"There is no capacity being added for 8-inch fabs anywhere in the world except for China," declared Arthur W. Zafiropoulo, CEO of Ultratech Stepper. The capacity being added was expected to cause China's chip market to surge from $13 billion in 2000 to $41 billion in 2005.

Major expansion getting underway in 2001 covered everything from electronic design automation services and fabless chip alliances to foundry partnerships and production equipment. In EDA, Cadence Design Systems was investing $50 million in order to gain an early lead in China's design software market, which is expected reach $100 million by 2004.

The battle is being joined by leading capital equipment suppliers as well. In October, Applied Materials opened a new 90,000-sq.-ft. training facility in Shanghai to support a $200 million order for tools and services it received from startup Grace Semiconductor Manufacturing. Applied's Chinese revenues hit $100 million in 2000 and the company is targeting at least 5% of its sales for the China market by 2005.

Most of the semiconductor action in China in 2001 was coming in silicon foundries and chip-assembly/test operations. Both local startups and foreign-based suppliers launched projects in Shanghai, Beijing, and other major Chinese cities.

This explosion of growth in China has forced Taiwan's silicon foundry giants and major IC-packaging houses to press for changes in government policies that have stopped them from making investments in China. Making such investments and adding Chinese production would have been unheard of Taiwan as late as a year ago, but the explosion in aggressive startups and foreign investments in China has caused a dramatic change in thinking.

Morris Chang, chairman of Taiwan Semiconductor Manufacturing Co., signaled the new direction in October. "The dedicated foundry industry is a global industry, crossing all boundaries," he pointed out during a visit by Taiwan President Chen Shui-bian. Chang gave notice that TSMC was "determined to construct fabs in the Mainland China and other major markets around the world."

TSMC got the ball rolling by setting up a direct sales office in China and was already talking about building fabs on the Mainland in the next two to five years. Chief Taiwanese rival of the foundry leader, United Microelectronics Corp., apparently felt the same way. It reportedly has acquired land in Suzhou, west of Shanghai, to build a new 200-mm fab.

To head off TSMC and UMC, Singapore's Chartered Semiconductor Manufacturing was trying to keep up with TSMC and UMC's China moves. In late December, it revealed it would transfer 0.18-micron process technology to Shanghai startup Semiconductor Manufacturing International Corp. Chartered also planned to take an equity stake in the startup foundry.

But the rush into China may be overheating the country's semiconductor industry, according to Dataquest. The San Jose market researcher lowered its 2001 forecast for Chinese semiconductor sales from a 6% growth to a decline of 18% due falling prices.

Dataquest said it expects China's chip market to recover in 2002 and resume a 5-to-6% growth rate. Some analysts disagreed with the market researcher's outlook, but Chinese officials in late 2001 warned that the nation's economy was slowing down, a change that could impact the nation's semiconductor buildup in 2002 and 2003.

China's official blueprint for growth was really ambitious. Dubbed the "10th Five-Year Plan," it calls for the nation to build 25 new wafer fabs between 2001 to 2005, including both 200-mm and 300-mm wafer-processing plants. The plan also includes the construction of at least one 6-inch diameter gallium-arsenide wafer fab and a massive IC design center.

(Return to 2001 Top 10 list or go to No. 5).