David Wang, president of Applied Materials Asia, made the optimistic prediction — which could mean a windfall of tens of billions of dollars or more over the long-term for equipment makers — during SEMI China, a trade event for chip equipment manufacturers that's in Shanghai this week.

Wang based his prediction on the assumption that China will continually strive to make more of the chips it consumes, whether for domestic sale or export. In 2004, China's semiconductor market was about $24 billion, with local fabs providing less than a quarter of the market.

By 2008, Wang said China would only be able to meet about 35 percent of its needs. "By that time, the consumption will reach about $65 billion. If we assume $300 billion for the entire world in semiconductor revenue, then China alone will consume over 20 percent of the world's production. So therefore, China needs more fabs," Wang said.

In a recent report, market watcher IDC estimated China's market would be only $45 billion by 2008.

Nevertheless, China is already the second largest IC market. This year, it could overtake Japan and the US to claim the top position, according to IC Insights. The increase has more to do with a fast-growing, low-cost electronics systems assembly business that caters mainly to exports. Last year, China produced $170 billion in electronics equipment, or about 11 percent of its GDP; by 2008, some estimates put it at nearly $300 billion, or about 13 percent of GDP.

Wang said the growth in China-based fabs would be driven by both foreign and domestic investment. To date, the Taiwanese have been some of the biggest backers, with Semiconductor Manufacturing International Corp. (SMIC), Taiwan Semiconductor Manufacturing Co. Ltd. and Hejian Technologies all having Taiwanese management or money. Promos Technologies and Powerchip Semiconductor have also committed to building fabs.

Aside from the Taiwanese, the lone foreign investors in leading-edge chip manufacturing are ST Microelectronics and Hynix Semiconductor, which have entered into a joint venture to build an eight-inch fab.

Ironically Applied stands to miss out on part of the predicted equipment buying boom as the U.S. Export-Import Bank recently rejected a request from SMIC for a $769 million loan guarantee that would have been used to buy chip-making equipment from Applied. (SMIC) is now "considering" buying chip-equipment from Japanese vendors, according to recent reports.

By: DocMemory
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