Abstract

The worldwide semiconductor market will continue to grow in 2014; however, the Taiwanese semiconductor industry will face more intense competition. While the IC design industry will be challenged by emerging Chinese vendors, IC manufacturers will face competition from international vendors in terms of process technology. Hence, the growth momentum will weaken in 2014. Taiwanese semiconductor industry value is estimated to grow 9% year on year in 2014, reaching US$65.8 billion.

Competition of IC Design for Smart Handheld Devices Intensifies

Looking to 2014, competition between Chinese and Taiwanese IC design industries will continue to focus on cellular baseband IC and tablet application ICs. The competition will then extend to power management ICs and wireless communications ICs.

Besides constant launches of competitive mid-range and value-line products featuring advanced specifications and low prices, MediaTek announced that its TD-LTE SoC (System on Chip) boasting four ARM Cortex-A17 plus four Cortex-A7 CPUs would start sampling in February 2014. With this price-competitive product, MediaTek has attempted to seize a share of the market dominated by Qualcomm. As the Chinese market accounts for 70% of MediaTek's cellular baseband IC revenue, MediaTek has shifted focus to mid-range and high-end models since 2013 to reduce the impact of its disadvantageous position when competing with Chinese IC vendors which have gained significant support from the government. MediaTek hopes the strategy will enlarge its technological gap with Chinese counterparts. Currently, integration of baseband ICs, application ICs, and wireless technologies has remained to be MediatTek's biggest competitive edge.

In line with Huawei's growing brand, Hisilicon has concentrated on providing products for Huawei. With market expansion in mind, Hisilicon started to provide sampling products to overseas vendors; some Taiwanese tablet contract makers have been evaluating the possibility of using Hisilicon's chips. Spreadtrum is still catching up with Taiwanese competitors in terms of technology development. The company's product launch schedule will depend on the Chinese government's policies and its product positioning. After being acquired by Tsinghua Unisplendour, Spreadtrum's product competitiveness will hinge on its integration capabilities for application ICs and wireless chips.

In the smart handheld device market, while power management ICs are mainly provided by Chinese IC design houses at this moment, price competition will heat up as Taiwanese power management IC vendors have expanded their product line-ups from PCs to TVs and smart handheld devices.

Increased Competition in 28nm Process Technology with Steady 8-inch Wafer Demand

Driven by smart handheld device demand and emerging products such as wearable devices, adoption of advanced 28nm process technology will increase. Since the technology provides a higher unit price, the increased adoption of the process will boost industry value. TSMC's 28nm process accounted for nearly 30% of its total revenue in 2013. Currently, most Chinese IC manufacturers still lag behind Taiwanese counterparts in 28nm products due to their slow progress in process shrink and are thus kept outside the mobile device market with strong growth potential. However, SMIC has planned to move onto 28nm production in the second half of 2014. Once Chinese vendors adopt 28nm process technology, they will stand a higher chance to win Chinese and international IC design houses' orders as they will be able to reduce contract manufacturing costs through the government's financial aids. As a result, competition at 28nm will intensify.

While wafer fabrication continues to head towards 12 and 18 inches, not all chips use 12-inch wafers. Sometimes, using 8-inch wafers are more cost-effective such as power management ICs and panel drier ICs. However, Taiwanese manufacturers have stopped expanding their 8-inch production lines. With limited production capacity, Taiwanese 8-inch fabs usually operate at full capacity utilization. Chinese vendors currently have fifteen 8-inch production lines. Although 8-inch lines use lower-level process technologies, the products also have lower profit margins, and therefore reduce international IC manufacturers' intention to secure orders for 8-inch products. As a result, the steady demand for 8-inch wafers will benefit Chinese IC manufacturers' future development.

Appendix

Glossary of Terms

List of Companies