Chinas Impact on Semiconductor Industry Chapter

7/28/2019 Chinas Impact on Semiconductor Industry Chapter

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www.pwc.com/technology

Chapter 1: Market

and industry overview

July 2012

Exceptional relativeperformanceChinas impact on thesemiconductor industry

2012 update


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WelcomeIn 2004, PwC released its original report, Chinas impact on the semiconductorindustry, in response to our clients interest in the rapid growth of the semicon-ductor industry in China. Specically, clients wanted to nd out whether Chinas

production volumes would contribute to worldwide overcapacity and a subse-quent downturn in the industry. For the past seven years, we have provided up-dates that included an analysis of both the semiconductor market (consumption)and industry (production). We also covered design, the value chain and possibleproduction growth scenarios along with a number of other topics.

Because the report relies on a number of data sources, we have been unableto deliver it in full until the fourth quarter of the following year. This year, in aneffort to get you this vital information in a more timely fashion, we have chosento release the report in a tiered fashion, starting with this, an overview of theChinese semiconductor market. In the coming weeks, we will release additionalchapters, until we have covered as much material as in previous reports. At theend of the release period, you will be able to download a complete pdf le

of the full report.

Please visit www.pwc.com/chinasemicon over the next several weeks to read or

download each chapter of this year's report.

Chapter 1: Table of contents

1 Exceeding worldwide growthby more than ten times

2 Chinas overallconsumption market

5 The market for integratedcircuits and optoelectronic-

sensor-discrete devices

6 Market by application

7 Market by device type

7 Suppliers to the Chinese market

10 The Chinese export marketand domestic consumption

11 Dislocated purchasing

12 Coming soon

13 About PwC


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Exceptional relative performance Chinas impact on the semiconductor industry2012 update | 1.1

Exceeding worldwide growth

by more than ten timesChapter 1: Market and industry overview

Chinas 2011 semiconductor perfor-mance far exceeded the worldwideindustry! Both Chinas semiconductorconsumption market and semiconduc-

tor industry growth were more thanten times greater than worldwide semi-conductor industry growth.

Chinas semiconductor consumptionmarket grew by 14.6% in 2011 to reacha record 47% of the global market.Measured in US dollars, Chinassemiconductor market growth in 2011was more than ten times greater thanthat of the total worldwide semicon-ductor industry. Much of this excep-tional growth was the result of Chinas

dominant position in the productionof smartphones and media tablets.From a Chinese perspective, aboutve percentage points of that increase

was the result of Chinas continuingrevaluation of the RMB. Measured inlocal (RMB) currency, Chinas semi-conductor (consumption) market grewby 9.4% in 2011. Although less thanChinese ofcials had forecast, that

9.4% local currency growth rate was

also several times greater than the totaworldwide industry growth and maybe understated since most of the semi-conductors consumed in China were

sourced from multinational suppliersand priced in dollars, euros or yen.

At the same time, Chinas semiconduc-tor industry grew by 14.4% in 2011 toreach a record $43.5 billion. Measuredin US dollars, Chinas semiconductorindustry growth was also more thanten times greater than that of the totalworldwide semiconductor industry.A signicant portion of that excep-tional growth was attributed to ChinasIC design or fabless sector which grew

by more than 36% in 2011. From theChinese perspective, ve percentage

points of that increase was also theresult of Chinas continuing revalu-ation of the RMB. Measured in local(RMB) currency, Chinas semiconduc-tor industry grew by 9.3% in 2011, lessthan half of what Chinese ofcials had

forecast, but still several times greaterthan the total worldwide industry.

Chinas semiconductor consumption market grew by 14.6% in 2011 toreach a record 47% of the global market. Measured in US dollars, Chinas

semiconductor market growth in 2011 was more than ten times greaterthan that of the total worldwide semiconductor industry.


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Chinas overallconsumption market

As a result of its much greater thanworldwide growth rate, Chinas shareof the total 2011 worldwide semicon-ductor consumption market increasedsignicantly to a record 47%. Over the

past eight years, Chinas share of the

worldwide semiconductor consump-tion market has grown from less than19% in 2003 to just over 47% in 2011.Chinathe fth and smallest semicon-ductor consuming region in 2003hasbecome the dominant consumer ofsemiconductors, using more thandouble the amount of any other regionfor each of the last three years.

