Asia's Microelectronics Market: China, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, Singapore, and Taiwan

SUMMARY

In spite of generally sustained high growth over the past few years and high oil prices, inflation in most countries remained largely subdued in 2005. In the PRC, even with continuing concerns about overheating of the economy, inflation averaged 3.9% in 2005 compared with 1.2% in 2003. There were, of course, exceptions where inflation became a concern over the course of 2005, notably Azerbaijan, Cambodia, India, Mongolia, Pakistan, Philippines, Samoa, Sri Lanka, Thailand, Tonga, and Viet Nam, though inflationary pressures became more apparent across the region as the year progressed. This led several countries to adopt a more flexible exchange rate stance and, as a result, a raft of Asian currencies--including the baht, New Taiwan dollar, Singapore dollar, and won, as well as the yen--appreciated against the US dollar, reducing the impact of imported inflation. Nevertheless, with relatively low inflation, monetary policies remained mostly accommodative during the year.

The strong economic showing by most of developing Asia in 2005 was marked by a further accumulation of foreign exchange reserves, which are estimated to have reached about $1,624 billion at the end of the year. The region benefited from strong capital inflows, notably FDI that is estimated to have climbed to $69.3 billion (on a net basis) over the year. Foreign exchange reserves increased at about the same rate as in 2003, but were mainly concentrated in the PRC. In several countries, the holding of large amounts of foreign exchange reserves in dollar-denominated assets came under scrutiny in 2005 as the risks of a further substantial depreciation of the US dollar became more apparent and the need to significantly boost domestic investments, particularly in infrastructure, in order to boost competitiveness, was increasingly realized. Any acknowledgment of developing Asia's strong economic performance in 2005 must be tempered by the fact that too many economies, in particular smaller economies, are still far from closing the income gap with the better-off countries in the region. These economies remain highly vulnerable to external shocks and have weak domestic fundamentals. Among their number are: many of the economies of the Pacific; Mongolia in East Asia; Cambodia, Lao People's Democratic Republic (Lao PDR), and Myanmar in Southeast Asia; Afghanistan, Bangladesh, and Nepal in South Asia; and Kyrgyz Republic and Tajikistan in Central Asia.

Over the forecast period 2005-2007, the overall outlook for developing Asia will of course depend heavily on developments in the world economy as a whole--particularly in major industrial countries and the PRC. The prospects for growth in major industrial countries and for world trade--in spite of significant downward risks--remain relatively buoyant, auguring well for the economies of developing Asia over the forecast period. At the same time, domestic market conditions have become stronger over the past 2 years in most countries, providing some cushion against a potential deterioration in the external environment.

In spite of a rather confident baseline outlook for developing Asia, this environment could become much more somber over the next 3 years, depending on how the current uneven expansion among some major world economies affects key economic variables across the globe. A much more robust growth projection for the US economy, while Japan and the euro zone go through a relatively rough patch, implies that the problem of external imbalances in the US could become worse, triggering a sharp depreciation of the dollar, a spike in inflation, and more sudden increases in interest rates, thus ultimately restraining world growth and trade. In addition, stronger growth in relatively energy-intensive countries, particularly the PRC and the US, points to continued high oil prices and an exacerbation of the global imbalances.

In short, while the region has built up significant resilience against external shocks, many economies remain vulnerable, particularly some of the poorer ones. The 2005-2007 baseline assumptions for external conditions indicate only a moderate slowdown of average GDP growth for developing Asia as a whole to 6.5-6.9% (7.1-7.5% on the basis of purchasing power parity weights). In East Asia, average GDP growth will be in the range of 6.7-7.2% as the PRC economy experiences only a mild slowdown while the economies of Hong Kong, China and Taipei, China perform somewhat better than the average of the past 4 years. In Southeast Asia, average GDP growth is forecast at 5.4-5.9%, higher than the average of the past 4 years, since most countries are projected to perform markedly better. (For Indonesia, the most populous country in the subregion, this is a very positive development.)

