China’s Fabless IC Firms Optimistic

Article By : Echo Zhao & Dylan McGrath

Half of China's fabless companies are expecting double-digit growth, according to a survey conducted by EE Times China.

One-third of Chinese fabless chip companies who responded to a recent survey by EE Times China believe that their companies will increase sales by more than 20% this year, exceeding the growth rate of 18% for the Chinese chip industry as a whole, as forecasted by the China Semiconductor Association.

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In our Weekly Briefing podcast #33, Echo Zhao talks about the survey and what the results might mean for China’s IC industry ambitions.
The original article from EE Times China: 2019年度中国 IC 设计公司调查报告——高管篇

The 18th annual China Fabless Survey — conducted from late December through late February — also found that respondents generally expect to be more profitable this year than China’s 10 largest chip companies. In all, 71.4% of respondents to the management portion of the China Fabless Survey estimated that their gross profit margin for 2018 was less than 30%, with the majority of respondents estimating that their profit margin would be 20% to 30%.

The gross profit margin of China’s top 10 semiconductor companies is about 20%, according to public data.

For the first time, the China Fabless Survey was divided into two portions, with one questionnaire for company management and a second questionnaire for engineers. The results of the management portion of the China Fabless Survey were compiled from 141 email and online responses, of which 91 were considered valid. (A separate article summarizing the responses to the engineer portion of the survey will also be published on EE Times).

Most of the respondents to the management survey came from small and mid-sized fabless chip firms, which generally demonstrate bigger flucuations in financial metrics such as sales and profit margin. While the growth rates of the larger companies are largely influenced by the broader market environment, smaller companies tend to be more heavily influenced by market strategies, directions, and opportunities.

China’s largest chip firms are also in the advanced stages of technical research, which carries significantly larger costs, thus cutting into profits. Many of the survey respondents target niche markets, which can offer greater profit margins than the consumer market if they bring winning products to market.

About 5% of respondents said that they expected to post a loss in 2018. All of these companies are fairly small startups, four of which had sales of less than $1 million.

Other findings of the 2019 China Fabless Survey include:

• Most of the respondents indicated that their firms would be emphasizing products for automotive, internet of things, and artificial intelligence in 2019 — mirroring trends seen in other chip firms throughout the world.

• Responding companies employed an average of 176 people. Companies that responded that they had more than 500 employees were subsidiaries of ODMs.

• Nearly 65% of responding companies had more than 40 IC design engineers.

• About 36% of responding companies reported that they have employees overseas.

• More than 70% of the companies responding to the survey had at least four new products released in 2018. Slightly more than 3% of respondents indicated that their companies had more than 21 new products last year, including a memory/MCU firm, a high-performance analog IC firm, and another firm focused on power management and high-performance mixed-signal and power supplies.

• Forty-six percent of respondents indicated that they had a plan to seek investment in 2019.