During the last decade, Chinas con-sumption growth has outrun the restof the world for nine of the ten years of

ups and downs of two semiconductorbusiness cycles. Since 2001, the bottomof the prior semiconductor businesscycle, Chinas semiconductor consump-

Figure 1: Worldwide semiconductor market by region, 20032011(Total worldwide in US$bn)

China

Europe

ROW

Americas

Japan

23.4%

19.4%

19.4%

19.3%

18.5%

21.5%

21.3%

20.4%

18.3%

18.5%

24.8%

20.6%

19.4%

17.9%

17.3%

28.9%

18.4%

18.1%

18.1%

16.1%

34.8%

19.1%

16.6%

16.0%

13.5%

$166.4

$213.0

$227.5

$247.7$256.3

$248.6

$226.3

$299.5$298.3

38.3%

19.5%

15.4%

15.2%

11.6%

41.0%

17.0%

16.9%

13.2%

11.9%

47.1%40.5%

16.7%

18.0%

13.6%

15.6%

11.9%

13.1%

10.7%12.8%

Worldwide total US$bn

= US$30bn

201120102009200820072006200520042003

Source: SIA, MCR12, CCID

tion has grown at a 24.4% compound-ed annual growth rate (CAGR), whiletotal worldwide consumption has onlygrown at a 7.9% CAGR.

Chinas market growth has been atthe expense of all other regions. Since2001 China has accounted for 84% ofthe overall worldwide semiconductor

market growth. From 2001 to 2011,Chinas semiconductor consumptionmarket grew by $134 billion, whilethe worldwide market grew by $160billionfrom $140 billion to $300billion. For the past seven years Chinahas accounted for more than 100% ofthe overall worldwide semiconductormarket growth. Since 2004 Chinassemiconductor consumption marketgrew by $108 billion, while the world-wide market only grew by $87 billion.

Chinas semiconductor consumptionmarket has grown many times fasterthan the worldwide market as a resultof two driving factorsthe continu-


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Source: SIA, CCID, CSIA Quarterly Reports

2007 Quarter average

0%

30%

60%

90%

120%

150%

180%

China IC industry

China semiconductor market

Worldwide semiconductor market

4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2Q1Q

2007 2008 2009 2010 2011

Note: Comparison of Chinas semiconductor market and Chinas IC industry growth versus worldwide semiconductor market by quarter 20072011 indexed against 2007 quarter average.

0%

10%

20%

30%

40%

50%

US$bn

RMBbn

Annual RMB growth

Annual US dollar growth

Fixed exchange rate

0%

18.1%

25.9%

43.6%41.2%

30.3%

28.6%

23.5%

18.3%

6.7%

29.2%

-4.1%

9.4%

26.9%

23.9%

16.8%

30.4%

-2.5%

14.6%

14.4

119.5

2000

17.0

141.1

2001

21.4

177.6

2002

30.7

255.1

2003

43.4

360.0

2004

56.5

463.0

2005

71.0

571.7

2006

88.9

676.1

2007

103.8

721.5

2008

101.2

691.6

2009

132.0

893.4

2010

151.2

977.5

2011

Annual growth

Market value

Figure 2: Chinas semiconductor market growth, 20002011

Figure 3: Comparison of China vs. worldwide semiconductor growth by quarter, 20072011

Note: Market reporting has changed since 2003 with sensors and optical semiconductors included as part o the optoelectronics-sensors-discrete (O-S-D) segment which along with integrated

circuits (IC) make up the total semiconductor market.

Source: CCID, CSIA


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ing transfer of worldwide electronicequipment production to China andthe above-average semiconductor con-tent of that equipment. Even duringthe global recession Chinas electronicequipment production value grew,while worldwide production decreasedby 3% in 2008 and 11% in 2009.As a result, Chinas share of world-

wide electronic equipment productionincreased to 28.7% in 2008 and 32.8%in 2009.

In 2010, worldwide electronic equip-ment production recovered to near2007 levels by increasing almost 16%while Chinas electronic equipmentproduction increased just 12.8%,still reaching new record levels, butdecreasing its share to 31.9%. In 2011,however, worldwide electronic equip-ment production grew by its historicalaverage 6%, while Chinas electronicequipment production increased 10.7%and its share increased to 33.2%.

