Electronic Design and Manufacturing in Taiwan

Withstanding the Pressure From China

Published in Chinese in EE Times - Asia in conjunction with the Electronic Design Automation & Test Expo held October 3-4, 2002 in Taipei.

Rita Glover, EDA Today, L.C.
September 24, 2002

In recent years, Asia has represented a relatively small opportunity for most EDA vendors, but the situation is changing very quickly.  In 2001, Asia accounted for around 7–9 percent of the worldwide EDA market, but it been growing at a compound annual growth rate (CAGR) of 13 percent since 1997.  This is forecast to accelerate to around 30 percent CAGR over the next five years.

These statistics reflect a worldwide trend toward "disaggregation" of production into discrete types of activities that can be conducted anywhere in the world, with multiple outside sources of component parts that may themselves be manufactured wherever conditions prove best.  The important decision to "globalize" an operation is typically centered on cost-cutting, but it depends many additional factors such as labor talent, resources, economic and political issues, transportation, as well as the ease of communication and design collaboration.

Despite the business complexity, the figures bear out the fact of this shift.  In the case of Taiwan, it has become very tricky to manage all these issues in light of the intensive competition and geopolitical pressures that are coming from the world community, especially mainland China.

Semiconductor Industry Association (SIA) statistics show that the Asia Pacific region already leads the world in semiconductor revenue and is forecast to produce 35 percent of the total worldwide shipments in 2002.

According to the SIA, a slowdown in GDP (Gross Domestic Product) in 2000 from 7.0 percent to 3.7 percent in 2001 contributed to the 22.3 percent decline in the Asia Pacific market last year, but improving GDP prospects of 4.8 percent in 2002 will lead to 27 percent growth in the region in 2002.

The SIA forecasts a 19 percent Compound Annual Growth Rate (CAGR) for the period 2001–2005, making Asia Pacific the fastest-growing chip manufacturing region in the world.

Table 1.  Semiconductor Forecast, 2002-2005

Source:  Semiconductor Industry Association (SIA), June 2002 & EDA Today

On the design tool side, a similar trend is seen in the EDA Consortium’s Market Statistics, which show worldwide revenues in the electronic design automation (EDA) industry.  In 2001, EDA revenues in the “Rest of World” category (that is, all countries other than those in North America, Western Europe, and Japan) grew faster than any other region in the world, at 9 percent year-over-year growth.

This is a very strong performance, given that it was a down year for the semiconductor industry.  It reflects a growing move of electronic design and manufacturing away from the more industrialized countries and into new localities.

Table 2.  EDA Revenues in Rest of World (ROW)

Source:  EDAC MSS & EDA Today

The Rest of World had stronger five-year compound annual growth rates than worldwide EDA in the categories of Computer-Aided Engineering (CAE), Printed Circuit Board (PCB) and Multi-Chip Module (MCM) Layout, and IC Layout.  The only EDA categories in which ROW has not yet excelled are Semiconductor Intellectual Property (IP) and design services.  Revenues include both EDA software and certain hardware-based EDA tools such as emulators and accelerators.

Even though the "Rest of World" category includes more than just Asia, the predominant contributors to this group are Taiwan and China.  Taiwan has been the largest EDA market in Asia since 1998, but competition from China and India increased in 2000.  By 2002, Taiwan and China will both record about $76 million (USD) in EDA tool purchases.

Figure 1.  EDA Market Outlook in Asian Countries

Source:  Gartner Dataquest, 2001

China is forecast to pull ahead into the lead in mid-2003, with an EDA market size there of about $110 million in 2004.  While South Korea is close behind in third place, Singapore, Australia, and India are expected to consume less than $36 million in EDA products and services through this period.

Here are some facts about design types in Taiwan versus China, based on early 2002 data from Gartner Dataquest.  Look for updates to be forthcoming.

·        Most designs in both Taiwan and China are targeted at computer, consumer, and communications (data and voice) applications.

·        Three times more designers are working on digital than analog hardware.

·        About 20 percent of design engineers in Taiwan are working on systems design, while in China this figure is around 50 percent.

