Despite increasing international interest and press coverage, market reports and statistics of the Chinese semiconductor industry remain difficult to obtain and are often subject to misinterpretation or skepticism. Nonetheless, this report is based, in part, on data derived from Chinese sources. We use this data for two reasons. First, Western sources on the subject are incomplete and somewhat divergent and second, this is the same data used by the Chinese policymakers.
The two principal indigenous sources for most Chinese semiconductor industry and market reports, data and statistics are the China Center for Information Industry Development (CCID) Consulting and the China Semiconductor Industry Association (CSIA). Both are associated with the Ministry of Industry and Information Technology (MIIT) and share common data sources and industry analysts. Below we delineate how these Chinese sources differ from conventional semiconductor industry statistics.
Because both sources compile their data and write their reports in Chinese, their English-language translations of the reports contain a number of anomalies. For example, while traditional industry reports use three orders of magnitude such as thousands (kilo), millions (mega), and billions (giga), China’s reports use two orders of magnitude such as ten-thousands and hundred-millions. So analysis requires a translation to a common standard.
When CCID and CSIA measure and report on the China semiconductor market their data is based upon a consumption model. They obtain data on the output of China's electronic systems production, calculate the consumption of semiconductors in every electronic product, value at current local average selling prices, and add all the consumption to get the total of China's semiconductor market size. CCID collects output data on electronic system production from MIIT, (Ministry of Industry and Information Technology), National Bureau of Statistics of China, General Administration of Customs of PRC, CCID's Electronic Products Research Database and other industry associations and organization. This is different from World Semiconductor Trade Statistics (WSTS) and most international market research firms which measure and report on the worldwide semiconductor market based upon a sales model. The WSTS and others compile their reports of semiconductor market size based upon sales revenue data collected from semiconductor companies. As a consequence there can be significant differences and discrepancies resulting from the use of these two different models and from major inventory changes, dislocated purchasing, WSTS' lack of Chinese company participants, and difference between worldwide and Chinese local average selling prices.
In addition CCID has had to make some noticeable adjustments to their historical Product Structure of China Semiconductor Market database to bring it into complete and inclusive alignment with the international definitions of the O-S-D (optoelectronics, sensors and discretes) market segments.. It appears that prior to 2008 CCID included LEDs in their discrete market segment and only reported photo electrics rather than all optoelectronic devices.
Further, both the CCID and CSIA compile and analyze their industry or production data based upon a structure that is somewhat different from that employed by Western analysts. This industry structure is not clearly defined in their English-language reports, but may be best described by the following statement contained in CSIA’s seminal report, An Investigation Report of China’s Semiconductor Industry 2002:
“The term ‘the semiconductor industry’ in this report covers IC [integrated circuit] design, IC manufacture, packaging and test, semiconductor discrete device and semiconductor supporting sector, etc. In view that the investigation on supporting sector is not comprehensive, the term ‘China semiconductor industry’ in ‘General Introduction’ and in its relevant statistic data excludes this sector.”
Therefore, according to CCID, CSIA, and MIIT usage, their reports on the Chinese semiconductor industry are based upon an industry structure organized into the following sectors:
This sector includes IC design companies, institutes, and laboratories, as well as all fabless IC semiconductor companies in China regardless of ownership structure. Most of the revenue and all of the unit production reported for this sector come from product sales by fabless semiconductor companies.
Sometimes identified as the chip manufacturing industry, this sector includes wafer foundries, wafer fabrication plants of foreign IC semiconductor companies and Chinese IC integrated device manufacturers (IDMs). As a result, the revenue and unit production reported for this sector is a heterogeneous mix of wafer and finished product unit sales.
IC Packaging and testing
This sector, which is sometimes identified as the encapsulation and testing industry, includes the IC semiconductor packaging, assembly, and test (SPA&T) plants of foreign semiconductor companies, as well as all IC semiconductor assembly and test services (SATS) plants and companies in China.
This sector does not include the discrete SPA&T plants of foreign semiconductor companies or the IC SPA&T activities of Chinese IDMs. Nor does it include LED plants since the CSIA continues to include LEDs within the discrete industry. Because some SPA&T plants of foreign semiconductor companies use a wafer/die sale/buy-back or imported processing business model and others use a consigned wafer/die or another toll-processing business model, the revenue reported for this sector is not homogeneous and is potentially misleading. However, reported unit production is relatively homogeneous.