At the same time, the semiconductorcontent of the electronic equipmentproduced in China has continued tobe about 25% higher than the world-

wide average, which remained at 20%in 2011. During the past seven years,from 2004 to 2011, Chinas share ofelectronic equipment production hasincreased from 17% in 2004 to 33% in2011, while the semiconductor contentof that production averaged 25.2%compared to the worldwide average ofslightly less than 20%. Table 1 shows

Chinas production and worldwideshare of main electronic products forthe last four years.

Both the global and Chinese semicon-ductor markets reached the bottomof the last business cycle in 1Q/09and then gradually improved in thefollowing quarters. That improvingtrend continued through 2010, withthe global and Chinese markets experi-encing somewhat different growthproles. The global market grew

for the rst three quarters and thendeclined in the fourth quarter. TheChinese market was almost at in the

rst quarter, but then grew in eachof the following three quarters. Bothmarkets were relatively at for the rst

two quarters of 2011, with a moderateuptick in the third quarter, followed bya decline in the fourth quarter. Chinasconsumption market share increasedsignicantly in 2011 as its overallperformance during the business cyclewas notably stronger than the global

market. The global semiconductor markets peak quarter was the third quarterof 2010, while Chinas semiconductormarket reached a new record in the

Table 1: Chinas production and worldwide share of main electronic products, 20082011

Production in 1000s% CAGR

Worldwide market share %

2008 2009 2010 2011 2008 2009 2010 2011

Main products

Mobile phone 559,640 619,520 998,000 1,133,000 26.5% 44.7% 49.9% 71.3% 70.6%

Computer/PC 136,666 182,150 246,000 320,000 32.8% 47.0% 60.9% 73.4% 90.6%

Color TV 90,331 98,990 118,000 122,000 10.5% 43.9% 48.3% 47.8% 48.6%

Digital camera 81,883 80,260 90,000 82,900 0.4% 62.3% 64.9%Source: CSIA, MIIT, Digitimes Research 20102011

The global semiconductor markets peak quarterwas the third quarter of 2010, while Chinas

semiconductor market reached a new recordin third quarter of 2011.


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third quarter of 2011. By third quarter2011 Chinas consumption had recov-ered and grown to a level of 176% of2007 average-quarter consumption,while the global market had only re-covered to about 121%.

Whether the Chinese semiconduc-tor market will be able to continue

to gain global share will be primarilydetermined by the future transfer ofelectronic equipment production. Mostindustry analysts are predicting thatthe trend of an increasing share of elec-tronic equipment production in Chinawill continue over the next ve years.

According to Gartner, Chinas shareof electronic equipment productionis forecast to increase to 40% by 2016and Chinas share of worldwide semi-conductor consumption to increase bya further 6%.

The market for integratedcircuits and optoelectronic-

sensor-discrete devices

The integrated circuit (IC) consump-tion market in China increased 14.9%to $124.8 billion in 2011. This increasewas nearly fteen times greater than

the worldwide IC market increase of

1%. As a consequence, Chinas IC con-sumption grew to represent more than47% of worldwide consumption in2011. Measured in local currency, theincrease in IC consumption was 9.7%.During 2011 Chinas IC consumptionmeasured in US dollarsincreasedby about $16 billion, while the world-wide IC market increased by slightlyless than $2 billion. This infers that ICconsumption in the rest of the worldother than China decreased by morethan $14 billion or9.5%comparedto Chinas 14.9% increase. This is the

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Integrated circuit market

Optoelectronics-sensors-discretes market

Same level %

0%

10%

20%

30%

40%

50%

60%

US$bnUS$bn

3.011.4

3.213.8

3.717.7

5.725.0

8.335.0

10.146.4

12.259.5

14.973.9

17.985.9

18.183.1

23.4108.6

26.5124.8

Annual growth

Market value

0%

20.9%

45.3%

55.2%

15.6%

6.7%

32.5%40.2%

41.2%

28.3%

21.1%

28.2%

24.3%

16.2%

30.7%

-3.3%

14.9%21.2% 22.3%

19.5%

29.0%

1.6%

13.0%

Figure 4: Chinas IC and O-S-D market growth, 20002011

Note: Market reporting has changed since 2003 and the defnition O-S-D (optoelectronics-sensors-discretes) market now includes sensors and optical semiconductors.

