Some analysts and executives, including Morris Chang, chairman of silicon foundry giant Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), believe that China will affect the supply/demand scenario in ICs and will cause another downturn in 2005.

Others disagree, predicting China's chip makers will remain a small fish in the big semiconductor pond. Still, China remains the world's fastest growing chip market in terms of overall demand.

In total, China's domestic chip production is growing at a compound annual growth rate of 20 to 30 percent a year, said Bill McClean, president of IC Insights Inc. But China is also coming from a small base. In 2003, the nation's IC vendors produced $1.2 billion worth of chips.

"That's still a small percentage of the overall IC market," McClean said. The semiconductor industry is expected to jump 27 percent this year, from $166.4 billion in 2003, to $210.5 billion in 2004, according to IC Insights.

By 2005, China's chip industry is projected to reach $4.18 billion, or only 2.5 percent of the total IC market, according to IC Insights. In comparison, the worldwide IC industry is supposed to hit $166.9 billion by 2005, according to the research firm.

By 2010, China's IC industry is expected to reach $15.35 billion, or 5.7 percent of the total IC market, the firm said. In comparison, the worldwide IC industry is supposed to hit $270 billion by 2005.

This is not to say that China's chip makers will be insignificant. In fact, China is projected to have two $1 billion chip makers by 2005 — both of which are silicon foundry providers. Indeed, China's foundry hopefuls are shaking up the landscape.

Semiconductor Manufacturing International Corp. (SMIC) is projected to grow from $350 million in terms of worldwide sales for 2003, to $1.325 billion in 2005, according to IC Insights. Grace Semiconductor Manufacturing Co. is projected to grow from $125 million in 2003 to $1.02 billion by 2005.

The next largest Chinese chip maker is Hua Hong NEC, which is expected to grow from $210 million in 2003, to $715 million by 2005.