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Tech Industry

China emerging as chip design center

Already a solid player in semiconductor manufacturing, China will rank third in the world for chip design in 2005, says iSuppli.

SHANGHAI--Chips designed, or partly designed, in China will account for 14.8 percent of global semiconductor sales this year, making the country the world's third-biggest for chip design, according to an industry report.

Design activity in the United States will lead the market this year, with U.S.-based design houses accounting for 40.2 percent of new semiconductor sales this year, according to the report last week from technology consultant iSuppli.

Japan will come in second, accounting for the design activity behind 15.5 percent of sales this year. After China, Taiwan would be fourth with 10.1 percent.

China is gaining strength as a semiconductor manufacturing base.

Homegrown players such as No. 3 foundry Semiconductor Manufacturing International are expanding capacity and global names from Intel to Advanced Micro Devices and STMicroelectronics are assembling or planning to make microchips in China.

But chip design in China has been slower to take off, largely due to a lack of experienced chip designers there.

Taken together, China, Hong Kong and Taiwan will generate almost as much design activity this year as will Japan, said Greg Sheppard, an executive vice president at iSuppli.

"By 2006, China/Hong Kong/Taiwan likely will surpass Japan and become the world's second-largest region for design-driven semiconductor sales after the United States," Sheppard wrote in a report.

China's semiconductor market has been growing rapidly in recent years, and was worth about $40 billion last year, according to various estimates.

By comparison, the global semiconductor market was worth about $213 billion last year, according to the U.S.-based Semiconductor Industry Association.

The China market is expected to keep growing at double-digit rates in the next two years--compared with flat to low single-digit growth for the global industry this year--as a growing number of players shift production to China to take advantage of lower costs and to be closer to their customers.