year making it the world’s 10th largest fab and demand is high, he said. One analyst said the company’s current 35,000 wafer/month fab has very low yields, suggesting it may be operating at a significant loss.

The ₹39,330.71 crore ($5.9 billion) Fab 2 is not scheduled to start production until mid-2018 and not expected to reach capacity until 2022, Qi Shu said. Huali is in negotiations with multiple non-U.S. companies to license and develop 28nm high-K metal gate technology with licensing costs alone expected to range in hundreds of millions of dollars.

Meanwhile, Huali is working with one customer, Taiwan’s Mediatek, to develop 28nm polysilicon technology. Huali makes combo Wi-Fi/Bluetooth chips for Mediatek. The foundry also is working with Omnivision, a company acquired by China investors in 2014, to develop process technology to make its image sensors.

“We don’t have much IP in house, but we have some standard IPs at 55 and 40nm and at 28nm we are developing IP,” he said.

[Huali Fab2 capacity expansion (cr)]
__Figure 3:__ *…but it expects to take 2-3 years to ramp 28nm HKMG and five years to fill the fab. (Images: Huali)*

Next: China's big chip push: An equipment maker's view »

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