TSMC CEO: Fabless chip companies on the rise in China

China is still far behind the US when it comes to designing chips, but changes will come during the next decade, according to TSMC's CEO.

Within the next ten to fifteen years, it's likely that Chinese chip designers will have placed a few companies within the top 20 fabless semiconductor companies in the world, Taiwan Semiconductor Manufacturing Co. Ltd.'s (TSMC's) chief executive officer told a meeting of the U.S.-Taiwan Business Council Thursday.

Although U.S. business leaders fret about the rise of Chinese competitors, the North American chip design market is still by far the largest in the world, said Rick Tsai, president and CEO of TSMC, the world's largest chip foundry. But China now has the third largest number of chip design firms, behind the U.S. and Taiwan, and that number will grow as the country benefits from investments in chip assembly plants, he said.

Given the prohibitive cost of building a chip manufacturing plant, most new chip companies over the next few years are expected to be "fabless," using companies such as TSMC and United Microelectronics Corp. to build their designs. Intel Corp., the world's largest semiconductor vendor, spends about US$5 billion on its newest facilities, said Chief Financial Officer Andy Bryant last month.

At present, companies like Qualcomm Inc., Broadcom Corp., and Nvidia Corp. are some of the largest fabless chip companies in the world. But China continues to gain chip expertise as the result of investments in universities, and will be able to draw upon a growing talent pool of workers who currently staff test and assembly plants for many of the world's chip manufacturing companies, Tsai said. A team of university researchers at the Chinese Academy of Sciences' Institute for Computer Technology recently produced a sophisticated chip called the Godson-2 that drew favorable attention from Intel and U.S. market research firm In-Stat/MDR.

One challenge for emerging chip companies is drawing upon a global pool of talented engineers, Tsai said. For example, China has the world's largest population, but does not produce as many engineering students as a percentage of that population as do Taiwan and the U.S. Taiwan produces a high percentage of talented engineers per capita, but doesn't have nearly as many people as its huge neighbor, he said.

Silicon Valley is still the center of the chip design world and, despite the significant expense required to live and work in Northern California, that won't change anytime soon, Tsai said. The U.S. also leads the world in the number of patents generated for chip design work, something its Chinese competitors will have to improve if they want to stand alongside companies like Qualcomm and Broadcom, he said.

One benefit that could work in China's favor is the huge demand for consumer electronics devices in Asia, according to Tsai. Asian families tend to spend more time at home than U.S. families, and spend a larger percentage of their income on consumer electronics entertainment devices to liven up those homebound hours, he said.

Tsai expects that at least one Chinese chip design company will crack the top 20 list at some point during the next decade, and others may not be far behind.

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