Reconstruct the "core" capability of the Pearl River Delta

If Li Huaqing, a reporter from the Economic Observer, asks which province in the country has the strongest manufacturing industry, many people may blurt out: Guangdong. Judging from the added value of manufacturing above designated size, the number of manufacturing enterprises above designated size, and the total import and export trade, Guangdong is the strongest manufacturing province in China, and the Pearl River Delta region composed of 9 cities in central and southern Guangdong (Guangzhou, Shenzhen, Foshan, Dongguan, Zhuhai, Zhongshan, Huizhou, Zhaoqing, Jiangmen) is also a world-famous electronic information industry base. However, if asked, which province in the country has the strongest integrated circuit manufacturing industry, Guangdong is a bit bleak.

According to the data of the National Bureau of Statistics, the output of integrated circuits in the country in 2020 is 261.422 billion pieces (reporter's note: the statistics in 2021 are not out), of which the output of Guangdong is 37.335 billion pieces, accounting for less than 15% of the national output; the output of Jiangsu is 83.644 billion pieces, accounting for more than 30%, and the output of Shanghai city reaches 28.867 billion pieces.

In the integrated circuit industry popular saying: "60% of the world's chips are sold to China, and 60% of China's chips are consumed in the Pearl River Delta / Guangdong-Hong Kong-Macao Greater Bay Area", the logic behind this is not difficult to understand, integrated circuits are known as "the grain of modern industry", in China, the three major application markets of the integrated circuit industry are network communications, computers and consumer electronics, the application market share of these three major areas can reach 80%, and the Pearl River Delta just manufactures products related to these three major fields.

However, there is a huge gap between the integrated circuit manufacturing capacity of the Pearl River Delta and its demand? According to data from the National Bureau of Statistics, the output of integrated circuits in the Yangtze River Delta will account for half of the country in 2020, and the Yangtze River Delta is the strongest area in China's integrated circuit manufacturing industry.

Is the shortcomings in the capacity of the integrated circuit industry in the Pearl River Delta consistent with the reasons behind the weak capacity of China's integrated circuit industry? If you want to build Guangdong, the third pole of China's integrated circuits, how to exert its strength?

Industrial capacity

The integrated circuit industry chain can be divided into the core industrial chain, the supporting industrial chain and the demand industry chain, the core industrial chain includes the design, manufacturing and packaging and testing of integrated circuits, and the supporting industrial chain includes integrated circuit materials, equipment, EDA (electronic design automation), etc.; the demand industry chain includes communication products, consumer electronics, computing chips, automobiles or industrial fields.

Guangdong's integrated circuit demand industry chain has developed rapidly. In September 2020, the Guangdong Development and Reform Commission, the Guangdong Department of Science and Technology and the Guangdong Department of Industry and Information Technology jointly issued the "Guangdong Provincial Action Plan for Cultivating Semiconductor and Integrated Circuit Strategic Emerging Industry Clusters (2021-2025)" (hereinafter referred to as the "Five-Year Action Plan"), which introduced that Guangdong is the largest province in China's information industry, with the largest semiconductor and integrated circuit application market in the fields of consumer electronics, communications, artificial intelligence, and automotive electronics, and the import amount of integrated circuits accounts for about 40% of the country.

However, there are great differences in the degree of development of different links in the core industrial chain of integrated circuits in Guangdong. According to the five-year action plan, the main business income of Guangdong's integrated circuit industry exceeded 120 billion yuan in 2019, of which the operating income of the integrated circuit design industry exceeded 100 billion yuan. In other words, in the core industrial chain, Guangdong's design capabilities have been riding the dust, but the manufacturing and sealing and testing capabilities have not been able to keep up with the development speed. The shortcomings of Guangdong integrated circuit manufacturing are quite obvious, and there is only one 12-inch wafer line to achieve large-scale mass production in 2020. Although design ability is important, in the core industry chain, the technical content of the manufacturing link is the highest, the capital investment is also the largest, and the process is complex.

The reason why Guangdong has high revenue in the field of integrated circuit design is related to Shenzhen, which has ranked first in the national integrated circuit design sales city for many years. However, Shenzhen's performance in icicular design sales relies heavily on Huawei HiSilicon. In late December 2021, Wei Shaojun, chairman of the Integrated Circuit Design Branch of the China Semiconductor Industry Association, released data from the China Semiconductor Industry Association at a forum showing that in 2021, Shenzhen's integrated circuit design sales fell from 130 billion yuan in 2020 to 69.71 billion yuan, almost waist-cutting, from the original city with the first ic design sales to the third, ranking after 120 billion yuan in Shanghai and 83.9 billion yuan in Beijing. The sharp decline in sales of integrated circuit designs in Shenzhen is related to Huawei HiSilicon's sanctions by the United States.

Data released by Wei Shaojun at the forum shows that in 2021, the sales of integrated circuit designs in the Pearl River Delta will decline by 36.9% year-on-year, while this figure in the Yangtze River Delta will rise by 49% year-on-year in the same period, the Beijing-Tianjin Bohai Rim will increase by 76.7% year-on-year, and the central and western regions will rise by 40.3% year-on-year.

