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| R&D Issues Challenging Chinese Semiconductor Makers |
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The semiconductor industry is the core of modern manufacturing industries, and consumers are also big users of integrated-circuit technologies for their ever-changing digital needs. As China's semiconductor industry is integrating into the global industry chain, its weakest link, research and development capability, is also facing tremendous uncertainty and pressure at the moment.
R&D constraint
As we all know, proprietary R&D is the weakest link in China's semiconductor industry. From an optimistic point of view, this is just the current stage of China's industrialisation development, so the situation may improve as China continues to develop into the future. But more realistically speaking, there are a few visible factors that are affecting China's R&D capability, especially in the semiconductor industry.
Staffing
While there are many R&D talents in China, few of them are experienced enough to lead core R&D projects. And those talents who have innovative minds, long term persistence and breakthrough technical expertise are ever rarer. It is said that currently in China, first-grade undergraduates go overseas, second-grade goes to multinational companies in China, and third-grade goes to study masters and doctorate degrees. So if smart students from Chinese universities are only interested in going overseas or into multinationals, instead of doing R&D works for Chinese institutions, how can China develop proprietary intellectual properties (IPs) which require long term commitments? As a result, many Chinese companies can only import proven technologies from overseas, and frequently kill off internal projects which are still at early but accumulative stages |
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Corporate strategy
In China, people's perceptions are that it is a "shame" for companies lacking their own IPs. But as the purpose of a company is to make a profit, many of them can achieve better performance by simply cutting costs and prices, amid the booming consumer demand and the enormous low-end market in China. In many occasions, product quality is already a secondary consideration for company managers, let alone the huge investment required for long term R&D activities. Only when product prices of multinational competitors drop to a similar level with domestic Chinese brands, those low-quality and low-technology players will then panic, and inevitably be phased out shortly. Here's a vicious cycle in China's electronics industry: Every time when multinational companies launch new products and technologies, Chinese brands will always try hard to follow suit. When they do win some shares in the middle to low-end market, they would start to cut prices and eventually be eliminated. And the same process repeats in another round of product launches…
Government support
Both the central government and local governments have the responsibility to invest in education and research activities, in order to stimulate long term industry development. While the Chinese government has now realised the importance of semiconductor design and R&D, long term plans are still absent in detailed implementations. Many local governments in China still prefer projects which may generate large investments and quick profit outcome.
Multinational R&D centres
The current trend is that many multinational semiconductor design companies are establishing R&D centres in China, and primarily sourcing staff from local Chinese talents. But from an industry development perspective, these China-based foreign R&D centres are not as important to the Chinese R&D capability as many people thought. On the other hand, their imminent impacts are on luring the best technology talents away from local R&D institutions. Although foreign R&D centres can indeed cultivate many local talents, semiconductor R&D activities would require cumulative experience and continuous efforts in any institutions. So while foreign R&D centres may supplement R&D expertise in the Chinese semiconductor industry, they cannot replace the need for conducting such activities in Chinese institutions.
Genuine IPs
While establishing "local Chinese standards" has become a quick way for companies to claim "core IP" achievements in China, many of them are simply making minor changes to proven technologies from overseas countries and renaming them. But past experience showed that technical improvements on existing technologies of low-end products may indeed open new markets in China, so Chinese semiconductor companies may seek innovation in these areas.
Multinational interests
Intel's $2.5 billion investment of 12-inch chipset manufacturing facilities in Dalian City of North China was a symbolic achievement for China's semiconductor industry in 2007. And other multinational companies such as HYNIX, STMicroelectronics, Samsung, and domestic semiconductor companies such as Semiconductor Manufacturing International Corporation (SMIC) and Taiwan Semiconductor Manufacturing Company (TSMC), have all committed long term manufacturing plans in China.
As the new administration of Taiwan is supportive of a closer relationship with mainland China, many Taiwanese manufacturing companies are accelerating their process of shifting production lines to mainland. It looks like that the current regulatory limits restricting Taiwanese companies' investment in mainland will be further relaxed under the new administration, so there will be more and more Taiwanese semiconductor companies establishing factories in mainland.
Consumer market
Chinese consumers have long been interested in adopting the latest electronic gadgets, so it is expected that the innovative mobile internet device (MID) products will become a hot spot in China's consumer market in 2008. Furthermore, the large amount of high-speed fibre-optic internet networks currently being built in Chinese provinces will not only upgrade networking facilities in metropolitan cities, but also increase computer literacy in rural areas. As a result, China's electronic consumption as a whole shall be further stimulated.
Therefore, while the supply side of China's semiconductor industry is still at a fledgling stage, the demand side is already booming. Whether Chinese semiconductor companies can successfully upgrade from "Made-in-China" to "Created-in-China" will depend on initiatives from the governments and private sectors.
Produced by China Business Intelligence; Source: www.ittime.com.cn
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