How Mainland China’s Wafer Fabrication Industry Can Catch Up with the Global Giants

Throughout, high investment has always been accompanied by high risk—especially in the capital-intensive semiconductor wafer fabrication industry. Today, a state-of-the-art... 12  Each production line needs...  50  A billion-dollar investment. Moore's Law ( Moore ’ s law From the perspective of technological evolution, it tells us that the number of transistors on each chip is increasing every...  12  will double in a month. In contrast, Locke’s Law ( Rock ’ s law ) reminds us that the cost for chip manufacturers per  4  The number doubles every year. Technological advancements continually pave the way for an increasing number of transistors on chips, but the cost of building chip manufacturing facilities rises accordingly.

Take TSMC, the industry’s leading wafer foundry, as an example: its rapid growth has been inseparable from massive capital investments. Especially during the financial crisis, while others were cutting costs, TSMC dared to go against the trend by maintaining high levels of investment, staying closely aligned with Moore’s Law in technological R&D, seizing early market opportunities, and achieving the highest profit margins. According to... TrendForce The Tuoqiu Industry Research Institute under its umbrella estimates that, 2016  TSMC's capital expenditure amount will continue to be raised. 17% Reach  95  Hundreds of millions of dollars, focused on the development of process technologies.

For market followers, SMIC, China’s leading wafer foundry company, is emerging from its trough and steadily making progress, catching up with international industry leaders at a “small-step, steady-run” pace. Recently, SMIC announced that, following its order from U.S.-based Qualcomm, it has once again secured an order from Unisoc to jointly develop advanced...  28  Nano HKMG Manufacturing smartphones System on Chip Chips. As China embarks on a wave of transformation—from “manufacturing” to “intelligent manufacturing”—SMIC has now secured dual investment support from both national and local governments. Whether to accelerate expansion and achieve rapid growth, or to proceed steadily and cautiously—this has become the critical strategic choice facing the company’s development.

Sleeping on firewood and tasting gall, diligently cultivating inner strength.

SMIC on 18 The latest financial report released today shows that... 2015  Sales in the fourth quarter of the year reached a new high of  6.101  hundreds of millions of dollars, compared to  2015  The third quarter of the year  5.699  Hundred-million-dollar quarterly increase 7.1% , relatively 2014  The fourth quarter of the year  4.859  Annual increase of hundreds of millions of dollars 25.6% SMIC CEO Dr. Qiu Ciyun, also an Executive Director, stated, “ 2015 This year, we also achieved several new highs in profitability metrics such as gross margin, operating profit, and net profit. Even though the industry experienced inventory adjustments this year, we managed to maintain full production throughout the entire year (with capacity utilization reaching...).  100% ).”

Look back  2011  In that year, Dr. Qiu Ciyun took over when SMIC was experiencing a business downturn. CEO With the baton in hand, we’ve chosen a path that involves moderating capital investment, adopting a market-oriented approach, and staying closely attuned to customer needs. We’ve also made timely adjustments to our development strategies and focused intently on enhancing product quality and operational efficiency. From where we stand now, this choice has proven to be absolutely spot-on. SMIC’s products have rapidly improved in both quality and reputation, and its capacity utilization rate has risen from...  2011  The third quarter of the year 61% Significantly improved to the current level 100% Up and down, from Gartner The survey data show that we are far ahead of our industry peers. 80% Up and down.

After significantly improving its capacity utilization rate, SMIC has seen an overall improvement in its operational performance, completely revitalizing the company’s image and boosting employee morale. Thanks to its outstanding financial results and strong financial position, SMIC...  2015  Listed on the Hang Seng China Mainland.  100  Component stocks simultaneously receive Standard & Poor's renewal. BBB- the rating and Moody’s Investors Service Baa3 Investment-grade status earns investors’ trust and recognition, broadening financing channels and reducing both the cost and difficulty of fundraising.

Rapid Expansion or or Steady and sure-footed

Today, as China’s integrated circuit industry is experiencing a period of rapid growth, SMIC has achieved profitability for fifteen consecutive quarters, and its operating performance has been steadily improving. Two distinct voices have begun to emerge in the market: some hope that SMIC will remain proactive and accelerate its expansion, while others prefer that it stick to its current status quo—maintaining profitability while selectively pursuing expansion when the time is right. From the perspective of Jiwei.com, the fundamental difference between these two approaches lies in the selection of the expansion window and the pace of development.

