domestic chip industry is growing fast and catching up with Asian and
western rivals but it still faces serious challenges. That's the
take-away from this
report from, which reveals that the annual growth
rate for China's domestic integrated circuit industry has averaged over
30% during the past five years.

In 2005, growth accelerated markedly and sales rose 52% to 12.4bn yuan.

Thanks to the government's heavy promotion of a home-grown chip
industry, the research firm forecasts that by 2010 China will have
20-30 IC design houses with over $100m annual output, including two to
three large IC design houses of over $1bn annual output.

As well as growing in scale, China's domestic industry is also
becoming more technically advanced. The mainstream process technology
has decreased from 500 nanometres in 2001 to 180nm in 2005 and 65nm
will be common in 2010.

Nevertheless, China's chip design sector still faces big challenges.
It lags behind the US, South Korea, Japan and Taiwan in process
technology, which ultimately limits its capability to simple low-cost
chip designs — like those used in cheap MP3 players, for example.

The scale of the industry is relatively small compared to that of
competing nations, and so too is the size of individual IC design
houses, although consolidation will lead to fewer, bigger players in
the future.

Perhaps the biggest challenge, however, is on the human resources
front as qualified workers are in short supply, particularly for
technical, managerial and marketing positions.

China's traditionally poor showing in chip technology is reflected
in patent filings for IC designs. Between 1985 and 2003, 71% of almost
16,000 IC patent applications made in China were from foreign
countries, according to a report recently issued by the National Research Centre for Science and Technology for Development.

The report urges China's researchers and patent experts to work
together to improve China's competitiveness. If not, “foreign companies
could use their patent rights to contain the development of China's IC
industry”, the Xinhua story warns ominously.

Technorati : , , , , ,