China’s foundry outlook improves but still much to do
The stars are beginning to align for China’s fragmented foundry sector, but it really is only a beginning according to one of its most experienced executives.
Simon Yang is today president and CEO of the Wuhan-based foundry XMC, and has previously held senior roles at both SMIC and Chartered Semiconductor (now part of GlobalFoundries).
Addressing Semicon China’s opening keynote session, Yang listed a series of important and positive trends but reminded the audience also of some unavoidable and unresolved difficulties that remain.
On the upside, Yang noted that:
- China’s local semiconductor market is worth $49bn and it will sustain its strength even though the wider national economy is expected to slow down. “We should not take that for granted.”
- There is a strong drive to consolidate Chinese foundry ownership to drive down cost and foster innovation. Previously, fab construction has largely been driven by regional authorities that are unlikely to unite with national rivals. “I see this with great delight. Local government fabs are not the right way.”
- High technology could – ironically, some might say – be a beneficiary of the end to China’s real estate boom. “People still have a lot of money, so there is more [chance of] private funding.”
- The national government is centralizing its funding support for semiconductor manufacturing, initially to the tune of $20bn. “And this money is ‘patient’, based on 10-15-year timescales.”
But Yang added that all this has to be seen in the context that while China may dominate other branches of electronic manufacturing, “Chinese fabs produce only 2.5% of all the wafers in the world.”
Labor less of a foundry issue
To some extent, Yang explained that foundry economics have worked against China in one way that has benefited the country hugely elsewhere: labor costs.
He offered this breakdown of costs for a fab operating at more advanced nodes: Labor – 5-10%; Materials – 35-40%; Equipment – 50-60%
Perhaps a Chinese workforce can be hired more cheaply than in rival foundry locations, yet it provides but a small advantage when it comes to cost-efficiency. And even that advantage could soon be gone, Yang added, “because Chinese labor today costs 3X more than that in many other developing countries.”
Yang went on to point to a ‘financial cliff’ that each successive node faces within about four-five years of its introduction. This comes after demand has peaked and ASPs have tumbled to less than 50% of those at each process’ introduction. From then on, profitability on these processes is a hard ask.
In this context, Yang said that Chinese foundries need to speed up their innovation cycles and put aside traditional management practices that slow down decision-making. More effort needs to go into retaining top talent and, quite simply, catching up with global competitors.
XMC seeks 3D-IC foundry edge
XMC, which operates one of China’s three 12-inch fabs, is looking to overcome these issues by focusing on the Internet of Things. Here it sees China having the best opportunity to leverage three enabling technologies: Mass NVM storage, ultra low-power logic and smart-sensing kits.
At the same time, it has set aside trying to compete on high-speed logic given the current technology-transfer node delays China faces on advanced processes from Taiwan, the US and elsewhere.
XMC is instead looking to leverage its own innovations alongside technology licensed from Spansion (floating gate), IBM (65nm RF and LP) and ARM (an integrated IoT platform) around three combinations, with a focus getting to the cutting edge for 3D-IC.
Yang said that this means XMC offers essentially three combinations:
- System-on-chip
- Logic-on-memory
- MCU-on-Flash-on-Wireless-on-Sensor (with an assembly partner).
