In 2021, the localization rate of semiconductor materials reached 50%. How can this goal be achieved?

"After more than five years of dedicated effort, SMIC Beijing has helped domestic equipment, materials, and component enterprises achieve the industrialization of their technological breakthroughs, gradually breaking through the technological blockade and monopoly imposed by foreign manufacturers," said Zhang Xin, General Manager of SMIC Northern Integrated Circuit Manufacturing (Beijing) Co., Ltd., at the "China Semiconductor Materials and Components Development 2017 Conference" recently held in Beilun, Ningbo. The faces of the over 300 representatives from domestic semiconductor materials and component suppliers attending the conference were filled with excitement. Finally, domestically produced materials and components—once the weakest link in China's semiconductor industry chain—could now confidently enter the downstream integrated circuit manufacturing enterprises.

The domestic semiconductor materials industry is showing a clear growth trend.

As an essential link in the semiconductor industry chain, materials and components play a crucial, foundational role in supporting the overall development of the industry. In recent years, both the national government and enterprises have continuously increased their investments in the field of semiconductor materials. According to available data, cumulative R&D investment from 2015 to 2016 totaled 3.83 billion yuan—a figure that is 7.1 times the average annual investment during the five-year period from 2005 to 2009. Moreover, cumulative industrial development investment from 2015 to 2016 reached 4.15 billion yuan, already equaling half of the total investment made over the preceding five-year period.

Shi Ying, Secretary-General of the Strategic Alliance for Technological Innovation in Integrated Circuit Materials and Components Industry, stated that thanks to sustained investment and continuous innovation, China’s semiconductor manufacturing materials industry has maintained a steady growth trend in recent years. Before 2008, nearly 100% of materials used for 8- to 12-inch wafer fabrication relied on imports. By the end of 2016, the number of material types procured by individual fabs at a rate exceeding 50% had reached 27, including electronic gases, CMP polishing slurries, targets, photoresists, process chemicals, and silicon wafers. In 2016, Chinese semiconductor materials companies achieved sales revenues of 25.6 billion yuan. It is projected that after 2018, China will become the world’s third-largest market.

“By 2020, China’s semiconductor materials industry will have basically established a trend toward large-scale and clustered development. At the same time, a relatively complete set of new materials standards will be in place, and a group of new materials companies with international influence will have emerged. By 2021, the domestic semiconductor materials market will surpass 120 billion yuan in size; among this, the market for materials produced using 300mm wafers will account for more than 70%, and the market for materials used in processes below 20 nanometers will exceed 30%. The domestic market share of locally produced materials will rise above 50%, and some of these materials will even enter the global materials procurement system.” These figures are already deeply ingrained in Shi Ying’s mind.

Accelerate the formation of local supply chains and encourage upstream and downstream enterprises to collaborate.

Localizing the materials supply chain not only helps control manufacturing costs, ensure rapid and timely service responses, and maintain secure and controllable technology, but also generates even greater benefits through industrial synergy effects.

Shi Ying introduced that currently, China already has a group of enterprises active in the fields of silicon materials for integrated circuit manufacturing, masks, electronic gases, process chemicals, photoresists, polishing materials, target materials, and packaging materials. Moreover, China boasts mineral resource advantages—such as non-ferrous metals, organic chemicals, and inorganic chemicals—that enable it to produce these materials. The improvement of the quality of key basic raw materials is also gradually drawing attention within the industry.

The data provided by Zhang Xin shed light on Shi Ying’s introduction: “As of now, in terms of domestically produced equipment, the proportion of domestically developed processes at SMIC’s Beijing plant has reached 15.6%; in the field of domestically produced materials, the procurement ratio has reached 11.3%; and in the area of domestically produced components, the procurement ratio has reached 16.2%.”

However, entering the supply chain of integrated circuit manufacturing enterprises is a lengthy and systematic undertaking. Even if domestic semiconductor material companies have already developed alternative products, customers won't adopt them unless they are aware of these alternatives. Therefore, the delegates at the meeting recommended that semiconductor material and component companies should align their management—particularly in terms of quality and logistics—with their customers. Moreover, upstream companies should ensure full-scale alignment between their engineering, technical, and quality departments and downstream customers, respecting the opinions and suggestions of every department within the customer’s organization. They hope that upstream suppliers and downstream manufacturing enterprises will engage in flexible and strategic partnerships, with downstream manufacturers providing regular guidance and support. At the same time, domestic material companies should also collaborate with their customers to co-develop new products and formulations.

