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China Won't Be a Chip Manufacturing Power

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mcgrathdylan
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Fabless ecosytem in China
mcgrathdylan   7/26/2013 1:30:16 AM
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One other thing that Bill McClean mentioned was that China's fabless chip vendor ecosystem, while they may need to go to TSMC, Samsung or Globalfoundries to get the most advanced technology, does do healthy business with SMIC. Many of these fabless firms design chips that don't require the latest and greatest process technology. In it's most recent quarterly report, SMIC said that revenue from China-based customers contributed 38.6% of its overall revenue in 1Q13,
compared to 32.5% in 1Q12 and 34.8% in 4Q12. So SMIC and other Chinese foundries do have a healthy potential customer base.

rick merritt
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Re: Fabless ecosytem in China
rick merritt   7/26/2013 2:45:15 AM
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For as much as China has been making electronics a national ecponomic priority for so long I am surprised and puzzled they haven't made more traction. I recall as a reporter in Hong Kong circa 1992 how Shenzhen authorities were trying to lure STM to make a big joint venture fab there while Shanghai Belling was getting started and NEC had an effort in Beijing.

I wonder if the fabless guys will get out ahead of the fabs?

It seems like the big success story has been the OEMs--Huawei, ZTE, Lenovo and perhpas a few others.

junko.yoshida
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Re: Fabless ecosytem in China
junko.yoshida   7/26/2013 7:15:11 AM
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SMIC's recent success with Chinese fabless customers owes a lot to the rise of smart card chips and image sensors in China -- designed by Chinese fabless, as I understand it. As I wrote earlier this year: Where SMIC continues to hammer, though, is what the company describes as “differentiation strategy.” At a time when SMIC’s industry rivals -- TSMC and GlobalFoundries -- are fiercely competing for the advanced digital logic sector, SMIC is trying to carve out market share in selected differentiated technologies such as embedded non-volatile memory (eNVM), CMOS image sensors (CIS) and Power Management IC (PMIC).

DMcCunney
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Re: Fabless ecosytem in China
DMcCunney   7/26/2013 9:46:46 PM
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SMIC is trying to carve out market share in selected differentiated technologies such as embedded non-volatile memory (eNVM), CMOS image sensors (CIS) and Power Management IC (PMIC).

That's probably sensible.  I don't think SMIC can compete head tio head with TSMC and GlobalFoundries. Instead, they are looking to serve the indigenous Chinese market with specialized products meeting the needs of OEM customers, and products which can be produced without requiring bleeding edge process technologies SNIC simply can't deploy.


I think they're making a bet on the future size and growth of the local market, but it's not clear they have another choice.


DMcCunney
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It costs too much
DMcCunney   7/26/2013 12:06:59 PM
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The problem for China becoming a chip manufacturing power is cost,

The low labor costs aren't a factor. Those low costs helped China gain prominence in the sort of manufacturing that required product assembly, but aren't applicable to fabs.  Turning out many trained engineers isn't a major factor, either.

The problem is that semi-conductor fabs are so enormously expensive to build, and as process geometries shrink, costs rise even more.  And the majority of the equipment in fabs that actually makes the chips must be sourced from outside China.  The infrastructure to make it locally doesn't exist.

We are seeing increasing numbers of companies go fabless, and some that still have fabs enter into joint ventures because the costs of building them are so great.  How many Chinese companies can afford to build one?

Even if they can, how many Chinese companies need their own fab?  As fab costs rise, the stakes get higher.  The fab really needs to be running 24/7 turning out chips to cover its overhead, which requires a steady stream of volume design wins.

China's growing pool of engineering talent may make it a power in chip design, but manufacture is another matter.

 

mcgrathdylan
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Re: It costs too much
mcgrathdylan   7/26/2013 12:25:32 PM
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Agreed. I don't think there are many Chinese chip companies that can afford or even want or need their own fab. The fabless model works well for them, just like it does for so many companies in the U.S. and elsewhere. It's a good model.

