EL SEGUNDO, CA – In light of strong growth in the third quarter, China’s semiconductor market appears to be closing in on previous growth forecasts of 15% in 2007, research firm iSuppli Corp. says.

China’s semiconductor revenue is expected to rise to $52 billion, up 13.5% year-over-year. This would mark the first time the nation’s annual semiconductor revenue exceeds $50 billion, according to iSuppli.

iSuppli forecasts China’s semiconductor market will expand 12% in 2008, to $58 billion, with new products overcoming a lack of a single "killer app" and currency inflation.

“Strong midseason market demand during the third quarter helped semiconductor suppliers reach their revenue targets,” said Horse Liu, senior analyst, China Research for iSuppli. “Meanwhile, exports of electronics products also grew significantly despite the negative effects of a higher yuan and rising petroleum prices.”

Industrial control systems such as inverter motor controls, security and surveillance systems and automotive electronics all generated substantial growth in China. Leading semiconductor suppliers benefited because of their broad product portfolio coverage and promotional activities during the past several years. For these same reasons, it was difficult for new entrants to penetrate emerging product categories, says the firm.

Furthermore, communication equipment markets reported robust unit shipment increases. For example, shipments of domestically designed mobile phones are forecast to reach 204 million units in 2007, up 58% from 2006. EMS providers and ODMs continued to drive shipment growth through electronics equipment orders outsourced to China. Major semiconductor suppliers also have experienced fast-paced growth in both revenue and unit shipments this year.

Moreover, shipments of mainstream consumer-electronics products recorded stable unit growth during the first three quarters compared to the same period last year. Annual growth in unit shipments of digital set-top boxes and digital still cameras will exceed 30%. Beyond that, LCD-TV shipments will double.

However, semiconductor suppliers suffered from dramatic declines in chip prices because of heightened competition, says iSuppli. Many vendors are having difficulty boosting their sales revenue.

Looking ahead to 2008, suppliers are encountering new challenges in maintaining growth. One challenge is that the Chinese government plans to optimize the nation’s economic structure and generate higher financial returns, while pursuing measures intended to reduce overall resource consumption and to better protect the environment. The domestic electronics industry as a whole also needs improvement, says iSuppli.

China’s currency will continue its gradual rise in value during 2008. At the same time, semiconductor suppliers will encounter more intense price-based competition, says iSuppli. And chipmakers will suffer from a lack of new killer applications able to drive a major phase of revenue expansion. To compensate, chipmakers are accelerating new product development efforts.

Domestic electronics manufacturers face similar problems. In response, suppliers are strengthening partnerships with major customers, as well as cultivating extensive distributor and design partner networks capable of supporting medium and small equipment manufacturers. Improved service is becoming another important competitive differentiator within the local market, adds iSuppli.  

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