When the chips are down, in supply, not price

Updated 2017-11-22 10:02:12 Shanghai Daily

Some chip prices are rising faster than at any time in recent memory.

Chinese buyers of electronic devices, who comprise the world's largest market, can expect to pay more for their favorite gadgets. Game fans and designers looking to upgrade titles already are paying triple the price of earlier this year for two bars of eight gigabytes of memory.

Prices of chips for memory, graphic and central controlling, which are used in computers, TVs, smartphones, home appliances and in the latest model cars, are also expected to jump. In the wider landscape, the wave will finally wash over the whole of China's innovation-driven economic transformation.

The rising cost contradicts Moore's Law, an industry axiom that says chip capabilities double each 18 months with a corresponding decrease in prices. The reasons behind the unusual price hike for memory chips are simple: short supply and a high-tech threshold.

It has prompted some media to call semiconductor production "the best investment" of the year.

China is a global manufacturing center and top market of consumer electronics, from smartphones and TV to computers. All those devices operate on chips, and demand is surging. At the same time, local capacity in chip production, especially on the high-end of the industry, is squeezed, forcing China to depend more heavily on chip imports.

"High-end chip design and manufacture require ever more advanced technologies," said Zhao Weiguo, chairman of Tsinghua Unigroup, one of China's top semiconductor firms. "That is the diamond in the technology industry in all major countries."

However, the US, South Korea and Taiwan ban the export of their most advanced chip technologies to the Chinese mainland.

Despite huge investment from government funds and companies, the situation in China's mainland semiconductor market isn't expected to change anytime soon.

Broadcom's attempt to acquire Qualcomm in a deal valued US0 billion is another signal reminding China of the necessity and urgency of strengthening its own integrated circuit industry.

Imported chips

Almost 95 percent of global production of DRAM (dynamic random access memory) chips is dominated by two South Korean giants and one US company.

In the third quarter, Samsung held a 45.8 percent share, followed by SK Hynix, with 28.7 percent, and US-based Micron with 21 percent, according to researcher TrendForce.

The price of DRAM memory is expected to surge about 10 percent in the fourth quarter because of booming demand from computer and smartphone makers, TrendForce predicted.

Meanwhile, the prices of graphic chip and CPU (central process unit) are also forecast to surge. Related core technologies are controlled by US-based firms like Intel and Nvidia.

According to the Chinese customs, chip imports hit US7 billion in 2016, almost double the value of oil shipped in.

China is the world's biggest chip consumption market, which was valued at US9 billion in 2016 and accounted for 45.2 percent of the global take-up, according to research firm IHS.

Qualcomm's US billion deal for chip licenses with Chinese smartphone vendors Oppo, Vivo and Xiaomi is yet another example of how China needs to advance the development of its own chip technologies.

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