But I think a lot of people thought Chinese companies would be bigger players in the foundry business. I think a lot of people thought a few years ago that SMIC and other Chinese foundries would rise to prominence because of the lower labor costs, sheer number of engineers, and the Chinese government's commitment to build a chip industry. SMIC has been largely unsuccessful to date, but it is gaining traction and increasingly building chips for the fabless firms in China. It has a solid niche. But it's not going to catch TSMC in terms of leading edge process technology, and thus will never dominate the market like many thought it could.

DMcCunney
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Re: It costs too much
DMcCunney   7/26/2013 1:56:01 PM
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I think a lot of people thought a few years ago that SMIC and other Chinese foundries would rise to prominence because of the lower labor costs, sheer number of engineers, and the Chinese government's commitment to build a chip industry.

And I can see why, but such predictions failed to understand where the costs were.  Lower labor costs and engineering talent pool weren't the critical factors.  Chinese government support was, but it would still be an uphill battle.

China was trying to establish itself as a chip maker in a crowded market.  If I'm looking for a foundry to make chips, my first question will be "Can this candidate successfully make the chips I need, in sufficient volume and to sufficient standards of quality?"  Depending upon what sort of chips I need, candidates may be ruled out because they don't have the required process technologies in place.

Being competitive in the foundry business reminds me of the Red Queen's Race from Alice in Wonderland: you must run as fast as you can to simply stay in the same place.  Getting anywhere requires you to run faster. If you have a fab, you are looking at continuing major investment to be able to produce new generations of chips at ever smaller process geometries.  The ongoing investment, over time, will be as great as the initial investment to build the fab.

If you don't get a steady stream of volume manufacturing commitments to support and justify that investment, you aren't long for this world.

There's a likely local Chinese market for chips than can support someone ike SMIC (though I doubt SMIC is anywhere near profitable yet - it's there because the Chinese government thinks there should be a Chinese foundry.) SMIC's fortunes mirror China itself: China is no longer the low cost producer growing its economy on exports, and is looking at further growth from growing and serving its own internal markets.  SMIC's longer term future probably depends on the success of those efforts.

Making any significant gains outside of China seems unlikely.

JimMcGregor
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Re: It's also about IP
JimMcGregor   7/26/2013 2:35:16 PM
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Access to the latest technology is also an issue for the Chinese foundries. Almost all of the semiconductor manufacturers around the wold are working together in one form or another to develop new process technology. The largest and broadest such efforts are the IBM development alliances. The reason for this is the increasing cost and complexity with each process generation. In fact, Intel is the only semiconductor manufacturer that continues to develop its process completely independently. But, even then, many of the technial developments are shared at the equipment vendor level.

However, there continues to be a huge distrust with Chinese firms to honor intellectual property rights, which is also backed by restrictions by many governments limiting the transfer of technology to China. When Intel announced a fab in China, they were only allowed to transfer technology that was several generations old to the facility. China cannot become a manufacturing powerhouse unless it can either access the latest technology or develop it completely within the country.

mcgrathdylan
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Re: It's also about IP
mcgrathdylan   7/26/2013 3:08:13 PM
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If I'm not mistaken, Uncle Sam said Intel couldn't build chips in China at geometries lower than 65-nm for the reason that you state, Jim, IP security. According to Bill McClean, the Samsung fab will be closely watched because it really is the first fab in China that will be using cutting edge process technology.

mcgrathdylan
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Re: It's also about IP
mcgrathdylan   7/26/2013 3:10:32 PM
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PS- Bill McClean also made another point that I thought was pretty interesting. He said that even if the IP around Samsung's sub 20-nm process technoloy is compromised, it's not clear that any Chinese company has the equipment and the process capability to steal it. In fact, it's pretty clear that they don't. So McClean's point is, they are so far behind that maybe it doesn't really matter that much. Still, I am sure Samsung and the South Korean government wouldn't want to see that happen.

DMcCunney
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Re: It's also about IP
DMcCunney   7/26/2013 3:51:24 PM
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it's not clear that any Chinese company has the equipment and the process capability to steal it. In fact, it's pretty clear that they don't.

