China’s semiconductor output drops again in October, signalling bottlenecks amid global chip shortage

Integrated circuit output fell by 300 million units to 30.1 billion in October, but production was up 22 per cent year on year
Disrupted supply chains have hurt efforts to increase production capacity at foundries across China, including new projects from SMIC

Semiconductors

Che Panin Beijing

Published: 8:00pm, 15 Nov 2021

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The volume of China’s integrated circuit (IC) output dropped for the second consecutive month in October, according to the latest government data published on Monday, as supply bottlenecks emerge amid a shortage of global chip production capacity.

China’s IC output fell to 30.1 billion units in October from 30.4 billion in September, and a record-high of 32.1 billion in August, the National Bureau of Statistics said. Chip output was up 22.2 per cent for the month year on year, the agency added.

While China’s IC statistics do not provide a detailed breakdown of product categories, overall output offers a rough measurement of the country’s efforts to reduce its reliance on imports and boost domestic semiconductor production, which has become a national priority amid Beijing’s drive for technological self-sufficiency.

How China’s SMIC plans to lead Beijing’s quest for chip self-sufficiency

The fall in the past two months could be a reflection of the impact of disruptions in the global semiconductor supply chain, analysts said. The lead time for chip-making equipment, referring to the time between when an order is placed and when the equipment reaches the factory floor, has extended to 12 months, according to a recent note from Shanghai-based research company ICWise. The average delay has reached six months, hindering expansion plans at Chinese foundries.

Major semiconductor foundries on the mainland, including Semiconductor Manufacturing International Corp (SMIC), have been running at nearly full capacity this year to keep up with high demand during the shortage.

SMIC said last week that plans to expand capacity have faced constraints from logistics disruptions, extended lead times, and US licensing requirements. The company’s overall capacity increased to 594,000 8-inch equivalent wafers in the quarter ended September, 32,000 more than in the June quarter, according to SMIC’s Co-CEO Zhao Haijun.

By the end of September, China had 33 production lines, including both planned lines and those being constructed, for 8-inch wafer manufacturing and 41 lines for 12-inch wafers, which in theory could churn out 1.13 million 12-inch equivalent wafers per month, ICWise’s note said.

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There’s a global semiconductor shortage and this is why it matters

Governments around the world have been looking for ways to help ease the chip crunch, primarily through funding for the semiconductor industry. Supply chain integrity has been another concern in the industry. Taiwan Semiconductor Manufacturing Co (TSMC), the world’s top contract chip maker, has been a major beneficiary of government incentives to build local facilities, resulting in a new foundry being built in the US and a joint venture chip plant with Sony planned for Japan.

SMIC’s expansion plans include financial support from local governments. It is currently building foundries in Beijing, Shenzhen and Shanghai, each focusing on the 28-nanometre technology node, which are expected to have a combined monthly capacity of 240,000 wafers. The Shenzhen fab is expected to enter production in the second half of next year, Zhao said, adding that the plant’s capacity is already being booked out in advance.

US politicians are also weighing additional support for the semiconductor industry. The Senate passed a bill earlier this year that would provide US$54 billion to support chip production, but it has stalled in the House of Representatives.

This article appeared in the South China Morning Post print edition as: Semiconductor output drops again on mainland as bottlenecks emerge