Report: Chinese purchases of pure-play foundry products up 26 percent from 2019

A diverse global supply chain is key in times of crisis.

IC Insights expects Chinese annual spending on pure-play foundry products and services to reach $14.89 billion this year, up 26 percent from 2019. Because of that increase, the country’s semiconductor purchasing will represent a record 22 percent of the global market.

But the region’s expenditures may decrease soon because of recent developments affecting two Chinese technology giants.

Why China’s Pure-Play Foundry Purchase Increased So Much

In 2015, Chinese Premier Li Keqiang unveiled a new initiative called “Made in China 2025.” The plan involved Beijing fostering the development of the country’s industrial capacity through subsidies and investments. In particular, the strategy called on Sino companies to develop 10 advanced technologies, including robotics, artificial intelligence, and energy-efficient vehicles.

To facilitate the paradigm shift, Chinese firms considerably increased their purchases of high-end semiconductors. Accordingly, the region expanded its share of the pure-play foundry market from 10 percent in 2020 to an estimated 22 percent in 2020.

Thus far, Beijing’s industrial modernization initiative looks to have been a very wise investment. The value-added of the region’s digital economy hit ¥35.8 trillion ($5.07 trillion) in 2019, 36.2 percent of its gross domestic product.

China’s domestic pure-play semiconductor producers also benefited hugely from the government program.

Semiconductor Manufacturing International Corporation’s (SMIC) local annual revenue rose from $1.98 billion in 2018 to a projected $2.45 billion this year. Other Sino chipmakers like Huahong Group, United Microelectronics Corporation (UMC), and Wuhan Xinxin Semiconductor Manufacturing Company (XMC) also experienced significant in-country revenue surges in the last three years.

Taiwanese Semiconductor Manufacturing Corporation (TSMC) has been the biggest beneficiary of China’s digitalization push. The firm saw its yearly Sino income jump from $5.9 billion in 2018 to an estimated $9.04 billion this year. In fact, IC Insights calculates the foundry will claim 61 percent of the area’s combined 2020 chip spending.

But the growth trend the research group charted could start to reverse in 2021.

Why Chinese Pure-Play Foundry Spending Might Decline

China’s presence in the global pure-play foundry market will likely contract soon because of recent U.S. trade policy changes.

In mid-September, the U.S. Department of Commerce enacted a major update to its export controls. The agency now requires companies that want to sell American derived technologies to Huawei to obtain its approval. Though the government organization has permitted some chipmakers to sell older U.S. tech to the Sino telecom, it will sanction firms that provide it with advanced semiconductors or component manufacturing equipment.

Before the new export controls went into effect, Huawei bought 7nm mobile chipsets from TSMC. But the manufacturer is not selling any more cutting-edge products to its old client because of the U.S. regulations.

In 2019, Huawei made up half of TSMC’s $66.93 billion annual revenue.

In addition, Washington also reportedly restricted SMIC’s access to current generation semiconductor manufacturing equipment. Without it, the firm will not be able to provide local companies with leading-edge electronics components. As of 2020, the provider is the region’s largest and most advanced chip fabricator.

Because of those two developments, Chinese spending on products and services from pure-play foundries will probably contract in 2021.


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