I concur, but the people imposing the export restrictions won't get that.  They're politicians and bureaucrats making and issuing rules for political reasons. There are any number of examples of government regulation where it's obvious those involved simply don't understand what they are regulating, and are blissfully unaware that things don't work that way and the regulations won't do what they intend.  Electronics and semi-conductor manufacturing are only one place this is true.

mcgrathdylan
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Re: It's also about IP
mcgrathdylan   7/26/2013 6:49:36 PM
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Well, the South Korean regulators are letting Samsung build sub-20-nm chips in China. U.S. regulators won't let Intel build anything below 65-nm. So it seems like some regulators understand the situation a little better than others.

DMcCunney
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Re: It's also about IP
DMcCunney   7/26/2013 9:17:52 PM
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South Korea is a lot closer to China, with a strong incentive to cultivate economic ties.  They see an emerging Chinese market they want to serve, they can best do that manufacturing in China, and the Chinese government will weclome the substantial investment as well as the technology transfer.

Thus far, the moves Samsung has been making have all been smart ones, which is how they've attained the position they have.

US politicians and regulators are still wearing "Yellow Peril" blinders, with notions of China dominated by the Communist government of Mao qand a perception of China as a threat.  The Chinese government still calls itself Communist, but China's economy looks a lot like free market capitalism these days.

It reminds me a bit of Alice in Wonderland again, with Humpty Dumpty proclaiming that words mean what he wants them to mean.  Some years back, a senior Chinese government official stated in an interview published in the Wall Street Journal, that if it worked, it was a triumph of the People's Revolution, and made pretty clear it didn't much matter what "it" was.

It wasn't all that long ago that that the notion of a thriving stock market in Beijing would have been unthinkable, but things have changed.  The US is still catching up with the changes.

sprite0022
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Re: It's also about IP
sprite0022   7/30/2013 8:24:14 PM
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Ec. 2:26 To the man who pleases him, God gives wisdom, knowledge

and happiness, but to the sinner he gives the task of gathering

and storing up wealth to hand it over to the one who pleases

God. This too is meaningless, a chasing after the wind.

sprite0022
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Re: It's also about IP
sprite0022   7/30/2013 8:36:51 PM
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chinese need deep spritual rivival to catch up.

so far it's not happenning yet.

If it happens mean deeper trouble for americans.

 

sprite0022
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Re: It's also about IP
sprite0022   7/30/2013 11:09:33 PM
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there is a chinese engineer lead has spend most of the morning working hours booking a private vacation trip (on the phone). and managers don't feel anything abnormal here. this is how chinese working ethics stands for, it's ok to taobao(ebay) /stock trading etc while working.

anyone think they have any chance to take over any demanding task ?

DMcCunney
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Re: It's also about IP
DMcCunney   7/26/2013 3:46:34 PM
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Access to the latest technology is also an issue for the Chinese foundries.

Yep.  That was part of what I was thinking of when I made my comment about whether a foundry has the process technologies in place to be able to make what I need.

The reason for this is the increasing cost and complexity with each process generation.

Do you know if anyone has tracked the increases in costs at progressively smaller geometries?I'd guess the increases become progressively larger as the geometries get smaller, but haven't seen stats on the rate of increase.


When Intel announced a fab in China, they were only allowed to transfer technology that was several generations old to the facility.

Intel was complying with US export restrictions, but I suspect other countries will have a different perception of the risks.  (Like, say, Samsung.)

China cannot become a manufacturing powerhouse unless it can either access the latest technology or develop it completely within the country.

I don't see the first happening for some time. I'm not sure the second will ever happen.  It's the old saw about tools and tools to make the tools.  Even if they somehow did, there's the question of whether the market is big enough to support them along with everyone else.

JimMcGregor
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Re: It's also about IP
JimMcGregor   7/26/2013 8:33:05 PM
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Do you know if anyone has tracked the increases in costs at progressively smaller geometries?


