China's Chip Industry Accelerates Its Rise，Moving Toward a 100 billion Market

Chips, as tiny silicon wafers containing integrated circuits, are the core components of computers and various electronic devices. A chipset, on the other hand, is a combination of multiple interconnected chips that work together to achieve more complex functions, such as the central processing unit (CPU) in computers and the radio frequency and baseband chips in mobile phones. The precision of integrated circuits is measured in nanometers, with one nanometer being just one hundred-thousandth of a millimeter, which imposes extremely high demands on design and manufacturing processes.

According to chip manufacturing experts, the chip manufacturing process is highly complex, involving over 50 industries and 2,000 to 5,000 steps. Taking a foundry as an example, the manufacturing process begins with purifying silicon sand, followed by cutting wafers, front-end and back-end processing, and finally packaging. Among these steps, lithography technology is the critical link connecting design and manufacturing.

Chips are hailed as the "industrial grain" of the modern era, with a wide variety and extensive applications. A single smartphone contains dozens of chips, covering areas such as cameras, voice processing, and power systems.

Data from the China Semiconductor Industry Association shows that in 2017, China's self-sufficiency rate for integrated circuits was only 38.7%, with imports reaching 377 billion units and an import value of $260.1 billion, accounting for 14.1% of China's total imports, far exceeding the import value of crude oil. Since 2015, the import value of chips has surpassed that of crude oil for three consecutive years, with the gap widening annually.

The global chip market is dominated by companies from the United States, Japan, and Europe, with these three regions almost monopolizing the high-end market. Intel and Qualcomm hold leading positions in the computer and mobile phone chip sectors, respectively. Although domestic companies like Huawei and Samsung have made breakthroughs in mobile phone chips, most Android phones still rely on Qualcomm processors.

In 2017, China's integrated circuit industry sales reached 541.13 billion yuan, a year-on-year increase of 24.8%. Among these, the manufacturing sector grew the fastest, while the design and packaging/testing sectors also maintained rapid growth. In the same year, China exported 204.35 billion integrated circuits, with an export value of $66.88 billion.

China's domestic semiconductor industry has developed rapidly in recent years. In 2017, Huawei HiSilicon topped the list of domestic integrated circuit design companies with sales of 36.1 billion yuan, followed by Unisoc and ZTE Microelectronics. Huawei HiSilicon's products are widely used in over 100 countries and regions, with its Kirin processors particularly standing out in the smartphone sector.

Unisoc has rapidly expanded through capital operations and strategic business layouts. In 2013, it acquired Spreadtrum Communications, and in 2014, it merged with RDA Microelectronics. In 2016, it entered the packaging and testing sector and invested in building memory chip manufacturing plants. Unisoc has collaborated with Intel to develop x86 architecture-based system chips and is committed to developing domestically controlled CPU architectures.

China's chip industry is accelerating its development with strong momentum. From 2013 to 2017, the compound annual growth rate of the integrated circuit industry was 21%, with the scale increasing from 2.508 trillion yuan to 5.411 trillion yuan. Industry investment doubled, with an average annual investment exceeding 100 billion yuan over the past three years. Supercomputers using domestically developed chips have ranked first in the world for four consecutive assessments.

As the application scope of terahertz technology expands, the chip industry will drive upstream and downstream sectors such as security and safety inspection, potentially forming a market scale of hundreds of billions in the future. Companies in the industry chain will usher in new development opportunities.