In South Asia, growth is projected at 6.2-6.9%, substantially higher than historical averages, largely reflecting continued robust growth in the Indian economy, which accounts for about 80% of the subregional average. In Central Asia, growth rates, though fluctuating widely due to developments in the energy sector in some countries, are expected to settle to more sustainable levels as the effects of economic transition fade. In the Pacific, GDP growth rates will remain on average at around 2%, as the two largest economies--Fiji Islands and Papua New Guinea--are not projected to perform particularly well.

While developing Asia's economies will show significant divergence, domestic demand will increasingly play a significant role in supporting overall growth in 2005-2007. Generally robust income growth over the past few years has boosted consumer confidence and spending. At the same time, investor sentiment is strengthening in many major economies of the region, and increased domestic and foreign investments are forecast in the baseline. Even as the pace of the world economic expansion moderates over the next 3 years, developing Asia will remain a preferred investment location, provided that countries can enhance--or at the least, keep--their competitive advantage. In this context, furtherance of economic, governance, and administrative reforms, as well as improvements to infrastructure, will be particularly important. Investment rates are expected to remain firm over the forecast period and to average about 30% for the region.

The IT industry is characterized by high technology and rapid obsolescence, with products becoming obsolete in less than a year. The industry is being led by technology developments in the United States, Europe and Japan. Many of these technologies are closely guarded. Microprocessor and software technologies, such as graphical user interface, object-oriented technology and Java are the precursors in this sector. While the core technologies are being developed by Transnational Corporations (TNCs), fringe technologies and their applications give rise to development opportunities in emerging economies, where technical human resources are cheap and available in abundance.

The IT industry can be divided into three main sectors:

• 1. The high technology sector (high-end computers, wafer technology for semiconductors, large digital switches, software products, chip components and complex fabrication facilities);
• 2. The mass production sector (PC's, terminal equipment, modems, components, semiconductor assembly, data communications equipment); and
• 3. The skills-intensive human resource sector (R & D; software applications and services; repair, maintenance, installation, commissioning).

To develop balanced global trade, the industry should spread to areas where cost-effective production is possible.

In general, developed countries will retain their lead in high technology areas. Developing countries have opportunities in the development of software applications and services, repair and maintenance, as well as in skills-oriented assembly. Mainland China, Malaysia, the Philippines, the Republic of Korea, and Thailand have geared themselves to take advantage of this. Innovative strategies need to be developed to spread the technology base among all regions.

The migration of the electronics equipment market to the Asia-Pacific region continues unabated. The region currently accounts for 40 percent of the global semiconductor market, and is expected to reach 43 percent by 2007.

Semiconductor sales in Asia-Pacific are projected to grow from $62.8 billion in 2003 to $106 billion in 2007, a compound annual growth rate of 14.0 percent.

The market in Japan is projected to remain steady at approximately 22 percent of world semiconductor consumption through the forecast period. Sales in Japan are projected to grow from $38.9 billion in 2003 to $47.7 billion in 2005 and to $53.8 billion in 2007, a CAGR of 8.4 percent.

The China semiconductor market is currently approximately 15 percent of the total worldwide market.

The market for semiconductors in the Americas has been in decline, from 22 percent of the worldwide market in 2002 to 19 percent in 2003. This decline is projected to continue, falling to 17 percent by 2007 as electronics equipment manufacturing continues to shift to Asia. Sales in the Americas are projected to grow from $32.3 billion in 2003 to $41.5 billion in 2007, a CAGR of 6.5 percent.

A plethora of DVD players, digital still cameras, DTVs and stereo products will drive growth in China's consumer electronics industry. Growth in the communications segment is expected to be driven by demand for cellphones, base stations, fixed and wireless phones, switches, as well as wired and wireless access products. The hot spots for the computer segment will continue to be notebooks, desktops and portable storage devices.

