China’s chip industry is growing faster than anywhere else in the world, after US sanctions on local champions — from Huawei Technologies Co (華為) to Hikvision Digital Technology Co (海康威視) — spurred appetite for homegrown components.
Nineteen of the world’s 20 fastest-growing chip industry firms over the past four quarters, on average, hail from the world’s No. 2 economy, data compiled by Bloomberg showed.
That compared with just eight firms at the same point last year.
Photo: Reuters
Revenue at China-based suppliers of design software, processors and gear vital to chipmaking is increasing at several times the pace of global leaders Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and ASML Holding NV.
That supercharged growth underscores how tensions between Washington and Beijing are transforming the global US$550 billion semiconductor industry.
In 2020, the US began restricting sales of local technology to companies such as Semiconductor Manufacturing International Corp (SMIC, 中芯國際) and Hikvision, successfully containing their growth — but also fueling a boom in Chinese chipmaking and supply.
Beijing is expected to orchestrate billions of dollars of investment in the sector under ambitious programs such as its “Little Giants” blueprint to endorse and bankroll national tech champions, and encourage “buy China” tactics to sidestep US sanctions.
The rise of indigenous names has caught the attention of some of the pickiest clients: Apple Inc was said to consider Yangtze Memory Technologies Co (長江存儲) as its latest supplier of iPhone flash memory.
“The biggest underlying trend is China’s quest for self-sufficiency in the supply chain, catalyzed by COVID-related lockdowns,” Morningstar analyst Phelix Lee (李旭暘) wrote in an e-mail. “Amid lockdowns, Chinese customers who mostly use imported semiconductors need to source homegrown alternatives to ensure smooth operations.”
At the heart of Beijing’s ambitions is the impetus to wean itself off a geopolitical rival and more than US$430 billion of imported chipsets last year.
Orders for chip-manufacturing equipment from overseas suppliers rose 58 percent last year, as local plants expanded capacity, data provided by industry body SEMI showed.
That in turn is driving local business. Total sales from Chinese-based chipmakers and designers jumped 18 percent last year to a record of more than 1 trillion yuan (US$149.27 billion), the China Semiconductor Industry Association said.
A persistent chip shortage that is curtailing output at the world’s largest makers of vehicles and consumer electronics is also working in local chipmakers’ favor, helping Chinese suppliers more easily access the international market — sometimes with premiums tacked onto the best-selling products, such as auto and PC chips.
SMIC and Hua Hong Semiconductor Ltd (華虹半導體), the biggest contract chipmakers, have kept their Shanghai-based plants operating at almost full capacity even as the worst COVID-19 outbreak since 2020 paralyzes factories and logistics across China.
With local authorities’ help, cargo flights from Japan delivered essential materials and gear to chip plants as the city went under lockdown.
SMIC recently reported a 67 percent surge in quarterly sales, outpacing far larger rivals GlobalFoundries Inc and TSMC.
High demand for surveillance products has pushed up revenue at Shanghai Fullhan Microelectronics Co (富瀚微電子) 37 percent on average. The video chip designer has pledged to expand into electric vehicles and artificial intelligence after winning its “Little Giant” designation.
Design tool developer Primarius Technologies Co (概倫電子) has doubled sales on average over the past four quarters, saying that it has developed software that can be used in making 3-nanometer chips.
Putting aside long-term profitability concerns, Lee said that the aggressive capacity buildup from Chinese players is expected to elevate their presence globally — which is raising hackles in Washington.
“America is on the verge of losing the chip competition,” international relations scholar Graham Allison and former Google CEO Eric Schmidt said in a Wall Street Journal column.
“If Beijing develops durable advantages across the semiconductor supply chain, it will generate breakthroughs in foundational technologies that the US cannot match,” they wrote.
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