Source: CCID, CSIA


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fourth time in the past ve years that

Chinas IC consumption grew fasterthan the rest of worlds IC market andthat Chinas IC consumption grew atthe expense of displacing IC markets inother regions. As such, this may repre-sent a resumption in the dynamics ofChinas impact on the industry.

During 2011 Chinas O-S-D (opto-electronic-sensor-discrete) market,measured in US dollars, grew 13% toreach a new peak of $26.5 billion. Thisincrease was somewhat greater thanthe worldwide O-S-D market increase

of 8% and, as a result, Chinas share

of that market increased a couple ofpercentage points to slightly morethan 49%. Sensors was the smallestsegment of Chinas O-S-D market, at

$3.4 billion, but the fastest growingin 2011 at 21%. Discrete remained thelargest segment of this market at $13.4billion, while growing at 5%. Opto-electronics continued as the middlesegment, at $9.7 billion, while grow-ing 8% in 2011. When measured inlocal currency, Chinas O-S-D market

increased by 7.9%. It represented

17.5% of Chinas total semiconductorconsumption market in 2011, which isslightly less than the worldwide aver-age of 17.9%.

0% 10% 20% 30% 40% 50%

Computing

Communi-cations

Consumer

Automotive

Industrycontrol

Mil/Aero

$400

$300

$200

$100

$0

US$bn

China/HKG (GDQ)$123 billion, or 40.5%of worldwide

Percentage by application

Total semiconductor

Worldwide

China/HKG

Figure 5: China compared withworldwide semiconductor marketby application, 2011

Market by application

When compared with the worldwidesemiconductor market, the distributionof Chinas 2011 semiconductor con-sumption continued to be somewhatmore concentrated in the comput-ing and communications applicationsectors, slightly more concentratedin the consumer sector, relativelyless concentrated in the automotiveand notably less concentrated in theindustrial and military/aero sectors.During 2011, worldwide semiconduc-tor consumption became slightly moreconcentrated in the communications,

automotive and industry controls sec-tors. The share of Chinas semiconduc-tor market consumed by the commu-nications sector in 2011 increased by1.7%, while the share consumed by theconsumer sectors decreased by 1.5%.The two most signicant increases in

Chinas semiconductor consumptionduring 2011 were for the digital cel-lular smartphone and media tablet ap-plications sectors, which increased by$6 billion and $3.6 billion respectively.Since 2003, Chinas consumption of

semiconductors for computing applica-tions has grown at a 21% CAGR, whileconsumption for communications andconsumer applications has grown at

The two most signifcant increases in

Chinas semiconductor consumptionduring 2011 were for the digital cellular

smartphone and media tablet applicationssectors, which increased by $6 billion and$3.6 billion respectively.

Source: Gartner Dataquest


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20% and 14%. Chinas consumption ofsemiconductors for industrial/militaryapplications is smaller, but has grownat the fastest rate of 26%, followed byautomotive applications at 24% CAGR.

Market by device type

Chinas semiconductor consumptionmarket in 2011 remained noticeablymore concentrated than the worldwidemarket in the application-specic inte-grated circuit sector and less concen-trated in the non-optical sensors andmicrocomponent sectors. At the sametime, it also remained somewhat lessconcentrated in the discrete sector.

During 2011, worldwide semiconduc-tor consumption was noticeably af-fected by the collapse in DRAM average

selling prices (ASPs). As a result, thevalue of worldwide memory sectorconsumption decreased by $6 billion,which was more than offset by increas-es in microcomponent, application-specic, discrete device and optoelec-tronic sector consumption.

Worldwide semiconductor consump-tion became less concentrated in thememory sector and slightly moreconcentrated in all the other sectors in2011. During 2011 Chinas increase in

electronic systems production volumenearly offset the decrease in DRAMASPs, so the value of Chinas memorysector consumption only decreasedslightly by about $0.3 billion. Thatdecrease was more than offset byChinas increases in the value of con-sumption of all the other device sec-tors. During the last eight years since2003, non-optical sensors, the smallestdevice sector of Chinas semiconduc-tor market, was the fastest growing,increasing at a 53% CAGR. Memory

was the next fastest growing sector

at 23%, followed by optoelectronic at22% CAGR. The general purpose logicand discrete sectors had the slowestgrowth at about 9% and 16% CAGRrespectively, while all the remainingsectors grew at about 20%.