When choosing the former, the key factor is whether there is long-term, sustained financial investment, and at the same time, one must be mentally prepared for lower returns over the long term. Take TSMC as an example—each year...  20  Judging from the hundreds of millions of dollars invested in R&D, SMIC needs to ramp up its R&D spending even further if it hopes to catch up with the pace of technological advancement. But will aggressive R&D investment and massive capital expenditures necessarily yield greater returns on performance? GlobalFoundries It’s just a counterexample, its  2013、2014  Spending heavily to aggressively expand, yet suffering losses for two consecutive years.  9  Yi He  15  hundreds of millions of dollars, unable to turn a profit—go ( 2015 ) year  6  There are also rumors circulating that the company has been approached by domestic investors for pricing—though I’m afraid this may not be true. GF The result you want to see.

The latter’s strategy of proceeding cautiously step by step is, in essence, trading profits for room to grow. In a global economic environment marked by slowing growth and an uncertain outlook, the semiconductor industry—whose performance is positively correlated with overall economic development—has no choice but to tread gingerly. Take integrated-circuit wafer fabs as an example: starting from the third quarter of last year, the operating performance of companies in the world’s first and second tiers has been steadily declining. Several analysis firms predict that this year, the semiconductor industry will experience negative growth. Although, since the establishment of the “Outline,” major national funds and various local funds have been actively making moves, sparking a domestic investment boom, when these investments are broken down into individual enterprises, their scale remains extremely limited. Leading international firm TSMC... 1 Just in R&D alone, there is... 20 A billion-dollar investment.

Given the limited availability of social capital and state investment, coupled with the reality that companies themselves must meet investors’ relatively high return expectations, how can SMIC maintain steady growth while also preserving its entrepreneurial vitality? A single sentence from SMIC’s fourth-quarter earnings report offers a clue to its future path: “We will prioritize profitability as our primary goal, work diligently, and seize the promising prospects ahead. To capitalize on the numerous opportunities at our disposal, SMIC plans to pursue growth through both operational and non-operational avenues.” The underlying message behind this statement is that profitability has become SMIC’s new normal—its overarching goal for future growth—and it will continue to... 2011 When Qiu Ciyun took over, he adopted the approach of “intensely honing internal strengths, accumulating energy, boosting morale, and weathering the winter.” Yet on the other hand, he remained ambitious. As the leading domestic semiconductor manufacturer, bearing the weight of the nation’s development strategy, he must rely on extraordinary measures such as “mergers and acquisitions” to achieve his goals. 2030 The goal of joining the world’s top tier by the end of the year naturally hinges, as one of the key prerequisites for this strategy, on investors’ recognition of the company’s fundamental business performance and its future development direction.

As Moore’s Law comes to an end, can we overtake on the curve?

As more and more silicon circuits are integrated into increasingly smaller spaces, the heat generated is steadily rising. As a result, the pace at which processing power doubles—once every two years—is beginning to slow down gradually. Moreover, even bigger and more serious issues are gradually coming to light; today, the circuit precision of top-tier chip manufacturers has already reached... 14 Nanometers—smaller than most viruses. Moore’s Law is beginning to hit its ceiling, and the pace of updates between generations will gradually slow down.

Dr. Qiu Ciyun once revealed that, in terms of keeping pace with advancements in cutting-edge process technologies, SMIC is currently not only...  28  Achieving mass production in nanomanufacturing, in... 16/14 Nanotechnology is actively under development, and we currently have... FinFET Among the world’s top six in terms of patent numbers, and striving to... 16/14 Nano to  10  In terms of the evolution of nanomanufacturing processes, we are keeping pace with the global industry’s leading tier. “Our strategy is to differentiate and diversify ourselves from international giants, opening up a blue ocean market that benefits our customers simultaneously. We are investing...”  35  Billion, achieved  10  A growth of hundreds of millions of US dollars, but another industry giant achieved...  20  A growth of hundreds of millions, yet the investment is as high as...  200  Yi.

With SMIC’s current growth rate steadily propelling it forward, and as Moore’s Law begins to slow down in the future, the company can expand its scale through acquisitions and mergers. This will not only reduce corporate management costs but also boost profit margins. Thus, whether SMIC can leverage its “late-mover advantage” to achieve a “surge around the bend” is truly something we’re looking forward to.