Growth slows dramatically in China's chip market

Date: 13 July 2006	Issue: One Hundred and ninety four (10/7/06 - 14/7/06) (ICT World)
Category: Global News	Dan Nystedt, IDG News Service (Taipei Bureau)

Growth in China's semiconductor market slowed dramatically in 2005 after years of big gains, according to market researcher iSuppli. Demand for chips in the country increased by 12,8% year-on-year to $37bn in 2005, far slower than the 34,9% increase of a year earlier, iSuppli says.

"Chinas semiconductor demand has enjoyed a brisk annual growth rate for about two decades, and so it is not surprising to see some slowing of the growth as the demand base expands," the research company says.

This year should see some improvement but still will not match the good old days, with iSuppli predicting growth for 2006 of 18%. Slowing growth is not the only trouble plaguing China's chip industry. Its homegrown chip makers are not faring well, either.

Only about 45% of chip factory projects planned for China between 2000 and 2005 actually succeeded in starting production, according to Semiconductor Equipment and Materials International (SEMI), a US-based industry trade group.

Some of the country's chip makers that succeeded in producing chips during that period are struggling. China's top chip maker, Semiconductor Manufacturing International (SMIC), reported its sixth straight quarterly loss in the first quarter of this year. Another company, the Chinese parent of CSMC Technologies, is seeking to buy back outstanding shares of the chip maker, due to its continued losses.

However, SEMI expects the number of successful chip factory projects in China to improve over the next three to five years, according to Samuel Ni, senior market analyst for SEMI in Shanghai.

Foreign chip makers have done well in China, according to iSuppli, accounting for the top ten sellers in the market.

STMicroelectronics NV moved into third place from fourth place last year, with its revenue in China rising by 21% to $1,8bn. The company gained from emerging product areas such as set-top boxes.

Koninklijke Philips Electronics NV fell to fifth place from third a year earlier. Its revenue grew by 7% to $1,72bn, but the company lost steam as some newer products took over from older product areas that it dominated, iSuppli says. Philips used to supply many of the chips for China's CRT monitors and televisions, but LCD technology is quickly overtaking CRT.

Samsung Electronics produced the strongest growth overall, increasing its revenue in China by 28% to $1,74bn, good enough to lift the South Korean tech giant to fourth place last year, from fifth place in 2004.