China's plans for its own 3G and video compression standards are expected to drive further expansion. Automotive electronics is also expected to contribute as car prices in the local market continue to drop. China's huge consumer base is bringing in a lot of companies wanting to grab a share of the market. China remains the world's top cellphone market, and more than one-third of the world's handsets will be made in China this year. Chips manufactured locally are used mainly in consumer electronics like TVs, stereos and remote controls. These account for 60 percent of the overall demand, while communication chips, such as telephone ICs and SPC switches, will account for 25 percent. Storage ICs are expected to take 6 percent of the market.

This report describes the technology infrastructure of nine Asian countries, detailing each countries' developments in microelectronics, telecommunications, and computing. Market forecasts are also presented in these sectors for associated countries.

TABLE OF CONTENTS

Chapter 1 Introduction

• 1.1Asian Economic Trends
• 1.2 Challenge From China

Chapter 2 People's Republic of China

• 2.1 Macroeconomic Assessment
• 2.2 Policy Developments
• 2.3 Outlook
• 2.4 Microelectronics Industry
  • 2.4.1 Introduction
  • 2.4.2 Electronics Industry
• 2.5 IC Industry
  • 2.5.1 Driving Forces
  • 2.5.2Fab Capabilities
  • 2.5.3 Foundries
  • 2.5.4 Assembly Operations
  • 2.5.5 Design2-37
• 2.6 Key Facts About Mainland China

Chapter 3 - Hong Kong, China

• 3.1 Macroeconomic Assessment
• 3.2 Policy Developments
• 3.3 Outlook
• 3.4 Information Technology Equipment Industry
  • 3.4.1 Introduction
  • 3.4.2 Channels3-16
  • 3.4.3 Industry Trends
  • 3.4.4 Measures Affecting Exports of Electronics
  • 3.4.5 China's WTO Accession
  • 3.4.6 Product Trends
• 3.5 Electronic Components
  • 3.5.1 Introduction
  • 3.5.2 Channels
  • 3.5.3 Industry Trends
  • 3.5.4 Components
  • 3.5.5 Passive Components
• 3.6 Telecommunications Equipment Industry
  • 3.6.1 Introduction
  • 3.6.2 Channels
  • 3.6.3 Industry Trends
  • 3.6.4 Factors Affecting Exports of Telecom Equipment
  • 3.6.5 Product Trends
• 3.7 Key Facts About Hong Kong

Chapter 4 India

• 4.1 Macroeconomic Assessment
• 4.2 Policy Developments
• 4.3 Approach to the Tenth Five-Year Plan
• 4.4 Outlook
• 4.5 Microelectronics Industry
  • 4.5.1 Introduction
  • 4.5.2 Industry Performance
• 4.6 Electronic Design
• 4.7 India Venture Capital
• 4.8 Special Investment Programs
  • 4.8.1 Introduction
  • 4.8.2 Electronics Hardware Technology Park Scheme (EHTP)
  • 4.8.3 Software Technology Park (STP) Scheme
  • 4.8.4 Software Technology Parks of India
  • 4.8.5 Processing Zones/ 100% Export Oriented Units Scheme
  • 4.8.6 Process Of Approval
  • 4.8.7 Government Approval
• 4.9 Key Facts About India

Chapter 5 Indonesia

• 5.1 Macroeconomic Assessment
• 5.2 Policy Developments
• 5.3 Decentralization in Indonesia
• 5.4 Outlook
• 5.5 Indonesia Information Technology Infrastructure
  • 5.5.1 Introduction
  • 5.5.2 Electronics
• 5.6 Investor Nightmare
• 5.7 Key Facts About Indonesia

Chapter 6 Japan

• 6.1 Macroeconomic Assessment
• 6.2 IT Industry
  • 6.2.1 Market
  • 6.2.2 Internet Use
  • 6.2.3 Consumer Electronics Industry
• 6.3 Japanese IC Industry
  • 6.3.1 Battered Industry
  • 6.3.2 Foundry Plans
  • 6.3.3 Withdrawal from DRAM
  • 6.3.4 Trend in Partnerships
  • 6.3.5 Lower Cost Structure - Minifabs
• 6.4 Key Facts About Japan