Discrete device. This sector includes all Chinese discrete IDMs and several Chinese SPA&T plants, as well as all discrete wafer fabrication and SPA&T plants of foreign semiconductor companies in China. It also includes LEDs which CSIA continues to include within the discrete industry sector. Because many of the SPA&T plants of foreign semiconductor companies use a consigned wafer/die business model rather than the fully-costed IDM business model, the revenue reported for this sector is not homogeneous and can be misleading. However, reported unit production is relatively consistent and reliable.
Both the CCID and CSIA compile their industry data from reports or survey responses filed by the various entities in each industry sector. These entities usually report their activities as separate stand-alone companies, and the CCID and CSIA consolidate the reports from each company in an industry sector without any eliminations or offsets. The results are often industry-sector totals that are aggregates of different inputs and therefore misleading. For example, the data might include foundry wafer revenues and wafer shipments combined with IDM finished-unit product sales revenues and unit shipments.
Because at least three of the largest SPA&T plants of foreign semiconductor companies use a wafer/die sale/buy-back business model, their reported revenues are approximately two and a quarter times as large as they would be if reported using the conventional consigned wafer/die (cost less die) basis. This reporting difference is significant and could account for an overstatement of 15% in the 2011 revenues for the IC packaging and testing sector, 6% in the 2011 revenues of the Chinese IC industry, and 3% in the 2011 revenues of the overall Chinese semiconductor industry.
Because of the way the CCID and CSIA compile their data without any eliminations or offsets, it is very probable that there will be instances of double-counting between sectors. The following example—a hypothetical manufacturing flow for a Chinese fabless semiconductor company that using both a Chinese wafer foundry and SATS company to manufacture its products—illustrates the impact of this approach.
In our example, Average Semiconductor is a fabless semiconductor company in the IC design sector; XMIC is a wafer foundry in the IC manufacturing sector; XSE is a SATS company in the packaging and testing sector; and Solectron is an electronics manufacturing services (EMS) customer.
Using CCID and CSIA reporting practices, these transactions would be classified and recorded as shown in the table below.
|IC manufacturing sector||1,000||$650,000||Not reported|
|Packaging and testing sector||1,250,000||$212,500||Not reported|
|IC design sector||1,250,000||$1,250,000||$1,250,000|
(All revenues are in US$.)
Under CCID and CSIA reporting practices, the revenue at each stage is included in the total—a divergence from traditional industry standards. Consequently, in this example, the total Chinese semiconductor industry revenue is overstated by 70% and the unit shipments by 100% relative to conventional industry standards.
Compared with the more conventional practices and standards of the World Semiconductor Trade Statistics (WSTS) and related industry associations and analysts, these differences in CCID and CSIA reporting practices and standards could lead to noticeable variability in reported Chinese semiconductor industry results. This variance would be greater or lower depending upon the mix of business models employed.
Furthermore, these differences could have a significant impact on China’s ability to gauge the need for or to even manage the output of nationwide IC production (for example, to meet a greater share of its domestic consumption).
Consider the accounting impact as it relates to an IC device that is wafer fabricated, packaged, assembled, and tested in China. Using the current CCID/CSIA reporting practices, the average reported semiconductor industry revenue could range from 62-162 RMB, depending on the scenario:
62 RMB The device is manufactured by a wafer foundry and SATS supplier for a foreign fabless semiconductor company.
100 RMB The device is manufactured and sold by a Chinese IDM.
162 RMB The device is manufactured by a Chinese wafer foundry and SATS supplier for a Chinese fabless semiconductor company and sold by that fabless company.
This variance is significant, creating an operational and planning challenge for both China and the global semiconductor industry.
For the future, increasing international interest and visibility may encourage the CCID and CSIA to replace their current Chinese semiconductor industry reporting practices and standards with more common international standards and practices. For example, the CSIA is a member of the World Semiconductor Council (WSC). They should be encouraged to participate in the World Semiconductor Trade Statistics (WSTS) programs. If China elects to change to more conventional semiconductor industry reporting practices and standards, the country may find it desirable to revise the CSIA objectives accordingly.
Despite the evident disparities, we use the aggregate statistics as reported, while carefully noting that they represent China’s semiconductor industry as reported in China—that is, the sales revenue of all semiconductor companies in China as reported to the Chinese authorities. We do so because we have no way to determine which business model is being used by every company, and because Chinese policymakers themselves rely upon these result. Although the tendency is for these sources to overstate the size of the industry, understatement is far less likely,, we want to be careful not to understate the impact of China on the industry as a whole. Still, in cases where the Chinese have identified individual company revenues, we have been able to augment that data with information from other sources.