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Chinese government's semiconductor R&D investment is much higher than other countries

Release on : Aug 27, 2019

First, let's take a look at the expenditures of several national semiconductor companies on semiconductor R&D:

American

American semiconductor companies have by far the highest R&D expenses. Intel's R&D spending of $13.5 bn in 2018 (19% of sales) is far higher than any other company in the world. Within the US, Intel is followed by Qualcomm ($5.6 bn, 25%), Broadcom ($3.8 bn, 18%), Nvidia ($2.4 bn, 20%), Micron ($2.1 bn, 7%), Applied Materials ($2.0 bn, 12%), Texas Instruments ($1.6 bn, 10%), AMD ($1.4 bn, 22%), Lam Research ($1.2 bn, 11%), Marvell ($914 M, 32%), Xilinx ($743 M, 24%), ON Semiconductor ($651 M, 11%), KLA ($609 M, 15%), Maxim Integrated ($451 M, 18%), Cypress Semiconductors ($364 M, 15%), Teradyne ($301 M, 14%), and Amkor ($157 M, 4%). Together, these 17 companies spent $35.8 bn (16% of their combined sales of $234 bn) on semiconductor research and development. Per year! In the 'Winning the Future' report, SIA urges the US government to triple US investments in semiconductor-specific research from the current $1.5 bn to $5 bn annually, to ensure continued US leadership in the global semiconductor industry.

Japan

Renesas leads semiconductor R&D spending in Japan with $1.1 bn (17%), followed very closely by Sony Semiconductor Solutions ($1.1 bn, 14%). Toshiba Memory has separated from Toshiba and will continue as Kioxia Holdings, but Toshiba Memory's R&D expenses in the year ending March 2018 were also $1.1 bn (10%). Tokyo Electron's R&D expenses were $1.0 bn or 9% of sales in 2018. Rohm Semiconductor follows with $357 M (10%), Advantest spent $341 M (13%) and Dainippon Screen spent $206 M on R&D (6%). Together these seven companies spent $5.2 bn on R&D (10% of their combined sales of $49.6 bn). No information was found about government funds used to develop or invest in the Japanese semiconductor industry.

South Korea

On April 30, South Korean President Moon Jae-in spoke at the ceremony, "Starting next year, a technology development project worth one trillion won ($0.86 bn) will be pursued as part of the efforts to secure original technologies for next-generation semiconductors." As a reaction to Japan's tightening of semiconductor materials exports to Korea, the Korean government also recently announced plans to invest 1 trillion won annually ($0.86 bn) to develop semiconductor materials. Samsung's reported semiconductor revenue is $77.2 bn, but the annual report does not mention R&D spending for its semiconductor division. R&D expenses as percentage of sales for the whole company are 7.5% and considering semiconductor sales represent 35% of Samsung's total sales, Samsung's R&D expenses are estimated to be US$5.8 billion (7.5% of US$77.2 billion). With SK Hynix reporting R&D expenses of $2.6 bn in 2018 (7.1% of sales), Korea's two semiconductor giants spent $8.4 bn (7.4% of their combined sales) on R&D.

Netherlands

In the Netherlands the only recent semiconductor-related government investment is a $86 M investment for a public-private photonics initiative. The top 3 Dutch semiconductor companies spent a combined $3.6 bn on R&D (16% of their combined sales of $22.7 bn). ASML leads Dutch semiconductor industry R&D investments with $1.8 bn (14%), followed by NXP ($1.7 bn, 18%), and ASM International ($101 M, 11%).

Chinese Taiwan

TSMC is the semiconductor industry's top R&D spender in Taiwan with $2.9 bn, or 8.3% of sales. MediaTek follows with $1.9 bn (24%), before ASE Technology Holding ($490 M, 4.0%), UMC ($427 M, 8.6%), Realtek ($425 M, 28%), Novatek ($254 M, 14%), Winbond ($252 M, 15%), and Nanya (NTC, $160 M, 6%). These 8 Taiwanese semiconductor companies spent $6.8 bn or 10% of their combined sales ($66.1 bn) on R&D. Taiwan’s leader Tsai Ing-wen mentioned last year that the government is committed to developing Taiwan's semiconductor sector and providing all requisite assistance for local firms upgrading competitiveness and retaining leadership positions. However, no specific details were found about the Taiwanese authorities' research funding or investment support for the semiconductor industry.

China

HiSilicon is most likely China's biggest semiconductor R&D spender but it does not publish financial data. HiSilicon's 2018 revenue is reported to be $7.3 bn. Taking parent company Huawei's R&D expenses as percentage of sales (14%) as a proxy, HiSilicon's R&D expenses would be around $1.0 bn. For UNISOC, take a similar approach. Using parent company Tsinghua Unigroup's R&D expenses as percentage of sales (30%) for UNISOC's revenue, their estimated R&D expenses are 480 million US dollars. For one more non-listed company, Beijing OmniVision, revenue is reported to be more than $1.0 bn but has not found any information on their R&D expenses. For China's listed semiconductor companies, SMIC spends by far the most on R&D reporting $558 M R&D expenses in 2018 (15% of sales). Packaging and testing company JCET spent $129 M (4%), followed by IC design company Goodix, who recently acquired NXP’s Voice and Audio Solutions, with $121 M (23%). TFME spent $81 M (8%), Tianshui Huatian Technology $56 M (5%), equipment maker NAURA $51 M (11%), pure-play foundry HHGrace $45 M (5%), GigaDevice $30 M (9%) and equipment maker AMEC $17 M (7%). Combined, these eleven Chinese companies' R&D expenses are $2.6 bn, or 13% of their combined sales ($20.3 bn).

The American Semiconductor Industry Association (SIA) writes in its April 2019 report 'Winning the Future – A Blueprint for Sustained US Leadership in Semiconductor Technology' that "Technology challenges and ambitious steps by foreign governments put at risk continued semiconductor innovation and US leadership in this sector. (...) Although US companies still lead the world with nearly half of global market share, state-backed competition from abroad seeks to displace US leadership." And more specific on the potential impact of the Big Fund: "The Chinese government has announced efforts to invest well over $100 billion over the next decade to catch up to the United States in semiconductor technology, artificial intelligence, and quantum computing. While China may not meet all its goals, the size and scale of its effort should not be ignored."

semiconductor

Figure 1: Industry and government spending on semiconductor R&D

The Chinese government has made no secret of its ambitions to further develop the domestic semiconductor industry. In May the Chinese Semiconductor Industry Association (CSIA) reported that the value of China's integrated circuit (IC) imports reached $312 bn in 2018 and has been higher than the value of crude oil imports for some years already. The "Made in China 2025" policy, published in May 2015, mentions specific targets to increase self-sufficiency in IC production to 40% in 2020 and 70% by 2025. It is clear that China aims to accelerate the development of the semiconductor industry and reduce the reliance on imports of chips.

To help reach these goals, the Chinese government established the China Integrated Circuit Industry Investment Fund (CICIIF) or 'Big Fund' in September 2014. The Big Fund was set up to invest in and promote mergers and acquisitions in the semiconductor industry. Beijing envisioned spending more than $150 billion over 10 years to stimulate developments in semiconductor design and manufacturing.