Chapter 7 Republic of Korea

• 7.1 Macroeconomic Assessment
• 7.2 Policy Developments
• 7.3 Outlook
• 7.4 IT Industry
  • 7.4.1 Introduction
  • 7.4.2 Telecom
  • 7.4.3 Internet
• 7.5 Semiconductor Industry
  • 7.5.1 Introduction
  • 7.5.2 Industry
  • 7.5.3 Memory Industry
  • 7.5.4 Semiconductor Facilities
  • 7.5.5 Semiconductor Supply Industry
• 7.6 Packaging Industry
• 7.7 Key Facts About Korea

Chapter 8 - Malaysia

• 8.1 Macroeconomic Assessment
• 8.2 Policy Developments
• 8.3 Outlook
• 8.4 Technology Infrastructure
  • 8.4.1 Introduction
  • 8.4.2 Malaysia's ICT Industry
  • 8.4.3Display Devices
  • 8.4.4Electronics Telecommunications Equipment
  • 8.4.5 Electronics Contract Manufacturing
• 8.5 Semiconductor Infrastructure
  • 8.5.1 Semiconductor Industry
  • 8.5.2 Semiconductor Manufacturers
• 8.6 Key Facts about Malaysia

Chapter 9 Singapore

• 9.1 Macroeconomic Assessment
• 9.2 Policy Developments
• 9.3 Outlook
• 9.4 Electronics Infrastructure
  • 9.4.1 Introduction
  • 9.4.2 Industry Clusters - Electronics
• 9.5 Semiconductor Industry
  • 9.5.1 Introduction
  • 9.5.2 Semiconductor Fabs
  • 9.5.3 Semiconductor Equipment & Materials Industry
  • 9.5.4 Research and Development
• 9.6 Key Facts About Singapore

Chapter 10 Taiwan

• 10.1 Macroeconomic Assessment
• 10.2 Policy Developments
• 10.3 Outlook
• 10.4 Semiconductor Industry
  • 10.4.1 Introduction
  • 10.4.2 Semiconductor Fabs
• 10.5Taiwan's IT industry
• 10.6 Key Facts About Taiwan

LIST OF FIGURES

• 1.1 East Asia GDP Growth Forecast
• 1.2 Southeast Asia GDP Growth Forecast
• 1.3South Asia GDP Growth Forecast
• 2.1 GDP Growth And Domestic Demand - China
• 2.2 China's Electronics Production
• 2.3 China IC Demand Versus Supply
• 2.4 China's DRAM Demand
• 2.5 China's IC Applications
• 2.6 Silicon Wafer Technology Levels In China
• 2.7 China Silicon Wafer Output Forecast
• 2.8 Worldwide Foundry Capacity By Country
• 2.9 Growth Of China's IC Design Houses
• 2.10 China's Design Capabilities By Linewidth
• 2.11 China Design Houses By Location
• 3.1 Contributions To Growth (Supply) - Hong Kong
• 4.1 Contributions To Growth (Supply) - India
• 4.2 Electronics Production Profile
• 4.3 India's Software Export Market
• 5.1 Contributions To Growth (Demand) - Indonesia
• 5.2 Foreign Investment To Indonesia
• 6.1 Semiconductor Sales by World Region
• 6.2 Operating Income Of Japanese IC Companies
• 6.3 HALCA Project Objectives
• 6.4 Fab Tool Overcapacity
• 6.5 Comparison Of Electric Consumption
• 7.1 Contributions To Growth (Demand) - Korea
• 7.2 Number Of Yearly .Kr Domains
• 7.3 Number Of Internet Users
• 7.4 Korea's Semiconductor Equipment And Materials Market
• 8.1 GDP Growth - Malaysia
• 8.2 1st Silicon Roadmap
• 8.3 Siltera Malaysia Roadmap
• 9.1 Singapore GDP Growth
• 9.2 Capacity Of Major Foundries
• 9.3 Chartered Semiconductor's Capacity Plans
• 9.4 Chartered Semiconductor's Technology Roadmap
• 9.5 SSMC's Technology Roadmap
• 10.1 Taiwan's GDP Growth Rates
• 10.2World Foundry Capacity Breakdown By Country
• 10.3 Market Share Of IC Foundries
• 10.4 TSMC's Capacity Roadmap
• 10.5 MC'S Technology Roadmap
• 10.6 SC'S Technology Roadmap
• 10.7 Vanguard's Logic Technology Roadmap
• 10.8 Winbond's DRAM Product Mix
• 10.9 Winbond's DRAM Geometry Migration