It's difficult to track this information because it depends on what you include. In addition with consortiums, it becomes even more challenging because there is a joint investment by the consortium and adaptations and optimizations by each of the partner companies. However, of the data I have seen, it has been increasing in cost exponentially and is now just as scary as the costs of new fabs. TSMC's CEO once said that process development costs were increasing so fast that the company would not be able to continue process development alone, and that was several generations ago.

DMcCunney
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Re: It's also about IP
DMcCunney   7/26/2013 9:36:32 PM
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However, of the data I have seen, it has been increasing in cost exponentially and is now just as scary as the costs of new fabs.

Thanks. That was the impression I got reading the industry news, especially the exponential increases. It's nice to get confirmation from someone better placed to observe it than I.

Semiconductor manufacturing might just be the ultimate capital intensive industry, with the amount of capital required to remain competitive truly enormous.

The number of joint ventures and consortiums is no surprise, as hardly anyone can go it alone.  It reminds me a bit of the early days of mainframes when you had IBM and the BUNCH (Burroughs, Univac, NCR, Control Data, and Honeywell) with IBM and Unisys the last men standing.  The rest, including earlier competitors like GE and RCA dropped out because of the enormous R&D costs and difficulty of obtaining a commensurate return.  (A senior RCA executive quoted in Computerworld decades ago piously proclaimed that RCA could have matched IBM in R&D, but chose not to.  Of course, where is RCA now?)

I suspect we'll see further consolidation in the chip industry as costs rise further.

resistion
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Vertical integration matters
resistion   7/27/2013 5:17:31 AM
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Chip manufacturing prowess is becoming irrelevant. As the success of Samsung shows, vertical integration of everything in the supply chain from chip to product is the key. So SK is the only Vertical Integration Power in the world right now.

KB3001
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Re: Vertical integration matters
KB3001   7/29/2013 11:47:51 AM
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I am not sure that's true, it's all about networks IMO. If you try to do it all, you will fail. SK's current strengths (in the form of Samsung mainly) is transient, sooner or later they will have to change their strategy.

resistion
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Re: Vertical integration matters
resistion   7/29/2013 5:40:12 PM
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The ability to be your own supplier (DRAM, Flash, Foundry) is not only handy but would be a waste if not exploited. That said, Samsung still continues to buy chips from other sources.

KB3001
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Re: Vertical integration matters
KB3001   7/29/2013 6:05:45 PM
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Ultimately, Samsung will have to choose where it would add more value in the chain IMHO. Its foundry business will suffer if they do not, for example, as more conflict of interest cases will inevitably arise.

resistion
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Re: Vertical integration matters
resistion   7/29/2013 6:25:00 PM
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I myself am surprised how long the Apple-Samsung dance is lasting.

 

http://www.eetimes.com/document.asp?doc_id=1318914

DCH0
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Still a huge market for older chips
DCH0   7/29/2013 12:17:30 PM
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China does not need to have fabs at the cutting edge to meet many of their requirements.  There are still lots of 555 timers and even 4 bit micros going into the products they build.

mcgrathdylan
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Re: Still a huge market for older chips
mcgrathdylan   7/29/2013 12:51:04 PM
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That's true, and I think that is what China's indigineous chip manufacturing foundries will continue to focus on for the most part. With China's huge internal market, that's a good business. But I don't see a lot more new fabs being built there, and it doesn't seem like more than 10 percent of the world's chips will ever be built there. At least, as things stand now.

Tamza2
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It will be a while
Tamza2   7/29/2013 1:54:13 PM
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@mcgrathdylan:

" ... doesn't seem like more than 10 percent of the world's chips will ever be built there. At least, as things stand now."

We used to say the same about Japan and (electronics) (cars) (etc) in the 1950's 1960's even in the 1970's.  Some decades from now China WILL be manufacturing at least as much of just about everything (as % of WW production) as their population is % of WW population. Sure there will be variations around that ... but perhaps you didnt mean to say "EVER", just "as things stand now."

