China's first quarter semiconductor fab utilization rate sank to 43 percent, a new low for what had been the world's fastest growing chip making region, according to market research firm iSuppli Corp.

The first quarter utilization rate was the lowest since iSuppli began tracking the market in 2000 and a massive drop off from 92 percent as recently as the second quarter of 2004, the firm said. The drop in utilization was a direct result of low demand spurred by the global economic downturn, and indicates that China's goal of establishing a vibrant domestic semiconductor production industry is in serious jeopardy, iSuppli said.

Len Jelinek, director and chief analyst for semiconductor manufacturing at iSuppli, said in a statement that the Chinese government has worked for 10 years to develop a domestic economy including strong semiconductor technology that would provide economic independence

"Unfortunately for China, the plan collapsed as global sales dried up before demand generated from internal sources was able to grow to match demand generated from the rest of the world," Jelinek said. "Once viewed by China's government as a pillar of growth, semiconductor manufacturing has turned out to be a financial burden."

China's investments in capacity and technology in the semiconductor sector have not provided the financial returns that were forecast for investors, Jelinek said. Adding to China's dilemma is the overestimation of capacity, which was expected to be shuttered in other regions in favor of lower-cost, more efficient Chinese manufacturing.

China's utilization is expected to rise moderately through the rest of the year, but will remain very low at 54 percent in the fourth quarter of 2009, iSuppli forecast. Over the longer term, utilization will rebound to 84 and 85 percent in 2012 and 2013, the firm said, but China's chip industry will look very different than the past due to anticipated consolidation.

"Since Chinese semiconductor manufacturers do not possess a technological differentiation from their competitors, they are at a disadvantage, since there is simply far too much of the same kind of capacity in the world chasing after the same opportunities," Jelinek said.

With iSuppli not forecasting a recovery for Chinese manufacturers until 2012, it is unlikely that weak companies can survive two years in the face of a negative cash flow, the firm said. It predicted that the first merger in China's semiconductor industry will be finalized in the second quarter of 2009.

By: DocMemory
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