Suppliers to the

Chinese marketThe major global semiconductorcompanies continue to dominate theChinese market. The largest suppliersto the Chinese market continue to bethe same multinational semiconduc-tor companies. Table 2 lists the topsuppliers that have the largest salesrevenue from the Chinese market.There have been only thirteen differentcompanies that have been among thesetop ten suppliers over the past nine

years since our initial report. Eightcompanies have been among the topten semiconductor suppliers to Chinaevery year from 2003 through 2011:Intel, Samsung, Toshiba, TI, Hynix, ST,Freescale and NXP/Philips. AMD hasbeen among the top suppliers since2004. Inneon and its spin-off Qimon-da were among the top ten suppliersfor the rst four years 20032006 until

exiting the DRAM business; Media Tekfor the three years 20072009, until it

lost market share to Chinese IC design

competitors and Renesas for the rstand last two years, 2003, 2010 and2011, returning as a result of its mergerwith NEC Electronics.

During 2011 Chinas consumption ofsemiconductor products from theseten largest suppliers increased by9.6%. Although ve percentage points

less than the growth of the overallsemiconductor market in China, it isstill notably better than the growth ofthe overall worldwide semiconductormarket. The increase in Chinas total

0% 10% 20% 30% 40%

Worldwide

China/HKG

Totalapplication-

specific

Memory

Micro-component

Genl. purposeanalog

Genl. purposelogic

Discrete

Opto-electronics

Non-opticalsensors

$400

$300

$200

$100

$0

US$bn

China/HKG (GDQ)$123 billion, or 40.5%of worldwide

Percentage by device

Total semiconductor

Figure 6: China compared withworldwide semiconductor marketby device 2011

Source: CCIC, Gartner Dataquest 2012


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consumption of semiconductor prod-ucts from these ten largest supplierswas almost four percentage pointsbetter than the increase in world-wide consumption of their productsprimarily due to the large growth inChinas consumption of products fromthe top three suppliers, Intel, Samsungand Toshiba.

The Chinese semiconductor marketcontinued a trend of being less con-centrated than the worldwide marketin 2011. The top ten suppliers to theChinese semiconductor market had a45% share of that market, while thetop ten suppliers to the worldwidemarket had an almost 51% share in

Table 2: Semiconductor suppliers to the Chinese market, 20102011

Rank Revenue in US$m Marketshare

Company 2010 2011 2010 IC 2011 IC % change 2010 Semi 2011 Semi % change

Intel 1 1 19,659 23,777 20.9% 19,659 23,777 20.9% 15.7%

Samsung 2 2 8,018 9,388 17.1% 8,175 9,612 17.6% 6.4%

Toshiba 4 3 4,138 4,385 6.0% 4,479 5,322 18.8% 3.5%

TI 5 4 4,248 4,920 15.8% 5,564 5,210 -6.4% 3.4%

Hynix 3 5 5,564 5,087 -8.6% 4,970 5,087 2.4% 3.4%

ST 6 6 3,305 3,616 9.4% 4,449 4,742 6.6% 3.1%

AMD 7 7 4,174 4,408 5.6% 4,174 4,406 5.6% 2.9%

Renesas 9 8 2,634 2,681 1.8% 3,484 3,452 -0.9% 2.3%

Freescale 10 9 2,655 2,913 9.7% 3,233 3,426 6.0% 2.3%

NXP 8 10 1,783 2,106 18.1% 3,751 3,003 -19.9% 2.0%

Infneon 11 11 1,783 1,703 -4.5% 2,634 2,782 5.6% 1.8%

ON Semiconductor 14 12 810 1,176 45.2% 1,843 2,701 46.6% 1.8%

Qualcomm 15 13 1,627 2,270 39.5% 1,627 2,270 39.5% 1.5%

Micron 12 14 2,388 2,086 -12.6% 2,526 2,200 -12.9% 1.5%

Media Tek (MTK) 13 15 2,453 2,016 -17.8% 2,453 2,016 -17.8% 1.3%

Total Top 10 56,178 63,281 12.6% 61,938 68,037 9.8% 45.0%

Total Top 10 share of

Chinese integrated circuit market 51.7% 50.7%

Chinese semiconductor market 46.9% 45.0%

Note: Semi equals IC + Discrete (including LED) market.