 

 

 

mcgrathdylan
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Re: It will be a while
mcgrathdylan   7/29/2013 2:08:06 PM
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@Tamza2- a good point. I would have thought I had learned by now that its dangerous to say "ever." As things stand now is a bit safer, so I'll stick to that. I just think (though I know it could change) that with the cost of fabs today, we probably aren't going to see a lot more of them going into China, especially with the IP issues. But as Bill McClean said, let's see what happens with the Samsung fab. That might dictate what happens in the future.

Tom Murphy
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Re: It will be a while
Tom Murphy   7/29/2013 2:38:19 PM
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I think Tamza is right.  There has to be a clear advantage in the notion of the Chinese making their own chips, and I'm not sure it's there ... yet.  If it were possible to cut production costs with a locally produced chip that provided equal value and lower cost, that would be a huge factor to any manufacture making goods in China, but that is not the case...yet. However, as China-based companies start manufacturing more of their own goods, they will look first for a local supplier. Then we may see a hockey stick rise in chip production.

Tamza: I recall in the late 50s/early 60s, when "Made in Japan" was a label that translated into "cheap." And yes, I recall well how that changed very rapidly from the last 1960s into the 1970s.  I think we'll live to see "Made in China" become a mark of quality.

 

mcgrathdylan
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Re: It will be a while
mcgrathdylan   7/29/2013 2:52:17 PM
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That may well be true, and I have no doubt that China's fabless ecosystem will grow and that those fabless chip companies would prefer to have their chips built in China if they can. And for things like less expensive smartphones, there could be significant activity at older process nodes. But anyone who is doing anything at or near the cutting edge has no choice but to use TSMC, Globalfoundries, Samsung and maybe UMC. And I'm just not sure how many fabs those leading foundries are going to build in China (the fab that Samsung is building in China is for memory, not foundry). TSMC has one smallish fab in China, but the Taiwanese government won't let TSMC use its leading edge process there.

mcgrathdylan
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Re: It will be a while
mcgrathdylan   7/29/2013 2:54:08 PM
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As for "Made in China" becoming a mark of quality, I've already heard from people in electronics and other industries that the quality of Chinese manufacturing has improved rapidly. I have no doubt that many of the products built there are already of great quality. But there is such a wide range, depending on the product. I think it will be a while before people can associate China with quality products. If ever

Tom Murphy
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Re: It will be a while
Tom Murphy   7/29/2013 3:04:06 PM
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Dylan: I think we all will gain respect for China's technology chops when it launches its first commercial airliner, which I believe is still due in 2016.  China has launched humans into space, but it still struggles with building a good jet engine. It's reportedly working with GE, Rolls-Royce and others on the new C919, a 200-person, single-aisle aircraft. Here's a story from 2011 on it.

http://www.nytimes.com/2011/01/18/business/global/18plane.html?pagewanted=all&_r=0

I've heard it said that building a jetliner is the "New York, New York" of technology. If you can make it there, you can make it anywhere. And China is almost there, so it may be in the chips sooner than you think.

mcgrathdylan
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Re: It will be a while
mcgrathdylan   7/29/2013 3:14:55 PM
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Tom: I agree. But it's not the quaility of the chips, just the process technology. SMIC, the leading foundry in China, is two years behind TSMC. They can't move up the curve that fast, especially since you know TSMC will not slow down. Barring something like an acquisition, which seems highly unlikely, TSMC and the rest of the pack will remain ahead of SMIC and other Chinese foundries for the foreseeable future (which, I agree, is a difficult timeframe to define).

Tom Murphy
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Re: It will be a while
Tom Murphy   7/29/2013 3:20:28 PM
I bow to your wisdom here, Dylan. But I wonder: if SMIC is just two years behind TSMC, wasn't it just a few years ago that you would have said they were five years behind?  It seems like they're catching up PDQ.  No?

mcgrathdylan
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Re: It will be a while
mcgrathdylan   7/29/2013 3:29:51 PM
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Thanks Tom. I must admit, I don't feel qualified to answer the question about where SMIC was in relation to TSMC a few years back. If you are asking if they are making progress in bridging the gap, I would off the top of my head say they probably are a little closer to TSMC than they used to be. But I think it gets a lot more difficult the lower you go. And SMIC doesn't have the R&D mite or financial resources that TSMC has, so it's tought to see them making that leap without heavy government intervention. And I think China's government is done with this, at least for now.