If you look at the comprehensive strength of integrated circuits, in the eyes of industry insiders, the Pearl River Delta is also difficult to reach the Yangtze River Delta. According to the 2021 Chinese mainland City IC Competitiveness Ranking selected by the Core Thought Research Institute, the strongest is Shanghai, followed by Beijing, followed by Wuxi, Shenzhen ranks fourth, and Shenzhen is also the only Guangdong city selected in the top ten. Among the top 15, the Yangtze River Delta region occupies 6 seats (Shanghai, Wuxi, Hefei, Nanjing, Suzhou, Hangzhou), the central and western regions hold 4 seats (Wuhan, Chengdu, Xi'an, Chongqing), while the Pearl River Delta and Bohai Rim regions also occupy only 2 seats (Shenzhen, Guangzhou, Beijing, Dalian respectively).

As we all know, Shanghai has china's strongest integrated circuit manufacturing enterprise - SMIC, but in fact, the development of all aspects of Shanghai's integrated circuit industry is relatively balanced. According to the data of the Shanghai Integrated Circuit Industry Association, the scale of Shanghai's integrated circuit industry in 2020 reached 207.1 billion yuan, of which the design industry was 95.4 billion yuan, the manufacturing industry was 46.7 billion yuan, the sealing and testing industry was 43.1 billion yuan, the equipment and materials industry was 21.9 billion yuan, and the total industrial scale of the three links of design, manufacturing and sealing and testing accounted for nearly 21% of the country.

People in the industry have different views on the reasons why the capacity of the integrated circuit industry in the Pearl River Delta does not match its demand. Some people in the industry have a sharper view, believing that after the implementation of reform and opening up, the Pearl River Delta relies on the "three to one supplement" model of processing, assembly of incoming parts, sample processing and compensation trade, and although the manufacturing industry in the Pearl River Delta has developed, the gold content is not high, the international trade in the Pearl River Delta is also developed, trade pays attention to "handing over money with one hand and delivering with one hand", and the Pearl River Delta enterprises have the gene of "making fast money", which is not conducive to the development of the integrated circuit industry with intensive technology, capital intensive, high risk and long return period.

Wu Quan, founding partner of Huaxin Jintong (Beijing) Investment Fund Management Co., Ltd., provided different views to this reporter. Wu Quan believes that in recent years, because the integrated circuit has been "stuck in the neck", the whole country has paid attention to the independent controllability and security of the integrated circuit industry chain, and suddenly looked back and found that the integrated circuit manufacturing capacity of the Pearl River Delta is weak, which can be said to be the current phenomenon in the Pearl River Delta, but it is difficult to negate the past development of the integrated circuit industry in the Pearl River Delta by this phenomenon.

Wu Quan does not approve of the practice of comparing the strength of integrated circuits in the Yangtze River Delta and the Pearl River Delta, and he feels that the reasons for the differences between the two places and the choice of industry are also related to the state's development plan for integrated circuits in different regions. The Pearl River Delta integrated circuit industry in the past chose the path of "world division of labor", a large number of imports of chips, which in the past was an economical and effective, mutually beneficial way, and as early as 2014 when the state formulated the integrated circuit development plan, it was proposed that the main body should be concentrated, the region should be concentrated, even in recent years, the local governments have vigorously promoted the development of the local integrated circuit industry, there are still people who emphasize that we cannot lose the principle of "subject concentration, regional agglomeration", to overcome blind low-level duplication of construction, in history, The state's policy support for the development of integrated circuits in the Yangtze River Delta is more than that in the Pearl River Delta, and the old integrated circuit-related research institutes and enterprises established in the 1950s and 1960s have basically not settled in the Pearl River Delta.

The development of Taiwan's TSMC may also have a "siphon effect" for the development of Guangdong's integrated circuit manufacturing industry. According to icInsights statistics, as early as 2018, TSMC accounted for 60% of the global pure wafer foundry market share, and the pure wafer foundry market is prone to the "Matthew effect" and the formation of oligopolies. According to ICInsights statistics, the world's top 10 pure wafer foundries accounted for 97% of the global market share in 2018, and the top 5 manufacturers (TSMC, GROFOUNDRIES, UMC, SMIC, AndLitek) accounted for 88% of the global market share.

As the icic process continues to improve, head IC manufacturers are more likely to benefit. According to IBS statistics, with the continuous reduction of technology nodes, the investment in integrated circuit manufacturing equipment has increased significantly. Taking the 5-nanometer technology node as an example, the ordinary lithography machine is limited by wavelength, the accuracy has been unable to meet the process requirements, and the investment cost required for the 5-nanometer process is as high as tens of billions of dollars, which is more than twice that of 14 nanometers and about four times that of 28 nanometers. Huge equipment investment can only be borne by the head of the integrated circuit manufacturer. When the Pearl River Delta enterprises did not have the card slot for integrated circuit manufacturing at the beginning, the more they went to the back, the more passive they were.