Source: CCID IC Market China 2011 & 2012 ConerencesFebruary 2011 & March 2012

2011, reversing for a second year whathad been a very gradually decliningshare ranging from 50% in 2004 to47% in 2007 and 44% in 2009.

Together these ten largest suppliershave maintained their share of theChinese IC market at about 51% in2010 and 2011, consistent with theslightly more than 51% share theyhad maintained for the three yearsprior to 2009.

Although Gartner Dataquest stoppedreporting company market share databy country in 2008, it still appears thatthere is no Chinese company withinthe top 35 suppliers to the Chinese


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semiconductor market. Even if the larg-est Chinese semiconductor companysold all of its output within China,no Chinese semiconductor companywould be among the top 35 suppliersto the Chinese semiconductor mar-ket in 2011. This is an improvementfrom 2010, when it would have notbeen among the top 40 suppliers. It is

also notable that Media Tek, the oneTaiwanese company that had beenwithin the top ten suppliers to theChinese semiconductor market from2007 through 2009, dropped in rank tonumber thirteen in 2010 and fteen in

2011 as a result of losing market shareto Chinese IC design competitors.

Since China represents almost half ofthe worldwide semiconductor mar-ket, it should not be surprising thatmany of the same companies are the

largest suppliers to both the Chineseand worldwide markets. Seven of tencompanies were the largest suppliers toboth markets in 2011, the same num-ber as in 2009 and 2010, but more thanthe six in 2008 and less than the eightin 2007. Among the top ten suppliersto the Chinese market, AMD, NXP andFreescale Semiconductor were notamong the ten largest suppliers to theworldwide market. Correspondingly, ofthe top ten suppliers to the worldwidemarket, Micron Technology, Qual-

comm and Broadcom were not amongthe ten largest suppliers to the Chinesemarket in 2010 and 2011.

While nine of the top ten suppliersto the Chinese semiconductor marketwere the largest IC suppliers,only four were among the largestO-S-D (optoelectronics-sensors-discretes) suppliers. ST, Toshiba,NXP and Renesas Electronics wereamong the top ten suppliers to theChinese O-S-D market. The other topten suppliers to the Chinese O-S-D

market included ON Semiconductor,Fairchild Semiconductor, Inneon,

KEC, Rohm and International Rectier.

The other top ten supplier to ChinasIC market in 2011 was Qualcomm.Chinas IC market is slightly moreconcentrated than Chinas combinedsemiconductor market, while theO-S-D market is less concentrated. The

top ten IC companies accounted for51% of that market, while the top tenO-S-D companies only accounted for

36% of their market in 2011.

While Chinas semiconductor con-sumption represented more than 45%of worldwide semiconductor consump-tion in 2011, the China consumptionperformance of the individual compa-nies among the top ten suppliers to theChinese market varied considerably.Three companies had less than 45%

of their total sales consumed in China:Samsung, TI and Renesas. Four compa-nies had between 45% and 60%: Intel,Toshiba, Hynix and ST. One companyhad between 60% and 75%, AMD, andtwo companies had more than 75%,Freescale and NXP.

Based upon a comparison of CCIDs re-port of China consumption by supplierand GDQs report of worldwide marketshare, the variations are even morenotable among the top 20 suppliers to

the Chinese market. Eight companies(40% of the top twenty suppliers) hadless than the average of 45% of theirtotal sales consumed in China. Fivecompanies (25% of the top twenty sup-pliers) had the average, between 45%and 55%, of their total sales consumedin China. Four companies (20%) hadabove average, between 55% and 75%,of their total sales consumed in China,while three, NXP, Freescale and ON

Semiconductor, had a signicantly

above-average, more than 75% of theirtotal sales consumed in China.

Sixty-three percent (63%)of all the semiconductorsconsumed in China wereused in components of

fnished products assembled

in China and exported forsale in other countries.


