SAN JOSE -- Attempting to dispel a prevailing belief in the industry, China and its chip makers will not cause an IC or silicon foundry glut in the global semiconductor business, according to the top executive at Semiconductor Manufacturing International Corp. (SMIC) here today (Sept. 30, 2003).
It's a complete "myth" that additional fabs in China will lead to overcapacity now or in the future, declared Richard Chang, president and chief executive of high-flying Chinese foundry startup SMIC of Shanghai.
"This is not true," Chang said. "There are few foundries to have achieved volume production in China today. Few fabs in China will achieve volume production by 2005," he said during a presentation at the International Symposium on Semiconductor Manufacturing (ISSM) in San Jose.
During the presentation, Chang listed several myths and false impressions about China's semiconductor industry, including the notion that China will tilt the supply/demand capacity equation in the global marketplace. The comments could be in response to those made by the father of the foundry industry--Morris Chang, who earlier this month stated that China's aggressive fab ramp would contribute to overcapacity and an IC downturn in 2005. Chang is chairman of foundry giant Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) (see September 16 story).
Richard Chang in the presentation did not specifically identify Morris Chang, but the SMIC executive dismissed the notions from the TSMC chairman and was quick to point out that China's overall fab capacity pales in comparison to that of Taiwan.
At present, China in total produces 75,000 wafers per month--or less than 10 percent of Taiwan's overall output, he said. By 2004, China's output in terms of 8-inch equivalent wafers will represent only 17 percent of Taiwan's total capacity, he said.
Besides, there is enough business to go around in China for domestic and foreign suppliers of chips and foundry services in 2003 and beyond, he said. "Only 20 percent of China's IC demand is met by domestic suppliers," the SMIC executive said. "The reality is that demand outpaces supply."
In a brief interview after the presentation, the SMIC executive also dismissed the notion that the company and China's chip makers are the low-cost foundry leaders, and, in effect, bombing the wafer prices. "This is a myth," he stated. "This is not a reality. We are not the price leader," he told Silicon Strategies. "We guarantee quality."
He said that SMIC's customers complain that the company's wafer prices are only slightly below those from TSMC, claiming that there are other, undisclosed foundries with lower prices.
On the other hand, the SMIC executive in the presentation added that it is a myth that China's variable costs are higher than other nations. China is still a better place to do the foundry business in terms of overall costs and labor rates, as compared to Singapore, Taiwan and other Asian nations, he said. "China is 5 percent--or up to 10 percent--less expensive than Taiwan," he said.
He also attempted to dispel other myths, including the perceived lack of intellectual-property (IP) protection and rights in China. The nation's chip makers "recognize and protect (IP) rights," he claimed, noting that SMIC goes to great lengths to protect its customers' IP in the foundry.
There is another false perception that China is still following its protectionist policies despite its admission into the World Trade Organization (WTO), he said. China is attempting to follow the proper business practices after WTO, but "it takes time and some companies are moving faster than others," he said.