China’s semiconductor industry braces for tighter restrictions in 2024
Semiconductor industry had a tough year behind it, with declining demand throughout the year. China's semiconductor factories have faced a harsh environment, news of layoffs, production cuts, losses and closures.
Despite the constant precise trade strikes on certain industries, and the “small yard, high fence” policy implemented by the US, China's semiconductor industry still has a good outlook.
Companies leading the way in various fields, including Huawei in smartphones, server processors, RF chips, CPUs, GPUs, and representatives in DRAM and 3D NAND memory, have achieved breakthroughs in various fields. Through the effect of local substitution, they managed to achieve surprising breakthroughs from the general defensive state of the past year.
Semiconductor industry hopes for spring as US tightens its belt
In 2023, the global semiconductor industry experienced a prolonged downturn with high inventories, low demand, reduced investment, and continuous reduction in production capacity across sectors. Under increased external pressure, China's semiconductor industry continued to thrive.
By the end of 2023, there was a glimmer of hope, and from the fourth quarter onwards, there seemed to be prospects for an upward cycle in the new fiscal period. After a tough winter for semiconductors, spring seems to be just around the corner.
The International Data Corporation (IDC) believes that the semiconductor industry has bottomed out, and will accelerate its recovery from 2024. Many analysts unanimously predict growth for 2024, with the most optimistic forecasts exceeding 20%, while the average growth rate is expected to be in the double-digit percentages.
ShutterstockFrom a demand perspective, the US market is expected to remain flexible, while the Chinese market is expected to fully recover in the second half of 2024. DigiTimes.
Therefore, revenue expectations for 2024 have been increased from $625.9 billion to $632.8 billion. This indicates that government subsidies, the big drivers of China and the US, will continue to fuel the overall recovery of the semiconductor market.
However, The US continues to strangle China's semiconductor industry, and the “binary pattern” between the two countries remains unchanged. China will accelerate the development of new technologies, especially in areas such as 3D DRAM, new storage, RISC-Va, silicon photonics, chiplets, SOI processes, and broadband and ultra-broadband semiconductors.
2024 is an election year in the USA. Export controls on China's semiconductor industry are expected to remain unchanged.
With the recovery of China's semiconductor industry, the US is likely to expand its restrictive measures. It is likely to stifle the autonomy and innovation capabilities of Chinese chipmakers in areas such as new energy vehicles.
In the context of the continuation of the economic struggle between China and the USA, the US sanctions also weaken the positions of the US and of Japanese semiconductor-related companies in China. Many foreign semiconductor factories are undergoing new rounds of layoffs and workforce reductions.
ShutterstockAt the same time, in 2024, focusing on strengthening the security and resilience of the global semiconductor supply chain, Southeast Asia becomes a strategic area. Some American and Japanese companies see Southeast Asia as a desirable investment and operating alternative outside of China.
The growing importance of Southeast Asia is now clear to everyone. Some Chinese companies, such as Luxshare Precision, are expanding their investments in the region to mitigate risks associated with customers' supply chains.
China cooks up five-year plan, Huawei drives local supply chain
Despite external pressure, from a political perspective, the year 2024 marks the tenth anniversary “China's national guidelines for the development and promotion of the IC industry“, and “14. The Five-Year Plan” (2021-2025) has passed the halfway mark. This year will be used to incubate the next five-year plan (“15th Five-Year Plan”) for China's semiconductor industry, with the expectation that policies will be more long-term, more precise and targeted in the face of challenging circumstances.
The new focus is expected to focus on key areas and support the development of major players. Big players in certain areas are likely to get more support from political factors and additional investment.
Previously, China's semiconductor industry was scattered across different regions with new projects being launched feverishly. The future trend is expected to include more centralized official resources.
After the breakthrough in 2023, the challenge for China's semiconductor industry in 2024 is not only to produce good chips, but also to fight for survival. It will be necessary for Chinese players to avoid suffocating supply chains and establish a system independent of external sources.
In addition, with the combined effect of multiple bans originating from the US, Lu Xun's famous policy of “borrowing” technology from the West is difficult to achieve. Breakthroughs must be achieved through domestic innovation in order to overcome increasingly strict restrictions.
As the influence shows Huaweija to the supply chain, its breakthrough in the smartphone niche paved the way for improving local supply chain capabilities in key products like the Ascend and Kirin series of chips. Many integrated circuit designers are willing to collaborate with local silicon production lines, focusing on advanced processes.