 

Don't forget, SMIC settled with TSMC a few years ago for $290 milion after a California Court found that SMIC had stolen IP from TSMC.

http://www.eetimes.com/document.asp?doc_id=1172213

KB3001
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Re: It will be a while
KB3001   7/29/2013 6:01:32 PM
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@mcgrathdylan, I agree with your view. I would add that chip fabrication needs time, discipline and continuous improvements which are hard to copy easily and quickly. You also need access to high tech equipment which you can't get without Western green light. All in all, the position of China is to be expected. Whether they would be able to build a world-leading indigenous fab industry depends on economic AND political parameters which are hard to predict.

mcgrathdylan
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Re: It will be a while
mcgrathdylan   7/29/2013 6:12:01 PM
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Good point about the equipment, KB3001. I had forgotten to mention in any of my previous posts that the U.S. forbids companies from exporting the latest technology to China. I can't recall what the technology node is that is the limit. But even if SMIC or one of the other Chinese foundries somehow was able to get the know how to build leading edge chips, they wouldn't be able to build them anyway because they can't get access to the equipment.

resistion
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Re: It will be a while
resistion   7/29/2013 6:32:14 PM
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Plenty of 28 nm announcements from SMIC with IBM's help.

mcgrathdylan
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Re: It will be a while
mcgrathdylan   7/29/2013 8:17:48 PM
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Good point resistion. I'd forgotten that more than a year ago SMIC and IBM signed a deal whereby IBM is helping SMIC to develop a 28-nm process.

 

http://www.eetimes.com/document.asp?doc_id=1261471

 

To my knowledge there has been no timeline for when SMIC will offer 28-nm process technology. But meanwhile, TSMC is developing 16-nm technology. It's no contest.

resistion
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Re: It will be a while
resistion   7/31/2013 12:44:35 AM
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SMIC has taped out 40 nm last year, but 28 nm still being expected for some time this year. We'll have to wait and see if they present any threat to TSMC then.

http://www.electroiq.com/blogs/chipworks_real_chips_blog/2012/03/semicon-china-smic-shows-off-28-nm-hkmg-development.html

sprite0022
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Re: It will be a while
sprite0022   7/31/2013 1:37:53 AM
TSMC 's real threat is itself, when M chang step down will it implode?

bmccleanicinsights
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Re: It will be a while
bmccleanicinsights   7/29/2013 8:26:21 PM
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Dylan, it has been my understanding, after talking with one of the people in charge of watching which pieces of U.S.-made IC processing equipment are exported to where, that there isn't a particular node where a cutoff decision is made.  I was told that the U.S. government export agencies first determine if the company that wants to buy the IC production equipment has any contracts with local military customers (in this case Chinese military customers).  If it does, a determination is made at that time whether the IC process equipment will be allowed to be sold to the Chinese customer or not.

As expected, we have seen some IC process equipment pieces make their way to China and other locations in the world after taking a detour through a "customer" in Sweden or some other country that does not have as conservative export regulations as in the U.S. :) 

 

mcgrathdylan
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Re: It will be a while
mcgrathdylan   7/29/2013 8:28:17 PM
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Ahhh. That makes a lot of sense. Of course second hand equipment is going to find its way into China. Thanks Bill for weighing in and adding that insight.

KB3001
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Re: It will be a while
KB3001   7/30/2013 1:21:13 PM
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"As expected, we have seen some IC process equipment pieces make their way to China and other locations in the world after taking a detour through a "customer" in Sweden or some other country that does not have as conservative export regulations as in the U.S."

 

That would still be an infringement of US law and the guilty party could be in big trouble wherever they happen to be.

resistion
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Taiwan not included in China?
resistion   7/29/2013 9:31:53 PM
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Just trying to get a pulse, whether Taiwan is or is not included in China. Either or its opposite can be a politically tricky assertion.

mcgrathdylan
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Re: Taiwan not included in China?
mcgrathdylan   7/30/2013 12:58:36 AM
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Yeah, I understand that it's a politically tricky question. And I have only a limitied knowledge of the history and sensitivity of the situation. Very limited.