The third pole of an integrated circuit

Although the current capacity of the integrated circuit industry in the Pearl River Delta is not prominent enough in the country, Wu Quan is still optimistic about its prospects. The reasons he gave are several points: first, Guangdong has a good manufacturing foundation and manufacturing process capabilities; second, Guangdong's demand for chips is large, and its understanding of demand is the most typical advantage of Guangdong; the third is Guangdong's innovation ability, innovation atmosphere and strong scientific research ability; fourth, Guangdong is the forefront of reform and opening up, in the context of "double circulation", Guangdong has great potential; fourth, Guangdong has strong financial resources. "The Pearl River Delta used to use an export-oriented economy and asset-light way to develop integrated circuits, which was a stage of development, and when it realized that it was necessary to change the development ideas, it had already changed quite quickly." Wu Quan said.

In recent years, Guangdong has proposed to build the third pole of China's integrated circuits, and the "14th Five-Year Plan for the High-quality Development of Manufacturing in Guangdong Province" issued in August 2021 put forward the goal that by 2025, the revenue of Guangdong semiconductor and integrated circuit industry will exceed 400 billion yuan.

The five-year action plan mentioned above puts forward more specific goals and supporting means for the future development of the integrated circuit industry in Guangdong Province. By 2025, Guangdong's integrated circuit design industry will exceed 200 billion yuan, forming more than 3 design enterprises with sales revenue of more than 10 billion yuan and a number of sales revenue of more than 1 billion yuan; the integrated circuit manufacturing industry will exceed 100 billion yuan and build a large-scale characteristic process production line. The proportion of advanced packaging and testing has been significantly improved, the production capacity of some compound semiconductor materials and devices is leading in China, the development of special equipment and components has begun to take shape; the intensity and quality of invention patents are at the forefront of the country, EDA software has domestic substitution capabilities, and the level of integrated circuit design has entered the international advanced ranks.

Various cities in Guangdong are also planned to develop the integrated circuit industry capabilities of different links, among which, with Guangzhou, Shenzhen and Zhuhai as the core areas, promote the manufacture of characteristic processes and advanced processes of integrated circuits, cultivate compound semiconductors, and achieve breakthroughs in wafer manufacturing processes, FPGAs, DSPs, digital-analog hybrid chips, analog signal chain chips, RF front-ends, EDA tools, key IP cores and other fields, to create a whole industry chain covering design, manufacturing, packaging and testing.

Shenzhen, Shantou, Meizhou, Zhaoqing, Chaozhou as the basis for the construction of new electronic components industry agglomeration area, Guangzhou-Shenzhen Zhuguan and other linkage development of compound semiconductor industry. Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen, Shanwei and other cities, according to their respective industrial bases, cultivate and develop leading enterprises in the fields of packaging and testing, semiconductor materials, special equipment and parts, electronic chemicals and other fields, and form a linkage development pattern with Guangzhou,Shenzhen and Zhuhai.

Guangdong's demand for chips has indeed made some industry people optimistic about its prospects. Founded in 2017, Yuexin Semiconductor is currently the only manufacturer in Guangdong to enter the mass production of 12-inch chips, according to the official website of Yuexin Semiconductor, the company's project planned investment is 37 billion yuan, if the production is completed, it can be built with a monthly output of nearly 80,000 12-inch wafer analog chip production capacity. Li Haiming, vice president of Yuexin Semiconductor, expressed his views when participating in the forum hosted by the Economic Observer in September 2021, saying that having the right to speak on the chip application side is an advantage for the development of integrated circuits, and in the newly emerging application market, the demand side can reset the "rules of the game", so that the design, manufacturing and packaging and testing of chips follow their own needs.

The current manufacturing of analog chips by Yuexin Semiconductor is also related to the current demand situation in the Pearl River Delta, which is more conducive to opening up the market and surviving than cutting into high-end general-purpose chips such as edge computing chips, storage chips, and processors at the beginning.

For the future development of Guangdong's integrated circuit industry, Wu Quan suggested that to give full play to the initiative guided by the government, from the perspective of industrial efficiency and industrial chain security, Guangdong can strengthen the development of IDM mode (referring to the integration of design, manufacturing, packaging and testing and sales) and Foundry mode (referring to the wafer foundry model, specifically responsible for the production and manufacture of chips, not responsible for chip design).

Wu Quan believes that Guangdong has a very strong manufacturing enterprise body, as long as they have the will and determination, they can develop the IDM model, such as BYD and other enterprises. And the wafer foundry model, TSMC is a typical, but although Taiwan has TSMC, but failed to achieve the independent controllability of the integrated circuit industry chain, TSMC is still too dependent on Apple, Qualcomm and other enterprises, but the close cooperation between Apple Qualcomm and TSMC is almost equivalent to turning itself into an IDM model. Therefore, in the future, if Guangdong cultivates a competitive wafer foundry, the provincial government can promote the formation of a virtual IDM model between upstream and downstream enterprises and the wafer foundry.