LIST OF TABLES

• 2.1 Major Economic Indicators
• 2.2 China's Electronics Industry Forecast
• 2.3 China's IC Production
• 2.4 China's 8- And 12-Inch Fabs
• 3.1 Major Economic Indicators
• 3.2 Hong Kong's IT Manufacturing, Export, And Import Statistics
• 3.3 Performance Of Hong Kong's Exports Of IT Equipment
• 3.4 Total IT Equipment Exports By Products
• 3.5 Total IT Equipment Exports By Major Markets
• 3.6 Performance Of Hong Kong's Exports Of Electronics
• 3.7 Total Electronics Components Exports By Major Markets
• 3.8 Total Electronics Components Exports By Products
• 3.9 Hong Kong's Telecom Manufacturing, Export, And Import Statistics
• 3.10 Performance Of Hong Kong's Exports Of Telecommunications Equipment
• 3.11 Total Telecommunications Exports By Categories
• 3.12 Total Telecommunications Exports By Major Markets
• 4.1 Major Economic Indicators
• 4.2 Electronics Production In India
• 4.3 Consumer Electronics Shipments By Sector
• 4.4 Market Share Of Semiconductor Applications
• 4.5 India's Electronics Exports
• 4.6 IT Targets
• 4.7 IT Opportunities - Software
• 4.8 IT Opportunities - Hardware
• 4.9 Employment Generation
• 4.10 India Vs World: Electronics Industry
• 5.1 Major Economic Indicators
• 6.1 Japan's Mobile Subscriber Market
• 6.2 Japan's 3G Mobile Subscriber Market
• 6.3 Japanese IC Sales Leaders
• 6.4 DRAM Market Leaders
• 7.1 Major Economic Indicators
• 7.2 Korea's Equipment And Materials Suppliers
• 8.1 Major Economic Indicators
• 8.2 Malaysia's Electronics Industry
• 8.3 Malaysia's IT Industry Billings
• 8.4 Malaysia's Electronics Industry
• 8.5 Malaysia's Statistics For PCs And Internet
• 8.6 Production Of Semiconductors, Integrated Circuits And Electronic Transistors
• 8.7 Exports Of Semiconductors And Electronic Equipment And Parts
• 9.1 Major Economic Indicators
• 9.2 Economic Contribution By Electronics Industry
• 9.3 Domestic Exports Of Electronics
• 9.4 Electronics Trade
• 9.5 Share Of Output
• 9.6 Chartered Semiconductor's Fab Profiles
• 10.1 Major Economic Indicators
• 10.2 Taiwan's Top Five Chipmakers
• 10.3 Outsourcing Arrangements Of Japan's Electronics Device Makers
• 10.4 TSMC's Capacity And Utilization Rates
• 10.5 TSMC's Silicon Foundry Fabs
• 10.6 UMC'S Fabs
• 10.7 Powerchip Semiconductor's Fabs
• 10.8 Taiwan's IT Industry
• 10.9 Production Value Of Taiwan Opto-Electronics Industry
• 10.10 Taiwan's 10 Leading Opto-Electronic Products In 2003 & Production Value
• 10.11 Key Development Goals