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The Chinese export marketand domestic consumption

Sixty-three percent (63%) of all thesemiconductors consumed in Chinawere used in components of nished

products assembled in China andexported for sale in other countries.We describe this as the export market.Table 3 shows the relative distributionof this export market by major marketsegments. This export market has beenthe major contributor to the growth ofChinas semiconductor market for thelast decade. Since 2003, the consump-tion of semiconductors for exportproducts has increased by $75 billionand constituted 62% of the overallgrowth of Chinas semiconductor mar-ket. Its share of total semiconductorsconsumed in China had risen for threeyearsfrom 64% in 2005, to 66% in2006 and 69% in 2007before declin-ing to 68% in 2008, to 66% in 2009, to64% in 2010 and to 63% in 2011.

During the global recession that export

market consumption became the over-whelming contributor to the decline ofChinas semiconductor market in 2009as it decreased by more than $3 billion,while the consumption of semiconduc-tors for domestic products increased byless than $1 billion. Conversely, the ex-

Table 3: Chinese semiconductor exports by segment, 20092011(in US$bn)

Total salesExport sales(% o total)

Domesticconsumption

(% o total)

Market segment 2009 2010 2011 2009 2010 2011 2011

Data processing 39.9 56.1 58.8 24.1 (61%) 34.1 (61%) 36.2 (62%) 22.6 (38%)

Communications 27.8 33.1 36.8 19.9 (71%) 22.9 (69%) 24.0 (65%) 12.8 (35%)

Consumer 18.0 21.2 20.4 14.1 (78%) 16.2 (77%) 15.2 (75%) 5.2 (24%)Automotive 3.1 4.3 4.7 0.9 (30%) 1.2 (28%) 1.3 (27%) 3.4 (73%)

Industrial 1.5 2.4 2.2 0.6 (39%) 0.9 (37%) 0.8 (34%) 1.4 (66%)

Mil/Aero 0.2 0.2 0.3 0 (18%) 0 (18%) 0 (18%) 0.3 (82%)

Totals 90.5 117.3 123.2 59.7 (66%) 75.3 (64%) 77.5 (63%) 45.7 (37%)Source: Gartner Dataquest, PricewaterhouseCoopers 20092011

China became the largest market in the world for PCs in 2011

after becoming the largest market for cell phones, digital TVsand automobiles in 2010. As a result, the following twelveapplications each accounted for over $1 billion of domesticsemiconductor consumption in 2011.

(US$bn)

Digital cellular smartphone 5.6

PC desktopprofessional 2.8

Digital cellular enhanced 2.6

PC mobilehome (CPU & memory) 2.4

PC mobileprofessional (CPU & memor y) 2.1PC desktophome (CPU & memor y) 1.9

PC mobileprofessional (subsystems) 1.5

RS3 ash cards 1.5

PC mobilehome (subsystems) 1.5

TV LCD 1.5

Monitor at panel 1.2

Digital cellular basic 1.0


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port market consumption also becamethe major contributor to the recoveryof Chinas semiconductor marketin 2010 it increased by just over$19 billionwhile the consumption ofsemiconductors for domestic productsincreased by almost $12 billion.

Chinas domestic market continues

to be of increasing signicance to theglobal semiconductor industry. Since2003, Chinas domestic marketthevalue of semiconductors consumed inChina that are used in components ofnished products assembled and sold

in Chinahas grown at a 24% CAGR.That market has grown from $10 bil-lion in 2003 to $56 billion in 2011. Byitself, Chinas domestic consumptionmarket has made up more than 34%of total worldwide semiconductormarket growth since 2003. Chinas

domestic semiconductor market grewto represent almost 19% of the world-wide semiconductor market in 2011,up from 15-16% during the prior tworecession and recovery years and upfrom 13.5% in 2008 and 11% in 2007.It has had a noticeable impact on thesemiconductor industry and has beencredited with initiating or leading theindustrys recovery from the depths ofits decline in 1Q/09.