But when we talk about chip making, I don't lump Taiwan into China. I think every analyst that follows the chip market also seperates the two. Taiwan is already a huge chip manufacturing power, and that's not going to change. I myself don't want to get caught up in the politics. But for anyone who has been to both places, it's pretty clear they are distinct entities. Completely different ball game. I know there are people on both sides who hope they resolve that. And I know there are people in Taiwan who want to declare independence. I don't think anyone knows what will happen there. But in terms of chip making, Taiwan is at the head of the class, more or less, and China is near the back. And while U.S. companies are free to sell TSMC their latest and greatest chip building gear, Uncle Sam doesn't want them exporting that stuff to Mainland China.

fabsurplus.com
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Re: Taiwan not included in China?
fabsurplus.com   7/30/2013 4:57:46 AM
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In response to Mr McGrath, Restrictions of what technology can be imported to China is , IMHO, not having any siginificant effect on the industry in China. As an interntationally based brokerage of used semiconductor manufacturing equipment, faburplus.com has some experience of exporting (and importing)  semiconductor manufacturing equipment between Europe, the USA, Japan and china. Basically, we are restricted on exporting only leading technologies . The typical "commercial" fab in China is not making "state of the art" microchips. The only other folks apart from SMIC wanting state of the art stuff in China are the government fabs doing defence related stuff...and we aren't allowed to sell to them. That kind of  use in R and D, will never be commercially significant.

On the other hand, 2 factors that significantly restrict our ability to import semiconductor manufacturing equipment into China are:

1. Restrictions on how much cash Chinese companies can pay ahead of shipment coupled with our suspicion of the Chinese legal system and any Chinese letters of Credit we are asked to accept.

2. The long delays in payment generally caused by paperwork the private Chinese companies need to do to get release of money for investments in capital equipment that is located outside China.

Stephen Howe



www.fabsurplus.com

mcgrathdylan
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Re: Taiwan not included in China?
mcgrathdylan   7/30/2013 2:45:38 PM
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Hi Stephen- thanks for weighing in. Nice to have the perspective of someone who actually sells fab equipment in China. What is the issue around letters of credit? Are you suspicious of those or you simply need to investigate them?

fabsurplus.com
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Rookie
Re: Taiwan not included in China?
fabsurplus.com   7/30/2013 4:31:22 PM
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Regarding letters of credit, the buyer is basically giving you a good old fashioned I.O.U. and you are handing him over a very expensive item of technological equipment in exchange.

99% of the folks doing microchip production in China have government backing. So, if they decide they don't want to pay your letter of credit, you can forget ever collecting on it because the government there controls the legal system.

Most of the customers there try to get you to agree to CIF China consignment. That means they don't pay you till the goods get cleared by customs in China. At that stage, unless you have a Chinese subsidiary, they have complete control over the goods and can just take them without paying if they so wish.

A way to get round this is to open a company in China or Hong Kong.

Then, you can deliver the goods CIF China and the goods are still in your warehouse !

If adopting this strategy, it is important to do your best to make sure your warehouse security guard is not going to accept bribes......

resistion
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CEO
Re: Taiwan not included in China?
resistion   7/31/2013 12:46:02 AM
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Thanks, Dylan, I believe that's a common view.

KB3001
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CEO
Re: Taiwan not included in China?
KB3001   7/30/2013 1:24:24 PM
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"Just trying to get a pulse, whether Taiwan is or is not included in China. Either or its opposite can be a politically tricky assertion."

 

Completely different. The US nurtured Taiwan and is the main reason behind its success (directly or through Japan).

resistion
User Rank
CEO
Re: Taiwan not included in China?
resistion   7/31/2013 12:34:14 AM
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US has "practical" relations with Taiwan and "official" relations with China. But US has also assisted China economically, though indirectly if not inadvertently.

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