There are no shortcuts in Chinese semiconductors

Absrtact: Trainee reporter Chen Baoliang Beijing reports that China is the world's largest consumer of integrated circuits, accounting for 45% of the world's chip market demand. But the vast majority of China's chips rely on imports, with a 2013 chip import amount of $232.2 billion trillion. Compared to leading countries, Chinese trainee reporter Chen Baoliang Beijing report


China is the world's largest integrated circuit consumer, accounting for 45% of the world's chip market demand. But the vast majority of China's chips rely on imports, with a 2013 chip import amount of $232.2 billion trillion. Compared with the leading countries, China's integrated circuit industry started more than 10 years late, not enough to support information consumption, network security and other national strategies.





China is determined to reshape the integrated circuit industry chain, in June this year formally promulgated the "National integrated circuit industry Development platform", promote industrial integration, clear policy guidelines, set up 120 billion yuan Industrial Development Fund, aimed at 2030 let "a group of enterprises into the international first echelon, to achieve leapfrog development."





China is brewing industrial change and has come to the spotlight of the global integrated circuit industry chain. But "leap-forward development" also faces great challenges.





in recent months, McKinsey has published two articles analysing the future of China's semiconductor industry. The article points out that the Chinese government has made clear the main framework of the new semiconductor policy. It is estimated that 170 billion dollars will be invested in the next 5-10 years, but its details and long-term impact on industrial development remain to be seen.




"We are not pessimistic about the future of China's semiconductor industry, but there is a strong barrier to a rapid leap-forward in the semiconductor industry in the short term," Christopher Thomas, McKinsey's global vice-president, said in an interview with the 21st century Economic Report,
November 5. ”





the challenge of "leaping development"





"21st century": what is your attitude towards the "leap-forward development" of China's semiconductor industry?





Christopher Thomas: The answer to this question depends on our definition of "leap-forward change". Semiconductors are an industry of continuous innovation, and to push Moore's law forward, the whole value chain needs to be upgraded-including applications and equipment for raw materials, production, design and the growth of demand for drive chips. It is likely that by 2025-2030, we will be using semiconductor technology in ways that we now cannot imagine. However, there is a strong barrier to the semiconductor industry in the short term rapid leap-forward development.





's existing rules of the game dictate that winners are won by economies of scale, learning efficiency or global influence. This means that today's winners have a strong advantage and will be winners in tomorrow's competition. In addition, the semiconductor technology industry, especially the manufacturing sector, requires a strong integrated technology development methods, the chemical, physics, materials science, nanotechnology and other individual research results in the right "formula" into the new chip, new manufacturing process. A single breakthrough in one discipline cannot change the technological battle. and large enterprises can absorb these breakthrough results, into their own comprehensive technical road map.





Finally, semiconductors are a global market, using the same basic chip, without inherent regional market advantages.





What does this mean for new entrants who are trying to compete with big companies? means they need to take a long-term look. There is no shortcut, can only rely on long-term, efforts of basic engineering, continuous improvement. Only in this way, second-line enterprises will gradually narrow the distance with the leader. It also means taking risks, making long-term bets and devoting to technology development, because after new technology enters the market, it may not be profitable for more than 5 years.





"21st century": can you share some concrete evidence with us to support your pessimistic view?





Christopher Thomas: We are not pessimistic about the future of China's semiconductor industry, but rather realistic. China's semiconductor companies are likely to grow faster than the overall market, and Chinese design companies may be more globally competitive in the mobile end market. Innovation and research in China and its new approach to market (such as turnkey reference design turnkey reference designs, fast turnaround SOC development tools) are driving the industry's progress worldwide.





However, the global leader in semiconductors, including all segments, is an arduous, battle-hardened company with strong engineering and market capabilities. Many of them have huge business in China, and also benefit from China's huge market and talented Chinese engineers.





to compete with these big global companies and improve competitiveness will be a big challenge for local companies. Local enterprises need many years of excellent executive power and global perspective, and gradually shape their competitiveness.





170 billion dollars change what?





"21st century": McKinsey expects China to invest $170 billion in the semiconductor industry over the next 5-10 years, will it cause other countries to follow suit? In your opinion, what will be the global semiconductor industry pattern in 5-10 years?





Christopher Thomas: We have to look at this investment in a holistic way.





Global semiconductor industry will generate a lot of investment, according to our estimates, only last year, research and development and capital expenditure of more than 100 billion U.S. dollars. This amount will increase rapidly as technology becomes more difficult and competition intensifies. This means that the total investment of semiconductor companies outside China in the same period could exceed $1 trillion trillion over the period of 170 billion trillion dollars invested in China. So China's big investment has not completely changed the rules of the game, it is more like a "bet" chip, allowing China to meet global market standards.





other countries have long provided financial support to the semiconductor industry, and we believe it will continue. But the level of support is likely to be lower than in China, where private enterprises in other countries have begun to operate on a scale and without state support, which can support massive investments.




One reason why the
semiconductor industry has been hugely successful over the years is that it is a truly global industry. But despite the proliferation of industrial clusters, all of which compete in the global marketplace, the rule of the game is "the best product wins". We hope that the market will continue to maintain globalization and not evolve into a regional market based on trade barriers and protectionism.





"21st century": can 170 billion dollars support China's ambitious blueprint for building the world's leading semiconductor industry?





Christopher Thomas: In the semiconductor world, money is a necessary condition for success, but not a sufficient one. Ability, mindset, focus and adherence to quality and enforcement are the reasons for the success of semiconductor companies, not the scale of investment.





International Practice for reference





"21st Century": China may focus on providing support to leading local companies, such as the Tsinghua Violet, SMIC and so on. Can you give them some development advice?





Christopher Thomas: We are elated to see the rapid growth and progress of Chinese local enterprises, not to mention suggestions. However, there are indeed some international best practices to refer to.





first of all, from the technology development, regional development from two perspectives to focus on investment. The establishment of regional clusters is very important, can be in a region to obtain economies of scale and complete industrial value chain.





second, the long-term. The development, engineering, sales and business strategies that take 5-10 years or more to develop will require years of effort to build a world-class team.





third, global-semiconductor is a global industry, only focus on a country or a market, will allow enterprises to narrow their horizons, do not see the domestic market innovation results.





Four, set up the pursuit of technical excellence, quality excellence, never compromise the corporate culture. There is no easy way to become a great technology company.





Finally, to become adept at building or joining ecosystems-no semiconductor company is successful in singles, relying on the support and cooperation of suppliers and customers.





"21st century": many local companies are still sceptical about the mode of cooperation of multinational companies, what do you think is the best way to build a winning and cooperative relationship between the local and global leading companies?





Christopher Thomas: In order to achieve a truly winning win, trust must be built between local and global businesses. The reluctance of leading companies to share intellectual property is not the only problem in China, because semiconductor companies are famous for protecting trade secrets, protecting advanced technology, and unwilling to share it with anyone unless they have great faith in each other or have enough attractive business reasons.





So how should local companies build a trust relationship with global companies?





first, we should adopt the most stringent IPR protection agreements and build a reputation. Secondly, a global leadership should be formed, with sufficient language and cultural capacity to work with foreign partners.





Finally, companies want to set out their positions, welcome global competition, and do not support protectionist or "buy domestically" rules that do not favour potential global partners.





in any partnership, "from an early age" is the rule of thumb. Start small, let two companies understand each other, build trust, and identify the best areas of cooperation.