Low semiconductor prices are a key reason for China's buoyant semiconductor market, says IC Insights of Scottsdale, AZ. A year-by-year comparison of the dollar value of chips with the number of chips sold shows "an average selling price of around 60 cents, whereas the overall ASP is about $1.60 these days," points out Bill McClean, president of the market research firm. Low ASPs have been a historical feature of the nascent Chinese device market, McClean noted in a recent interview. As a result, the market for China's semiconductors "seems to be pretty much immune to the downturn. The volume is going to pick up in our estimation."

The graph below, which McClean presented at SEMI's Industry Strategy Symposium earlier this year, shows China's IC market growing from $9.5 billion to $28.7 billion between 2001 and 2004. The company forecasts unit shipments will grow from 20.4 billion in 2001 to 40.1 billion ICs by 2004. The high volume of business led to sales growth of approximately 25% for Chinese producers in 2002. In contrast, overall chip sales worldwide grew only 1%, McClean says. Manufacturers of consumer products such as digital cameras, radios, and other popular items are the primary purchasers of the Chinese chips.

Unfortunately, struggling equipment manufacturers should not expect a windfall from busy Chinese fabs. "That's just not going to happen," McClean warns. By 2010 IC production in China "will represent only 5% of the worldwide market. In our view there should be a pretty distinct line between growth in Chinese IC consumption and actual production of ICs in geographic locations in China."

SOURCE: CCID, NEC, IC INSIGHTS

Another market research company supports McClean's downbeat outlook for toolmakers hoping for good news from China. Despite "staggering" consumption, China's fortunes are "a mixed blessing" for equipment manufacturers, asserts Robert Castellano, president of The Information Network in New Tripoli, PA.

"The equipment market in China is not what it's cracked up to be," says Castellano. "IC production is limited to 0.18 µm on 200-mm wafers. Much of the production equipment used in fab expansion will be tools transferred from older lines in Japan and Taiwan."

Who may benefit? Sellers of used equipment, as well as "second- and third-tier new-equipment vendors." A new report on the semiconductor and equipment markets published by the Network says there was no growth in the $2 billion process tool market in 2002 over 2001. As McClean notes, "People need to put [China's IC growth] into perspective."