China’s Semiconductor Industry

WSJ writes about China’s efforts to build its semiconductor industry ground-up:

Semiconductor design has potentially huge benefits for China. Chip-design companies can create valuable intellectual property and help determine global technology standards. Qualcomm Inc., for example, the world’s largest independent chip designer, earns most of its revenue, which totaled $4.9 billion in its latest fiscal year, from chip designs using its CDMA wireless technology. And whereas profit margins at the companies that assemble computers and other gadgets are often around 5%, margins at successful design companies are frequently well into double digits.

China is still years behind more advanced economies like the U.S. and Taiwan in chip design. But its rapid takeoff is attracting attention from some established heavyweights. Companies such as Germany’s Infineon Technologies AG and Philips Electronics NV of the Netherlands have set up chip-design operations in China. Morris Chang, chairman of Taiwan Semiconductor Manufacturing Co., the world’s biggest contract manufacturer of chips, compares China’s design industry to an object with “zero speed but infinite acceleration.” His company this year opened a nearly $1 billion plant in Shanghai, its first in China, in part to cater to local design companies.

“If you look at the large number of small design companies created here, you are seeing the foundation of an industry created,” Craig Barrett, Intel’s chief executive, said in an interview during a trip to China this month.

China’s main attraction for chip-design entrepreneurs is the country’s vast domestic demand for semiconductors, most of which are now imported. Operating in China also puts them in proximity to the electronics manufacturers who buy chips for their products, and who are increasingly concentrated in China.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.