Guide industry consolidation and the development of domestic and international M&A.

Accelerating the pace of a company’s own development through mergers and acquisitions—and thereby driving the growth of the entire materials industry—has also become a new feature of China’s semiconductor materials sector in recent years.

Shi Ying listed the following success stories for the reporter:

In May 2014, Shanghai Xin'ao formed a partnership with the French company Soitec to provide world-class SOI wafer manufacturing capabilities in China and to produce 200mm SOI wafers for Soitec on a global scale. In the future, the two companies will continue to expand the scope of their cooperation, leverage their synergies, and build an SOI ecosystem in China.

In August 2016, Yak Technology acquired 100% equity of South Korea’s UPChemical, which specializes in the production of CVD/ALD precursors. In October 2017, Yak Technology acquired 90% equity of Chengdu Comet Special Gas Co., Ltd., primarily engaged in the production of sulfur hexafluoride and carbon tetrafluoride.

In March 2017, Juhua Group acquired 100% equity of Henkel Germany’s epoxy molding compound business, along with related intellectual property rights, renowned trademarks, R&D assets, and domestic and overseas marketing channels.

Shi Ying stated that cross-border mergers and reorganizations not only enable domestic semiconductor material enterprises to absorb advanced international technologies and acquire renowned industry brands, but also significantly enhance their competitiveness in terms of talent, technology, quality, and service.

Many delegates at the meeting expressed their hope to find suitable international partners through the Integrated Circuit Materials and Components Industry Technology Innovation Alliance—for instance, by participating in technical training programs to learn advanced manufacturing techniques and management practices from foreign companies. This would enable them to upgrade their products, restructure their operations, enhance product quality, innovate in marketing, and improve after-sales service.

Policy guidance builds capital channels for enterprise development.

Although China’s semiconductor materials industry has recently been steadily improving, the road ahead remains fraught with challenges. At this conference, the word most frequently repeated by the speakers was “passion.” Entrepreneurs quietly working in this field are reluctant to give up their ground—but passion alone is simply not enough. To address this, they are calling for domestic materials and component companies to collaborate, leveraging each other’s strengths and jointly tackling key technological bottlenecks. At the same time, the government should introduce relevant policies to encourage downstream manufacturing enterprises to actively adopt domestically produced materials and components, mandating that a certain proportion of materials and components used on production lines be sourced from China. Wang Shumin, Chairwoman and CEO of Anji Microelectronics (Shanghai) Co., Ltd., pointed out that while the government currently offers some preferential policies for materials companies, the application and approval processes are overly cumbersome and need to be streamlined by reducing unnecessary intermediaries. Some company representatives also suggested establishing a public testing platform and having the government provide appropriate subsidies to support its operation.

The development of any industry is inseparable from financial support, and this is especially true for the technology-intensive semiconductor materials industry. To this end, the Strategic Alliance for Technological Innovation in Integrated Circuit Materials and Components has launched the Shengxin Materials Industry Investment Fund, which aims to become a leading industry-guiding fund in China’s integrated circuit materials sector. The first phase of the fund was recently established, with a total size of 200 million yuan. Investors include four listed companies in the industry—Zhejiang Juhua, Nanjing University Optoelectronics, Shanghai Xinyang, and Jinlitai—as well as Ningbo Xin Kongjian, which boasts extensive investment experience in the integrated circuit industry. Shi Ying emphasized that the Shengxin Fund will leverage the abundant corporate resources and industrial chain collaboration advantages of the Industry Innovation Alliance, combined with the broad overseas resources of its strategic partners and the project pool from the “02 Special Project” and other national science and technology programs aimed at industrialization. By tapping into multiple channels both domestically and internationally, the fund will actively gather project opportunities and promote industrial consolidation centered around China’s leading enterprises. As of now, the first-phase investment activities have been steadily underway, and the fund has already identified more than ten prospective investment projects.