China’s chip market growth slows dramatically

Growth in China’s semiconductor market slowed dramatically in 2005 after years of big gains, according to market researcher iSuppli Corp.

Demand for chips in the country increased 12.8 percent year-on-year to US$37 billion in 2005, far slower than the 34.9 percent increase of a year earlier, iSuppli said.

“China’s semiconductor demand has enjoyed a brisk annual growth rate for about two decades, and so it’s not surprising to see some slowing of the growth as the demand base expands,” the research company said.

This year should see some improvement but still won’t match the good old days, with iSuppli predicting growth for 2006 of 18 percent.

Slowing growth isn’t the only trouble plaguing China’s chip industry. It’s homegrown chip makers aren’t faring well, either.

Only about 45 percent of chip factory projects planned for China between 2000 and 2005 actually succeeded in starting production, according to Semiconductor Equipment and Materials International (SEMI), a U.S.-based industry trade group.

Some of the country’s chip makers that succeeded in producing chips during that period are struggling. China’s top chip maker, Semiconductor Manufacturing International Corp. (SMIC), reported its sixth straight quarterly loss in the first quarter of this year. Another company, the Chinese parent of CSMC Technologies Corp., is seeking to buy back outstanding shares of the chip maker, due to its continued losses.

However, SEMI expects the number of successful chip factory projects in China to improve over the next three to five years, according to Samuel Ni, senior market analyst for SEMI in Shanghai.

Foreign chip makers have done well in China, according to iSuppli, accounting for the top ten sellers in the market.

STMicroelectronics NV moved into third place from fourth place last year, with its revenue in China rising 21 percent to $1.8 billion. The company gained from emerging product areas such as set-top boxes.

Koninklijke Philips Electronics NV fell to fifth place from third a year earlier. It’s revenue grew 7 percent to $1.72 billion, but the company lost steam as some newer products took over from older product areas that it dominated, iSuppli said. Philips used to supply many of the chips for China’s CRT (cathode-ray tube) monitors and televisions, but LCD technology is quickly overtaking CRT.

Samsung Electronics Co. Ltd. produced the strongest growth overall, increasing its revenue in China 28 percent to $1.74 billion, good enough to lift the South Korean tech giant to fourth place last year, from fifth place in 2004.

Intel Corp. and Texas Instruments Inc. kept their first and second place positions.