Investment in Semiconductor by China changes rules of competition,says ASE COO

China’s national semiconductor industry investment fund has changed the rules of industrial competition, and backed by this fund China-based companies will definitely ramp up the production of its semiconductor products, according to Tien Wu, COO of Advanced Semiconductor Engineering (ASE).

The fast developments of a number of industries in China, including LCD panels, LED chips and solar panels, have led to free fall in prices of related products because China-based enterprises have been constantly ramping up capacity with “easy money” from government.

Since 1990, the production value of the global semiconductor industry has expanded by six fold, and yet the ASP of semiconductor products still remains rather stable. This means that demand and supply of the industry have been kept in balance through economies of scale in production and innovative activities which have helped increase the value-added of products.

The global  industry will be able to grow by a CAGR of 5% in the next 10 years if production scale and innovation are kept in balance.

The mishaps of China’s flat panel, LED and solar panel industries were due mainly to the fact that the pace of innovation of these industries has failed to keep up with the pace in capacity ramps.

Fortunately, China seems to have adopted a different approach to promoting the development of its semiconductor industry as we have not yet seen frantic investments in capacity ramps.

However, since the rules of competition have been changed, Taiwan-based companies have to think to advance fast in terms of innovation in order to avoid being caught up.

It was originally estimated that it will take 10 years for China’s semiconductor industry to catch up with Taiwan’s, but under the support of the national investment fund the time will be shortened.

The entry-level IC back end service market will be taken over by China-based companies in the next 10 year. As a result, Taiwan-based IC testing and packaging firms have to tie up with companies in more advanced economies to develop products with more value-added.