Shutterstock / DANIEL CONSTANTEMature local processes and support for intellectual property are gradually strengthening. External pressure is pushing the construction of an independent semiconductor ecosystem in China.
In the critical CPU field, a group of local companies such as Loongson, Phytium Technology, C*Core Technology, Zhaoxin, Hygon and Shenwei are working hard to create domestic Chinese chips and build joint ecosystems.
Also, in areas such as EDA, key intellectual property, semiconductor equipment and materials, and component cores, the effect of local substitution will run even deeper. Many Chinese firms have gone from experimentation to confirmation and then to mass production, achieving breakthroughs and progress, starting from scratch and growing to greater heights.
Although there are risks in delaying the launch of new product lines, it allows key components of the supply chain to achieve breakthroughs and new developments over time. At the same time, the down cycle of the semiconductor industry is keeping capacity low, providing an opportunity for related companies to enter the chain and confirm their success.
For smaller firms in the IC design and equipment sectors, financial constraints and industry consolidation are likely to continue, leading to increased concentration. Better placed firms and local government funds are the main drivers of many mergers within the ecosystem.
At the same time, the capital market continues to show interest in new growing sectors. Automotive semiconductors, semiconductor equipment (film plasma deposition, thinning, quality control, etc.), systems and materials, and advanced packaging equipment are the new magnets for attracting investment.
AI-powered innovation ups the supply chain, the semiconductor industry breathes easier
If demand recovers smoothly from the second quarter of 2024, with AI-driven innovation, a new wave of ICT upgrades is expected. This would drive demand for semiconductor components such as AI chips, SSDs (HBMs), high-end MCUs, high-end autonomous driving SoCs, sensors and silicon carbide (SiC) in applications such as embedded smartphones, AI computers, city automatic assistance in driving navigation (NOA), metaverse and electric vehicles above 800V.
Undoubtedly, traditional market sectors such as smartphones, PCs and servers will be the main driving force behind China's semiconductor market recovery in 2024. Consumer electronics, defense and new infrastructure will continue to support the domestic semiconductor market.
In the smartphone market, 5G devices have become a driving force in the RF chip market. In the first half of 2023, about 78.9% of mobile phone shipments were 5G phones.
Shutterstock / Below the SkyThe Chinese smartphone market has essentially completed the transition to 5G. Huawei's 5G success story has brought new hopes to local companies, and some companies are already advocating 5.5G. Huawei, SMIC and others are already thinking about the next wave of 6G technology.
Since the RF market is closely related to markets such as communication equipment, wireless communication networks, IoT and automotive electronics, the recovery of the smartphone market will have the most significant impact on demand. China's major RF chipmaker, ZTE Microelectronics, benefited significantly from the optimized inventory structure of terminal customers, with increased shipments of filter modules.
The actual situation on the ground
A leading packaging and testing company, Jiangsu Changjiang Electronics Technology (JCET), said it is seeing clear signs of recovery in high-density RF front-end products directly connected to it and expects this trend to continue. With the further development of 5G and the recovery of demand for consumer electronics, a slight recovery in overall RF front-end demand is expected after smartphone demand.
Yole Group expects the RF mobile terminal market to reach $26.9 billion by 2028, with a CAGR of 5.8% from 2022 to 2028. Consumer CPUs have also started to recover.
The volume of shipments of consumer PCs affects the volume of shipments of consumer CPUs. Looking ahead to 2024, both Intel and AMD will make additional efforts in the CPU segment.
From the second quarter of 2023, laptop and desktop PC shipment volumes show quarterly growth, and there are signs of recovery in corresponding consumer CPU shipment volumes. This can also be seen in the third-quarter earnings of SMIC, a major Chinese manufacturer, which points to a recovery in demand for logic chips, CPUs, GPUs and more.
It is also noted that many areas have become extremely competitive, with fierce internal competitions. Areas with significant internal coverage, such as Bluetooth chips, Wi-Fi FEMs, low voltage management ICs (PMICs), 8/16-bit MCUs, LED/LCD display drivers (DDIs), image sensors, etc., will continue to compete with a focus on high price-performance ratio to secure larger market shares.
All in all, China's semiconductor industry faces serious challenges in 2024. Resilience to external pressures, maintaining cautious optimism and returning to a high growth rate of 10-15% remain a significant challenge this year.