Stimulus, recovery power China chipmakers

By Doug Young and David Lin

SHANGHAI (BestGrowthStock) – Two top Chinese chipmakers and Intel’s (INTC.O: ) lone China factory are all running at or near full capacity, as China’s sector rebounds faster than the rest of the world, senior executives at the three firms said.

Chinese firms got a shot in the arm last year when Beijing launched a raft of measures aimed at boosting consumer spending under its 4 trillion yuan ($585 billion) economic stimulus package. Many were aimed at lifting consumption of higher-end products like cars, appliances and electronics that use chips.

But many say the industry still needs to consolidate to become globally competitive.

Intel’s chip test and assembly plant in the interior city of Chengdu is now running near capacity, as it prepares to launch a second $2.5 billion Chinese plant in October in the northeast city of Dalian, Ge Jun, managing director for Intel China, told Reuters on the sidelines of an industry event on Tuesday.

Likewise, Semiconducor Manufacturing International Corp (0981.HK: ) SMI.N>, China’s largest chipmaker, is also running at full capacity, Chairman Jiang Shangzhou told Reuters at the same event.

“Right now our capacity is all taken up, and we don’t have enough,” said Jiang. “There’s orders from inside and outside China, and there are many that we just can’t take right now.”

Smaller homegrown rival Grace Semiconductor has also been operating at 100 percent capacity since September, about the time China’s battered chip sector returned to year-on-year growth after a prolonged downturn, CEO Ulrich Schumacher said.

He said it is still too early to say if Grace — which has plentiful vacant space in its building for more production — will install new capacity in that space.

“Let’s see how stable this recovery is,” he said.

The global market for contract chip makers such as SMIC and Grace contracted about 10 percent last year, as the financial crisis hit demand for chip-powered electronic gadgets including PCs, cellphones, cameras and MP3 music players.

China’s broader chip sector contracted as well last year, but at a slower pace than the global sector and returned to a growth track in the fourth quarter. SMIC’s Jiang forecast China’s chip sector will grow more than 20 percent this year.

Research firm iSuppli expects the global contract chip manufacturing sector to return to growth this year, with a forecast for 21 percent growth to total output of $21.6 billion.

China has struggled for years to build up a globally competitive semiconductor industry as it tries to move up the tech value chain, but has largely failed due to the sector’s fragmented nature and less developed technology.

Efforts at consolidation have sprung up from time to time, but none has ever come to fruition. Lacking the scale to compete with industry leaders such as Taiwan’s TSMC (2330.TW: ) and UMC (2303.TW: ), SMIC, the only publicly listed major Chinese firm, has posted losses in each of the last 14 quarters.

Investing Research

(Editing by Anshuman Daga)

Stimulus, recovery power China chipmakers