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China‚??s IC manufacturing industry needs restructuring to avoid collapse, says iSuppli

21 April 2009 | By Mark Osborne | News > Fab Management

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fab capacity utilization in China fell to 43% in the first quarterA new report from iSuppli Corp. highlights that the domestic semiconductor manufacturing industry in China is in trouble and in need of restructuring to avoid collapse. Analyst Len Jelinek, a regular visitor to China, warned that overcapacity due to the global economic recession will force a major round of consolidations, changing the business landscape considerably.

“During the last 10 years, the Chinese government has worked to develop a domestic economy that would provide the nation with economic independence,” said Len Jelinek, director and chief analyst for semiconductor manufacturing at iSuppli. “The establishment of a technologically strong Chinese semiconductor industry was considered an essential element of China’s long-term domestic economic and technological independence. Unfortunately for China, the plan collapsed as global sales dried up before demand generated from internal sources was able to grow to match demand generated from the rest of the world. Once viewed by China’s government as a pillar of growth, semiconductor manufacturing has turned out to be a financial burden.”

According to the market research firm, fab capacity utilization in China fell to 43% in the first quarter, the lowest level since iSuppli began tracking the market in 2000. In contrast, utilization rates reached 92% in the second quarter of 2004.

China's fab utilization rates are expected to rise slowly through 2009, but will only reach 54%. Rates of 84% and 85% are projected in 2012 and 2013, undermining the perception that a greater level of IC production is moving to China.

“Since Chinese semiconductor manufacturers do not possess a technological differentiation from their competitors, they are at a disadvantage, since there is simply far too much of the same kind of capacity in the world chasing after the same opportunities,” Jelinek said. “This will lead to mergers and consolidations. However, even if suppliers with similar technologies merge, will they create anything but larger companies with bigger cash-flow problems?”

 

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