China gaining on U.S. chipmakers, CEO says

With semiconductor industry improving rapidly, country could achieve technological parity with U.S. in a few years.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
2 min read
SAN FRANCISCO--China is closer than you think, says Mike Splinter, CEO of Applied Materials.

The state of semiconductor industry in China, fueled in part by government spending and policies, is improving rapidly and the country could achieve technological parity in chipmaking with the U.S. in a few years, Splinter said during a lunch meeting at Semicon West, a semiconductor equipment conference taking place here this week.

"It could take five to seven years to really close the gap," he said. "They have a lot of smart engineers that will be experts in chipmaking."

Parity, of course, will vary by field and subject matter. China has begun to sprout semiconductor equipment companies too, but the complexity of the industry will mean these companies will likely follow their Western counterparts for a while. Still, Applied is keeping an eye on developments. Applied garners about 85 percent of its revenue from overseas.

"It will probably take a long time, but it is a significant concern," he said. "There will be government pressure to utilize these companies," he said, referring to the Chinese equipment makers.

China right now imports most of its chips and its chipmaking equipment.

Others disagree with Splinter's assessment. In a separate interview Monday, Cypress Semiconductor CEO T.J. Rodgers said he recently visited China and is less afraid of China catching the U.S. than he ever was. A lot of the government funding, Rodgers said, seems to be going into lavish corporate headquarters.

On other topics, Splinter said that flash memory will continue to buoy the often painfully cyclical semiconductor equipment field. The Semiconductor Equipment and Materials Institute (SEMI), a trade group for equipment makers, said earlier this week that the equipment market will grow 18 percent to $38.8 billion in 2006.

The flash boom differs in a number of ways from the DRAM boom, and subsequent bust, of the 1990s.

For one thing, flash memory is being incorporated into a wide variety of products: cameras, cell phones and consumer electronics. Fifty percent of the orders in Applied's first quarter were for memory, he said.

The DRAM boom was fueled mostly by PCs. Excess factory capacity for DRAM ultimately lead to a glut despite rising PC sales.

Additionally, the companies producing flash are working to develop other applications of it. Samsung and Intel have also shown how flash can replace hard drives in notebooks.

"Is it sustainable? Certainly not in the long term. But in the short term, it is--in part because the companies making the investments will make it happen," he said. "They build these flash fabs, so they better have somewhere to sell it."