Dislocated purchasing

Chinas reported semiconductor con-sumption market is greater than mostmarket analysts Chinese market sharereports because a signicant portion of

the semiconductor devices consumedin China continue to be purchasedoutside of China. This is becausesome customersdue to supply chainconsiderations such as control of keyinventory items, intellectual propertyprotection and/or toll processing busi-ness modelswill buy semiconductordevices outside of China and transshipthem to China for use and consump-tion. This means that a signicant

portion of buying decisionsandtherefore selling opportunitiesforcustomer-specied devices consumed

in China continue to made outsideof China. For the four years prior to

2011, the largest share of this dislo-cated purchasing of semiconductorsfor consumption in China took place

Dislocated purchase as percent of consumption

$25

$0

$50

$75

$100

2007 2008 2009 2010 201120062005200420032002

10%

0%

20%

30%

40%

50%

60%

70%

Dislocated purchase marketPurchase (ship to) market

Consumption market

$125

Source: Consumption market is based upon Gartner Dataquest Semiconductor Forecast Database. Purchase (ship to)

market is based upon Gartner Dataquest Market Share Database through 2006. Purchase TAM is based upon

Gartner Market Share OEM IDM, and EMS Semiconductor Demand Worldwide 2012 Database.

US$bn

Figure 7: Analysis of China/Hong Kong consumption versus purchasingTAM semiconductor market history


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Coming soon

Check back at www.pwc.com/chinasemicon forour next chapter in this series coming in a few weeks.It will provide an overview of the semiconductorindustry (production) in China.

in Taiwan, Korea and Japan, whichcorresponds to the ongoing transfer ofelectronic equipment production fromthese regions to China. That changedin 2011, with Americas replacing Japanas the third largest source of dislocatedpurchasing for China, which was prob-ably associated with the increase inproduction of smartphones and media

tablets in China. Singapore continuesto be another region with a smallershare of this dislocated purchasing.

We have been identifying this dislo-cated purchasing of semiconductorsfor the Chinese consumption market bya comparison of consumption to pur-chasing TAM (total available market)since 2007. Based upon these compari-sons, we nd that dislocated purchases

for China, which had increased from20% in 2007 to 26% in 2010, further

increased to 29% in 2011. These dis-located purchases represent a signi-cant portion of buying decisionsandtherefore selling opportunitiesforcustomer-specied devices consumed

in China made outside of China.

We expect that this dislocatedpurchasing share of the total Chinaconsumption market will decreasegradually over a number of years in thefuture as:

Chinas domestic market consump-tion increases its share of Chinas to-tal semiconductor market and ODM

and EMS plants in China achieve

greater control over their Bills ofMaterials (BOM);

Multinational electronic equipmentOEM and semiconductor companies

offshore move design and purchas-ing activities to China;

Chinese fabless semiconductorcompanies gain market share in theChina market and

Leading multinational and regionaldistribution rms establish self-

reliant purchasing and warehouse/logistic centers in China.


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France

Xavier Cauchois+33 1 5657 [email protected]

GermanyWerner Ballhaus+49 211 981 [email protected]

IndiaHari Rajagopalachari+91 80 407 9002

[email protected]

JapanAkihiko Nakamura+81 3 5427 [email protected]

KoreaHoonsoo Yoon+82 2 709 [email protected]

NetherlandsIlja Linnemeijer+31 (0) 88 792 49 [email protected]

RussiaYury Pukha+7 495 223 [email protected]

Singapore

Greg Unsworth+65 6236 [email protected]

TaiwanAndy Chang+886 (2) 2729 6666 ext [email protected]

UAEDouglas Mahony+97 1 4304 3151

[email protected]

UKJass Sarai+44 (0) 1895 52 [email protected]

USTom Archer+1 408 817 [email protected]

PwC can help

GlobalRaman Chitkara+1 408 817 3746

[email protected]

AustraliaRod Dring+61 2 8266 [email protected]

BrazilEstela Vieira+55 1 3674 [email protected]

CanadaChristopher Dulny+1 416 869 [email protected]

China & Hong KongAlison Wong+86 21 2323 [email protected]

If your company is facing

challenges doing businessin China, or you just wantto have a deeper discussionabout whats happening inthe market and how we canhelp, please reach out to oneof the technology industryleaders listed below.


16/16

2012 PwC. All rights reserved. PwC refers to the PwC net-work and/or one or more of its member rms, each of whichis a separate legal entity. Please see http://www.pwc.com/structure for further details.

This content is for general information purposes only, andshould not be used as a substitute for consultation with pro-fessional advisors. CH12-0146

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Documents

Chinas Impact on Semiconductor Industry Chapter