China's chip market set to expand by 15% in 2007

In light of strong growth in the third quarter, China's semiconductor market appears to be on track to meet iSuppli Corp.'s forecast of a 15 percent revenue expansion in 2007.

China's semiconductor revenue is expected to rise to $52 billion in 2007, up from $45 billion in 2006. This will mark the first time that the nation's semiconductor revenue exceeds $50 billion for a year.

"Strong midseason market demand during the third quarter helped semiconductor suppliers reach their sales revenue targets," said Horse Liu, senior analyst, China Research for iSuppli. "Meanwhile, exports of electronics products also grew significantly despite the negative effects of a higher Yuan and rising petroleum prices."
Industrial control systems such as inverter motor controls, security and surveillance systems and automotive electronics all generated substantial growth in China. Leading semiconductor suppliers benefited from growth in these segments because of their broad product portfolio coverage and promotional activities during the past several years. For these same reasons, it was difficult for new entrants to penetrate emerging product categories. 



Furthermore, communication equipment markets reported robust unit shipment increases. For example, shipments of domestically-designed mobile phones are forecasted to reach 204 million units in 2007, up 58 percent from 2006. Electronics Manufacturing Services (EMS) providers and Original Design Manufacturers (ODMs) continued to drive shipment growth through electronic equipment orders outsourced to China. Major semiconductor suppliers also have experienced fast-paced growth in both revenue and unit shipments this year.

Moreover, shipments of mainstream consumer-electronics products recorded stable unit growth during the first three quarters of 2007 compared to the same period in 2006. Annual growth in unit shipments of Digital Set-Top Boxes (D-STBs) and Digital Still Cameras (DSCs) in 2007 will exceed 30 percent. Beyond that, LCD-TV shipments will double in 2007.

However, semiconductor suppliers suffered from dramatic declines in chip prices due to heightened competition. Many vendors are having difficulty boosting their sales revenue.

Looking ahead to 2008, suppliers are encountering new challenges in maintaining growth. One challenge is that the Chinese government plans to optimize the nation's economic structure and generate higher financial returns while pursuing measures intended to reduce overall resource consumption and to better protect the environment. The domestic electronics industry as a whole also needs improvement.

iSuppli forecasts that China's semiconductor market will expand by 12 percent in 2008, with revenue rising to $58 billion for the year.

China's currency will continue its gradual rise in value during 2008. At the same time, semiconductor suppliers will encounter more intense price-based competition. Chip makers will also suffer from a lack of new killer applications able to drive a major phase of revenue expansion.

To compensate, chip makers are accelerating new product development efforts.
Domestic electronic product manufacturers also face similar problems. In response, suppliers are strengthening partnerships with major customers as well as cultivating extensive distributor and design partner networks capable of supporting medium and small equipment manufacturers. Improved service is becoming another important competitive differentiator within China's electronics market.

To learn more about this topic, see iSuppli's database report entitled: Greater China Competitive Landscaping Tool - Annual Market Shares 2007. For more information on this report, visit: http://www.isuppli.com/catalog/detail.asp?id=%208891