·        In both regions, around 60 percent of the PCB designers are creating boards less than 4 layers.  Only 6-9 percent are designing boards having ten or more layers.

·        In both regions, around 65 percent of the board designs have more than 50 packages, which create more complex physical issues that must be solved, such as timing and signal integrity.

·        Average board clock speeds were about half those of the U.S. in 2001, but they are moving up quickly.  Taiwan’s average board speeds are slightly higher than in China.

·        In Taiwan, 36 percent of electronic engineers are involved in ASIC design, but at relatively low gate counts.  Only 22 percent design ASICs over 1 million gates, and only 24 percent design ICs over 2 million transistors.

·        In China, only 17 percent of electronic engineers design over 1-million-gate ASICs, and only 15 percent design ICs of over 2 million transistors.

·        About 25 percent of Taiwan’s designers are working on SoCs (systems on chips), while only 11 percent of China’s designers are doing SoCs.

·        In Taiwan, about half of the ASIC designers are using hard and soft cores, and 65 percent of their FGPAs are designed using cores.  In China, 83 percent of ASIC designers are using hard and soft cores, but less of their FPGAs use cores (47 percent).

·        Taiwan’s designers take 3–4 iterations to solve timing problems in ASIC, FPGA, and PCB designs, which is about twice as many as U.S. designers require.  China’s designers are doing fewer iterations than Taiwan’s.

·        IC manufacturing process technologies of 0.25 and 0.18 microns are taking over quickly.  In China, 0.35 and 0.25 micron processes hold 77 percent of the market, although China has more advanced process technology in 0.25 micron than Taiwan.

In some ways, Taiwan’s designers seem to be doing more complex designs.  If Taiwan is losing its low-end business to China, it would seem that a good strategy for Taiwan would be to differentiate by concentrating on the high-end designs.  But if they decide to take this course, they had better move fast.

Nancy Wu, EDA analyst at Gartner Dataquest (San Jose, California), says, "Our latest Asia survey shows that China is advancing in terms of design complexity, and the improvement in Taiwan has been a little bit slower."

Gartner Dataquest and EE Times Asia did two surveys in the past year in which typical IC transistor counts were compared in Taiwan and China.  Taiwan’s designers were actually doing more of the less complex ICs the second survey, while China’s designers were starting to move up into some of the higher complexities.
 

Table 3.  IC Transistor Counts, Taiwan & China, 2001-2002

Figure 2.  IC Transistor Count, Taiwan & China, 2001-2002

Source:  Gartner Dataquest and EDA Today

Why does China seem to be advancing more quickly than Taiwan?  The reason appears to be that a steady stream of money is flowing into China from sources all over the world, so its design capability is developing as a result of engineers from other countries who are going to China and training the local people.  Electronic engineers on the Chinese mainland are still doing relatively low-end designs compared to Taiwan and the U.S., but they are moving up faster.

"In Taiwan, there is progress in specific areas, but so far, I don’t see a clear direction in which they are going," according to Ms. Wu.  "Last year at the EDA&T Expo in Taipei there was a lot of talk about getting the local design houses to do more SoCs and IP-based designs, but most of the focus in Taiwan is still on manufacturing and foundries."

Since most of the design in Taiwan is in support if the local demand for computers, laptops, toys, and cellular equipment, there is not a big domestic market demand for new chips.

In China, it’s totally different.  The domestic demand in China is much wider and more diverse than in Taiwan, so the opportunity for electronic design in China is greater.  Says Wu, "That’s a fundamental difference that can probably explain why China can move up faster in the past six months compared to Taiwan.  China has more systems to be designed."

China also seems to be moving up rapidly because its designers are gradually upgrading to more advanced EDA tools.  The region is coming out of a situation where the users only had access to older tools that were usually pirated.  Naturally, it would show a dramatic advancement curve when the users "go legitimate" by purchasing licenses, thereby gaining access to the latest design technology with all the proper documentation, technical support, and training.

In addition, China’s designers are able to attend trade shows and technical conferences more now than in the past.  More industry events are being held in the design centers that are springing up within the country.  Designers are able to learn through interactions with EDA vendors, seeing product demos, and participating in technical sessions.

Exciting opportunities abound for EDA vendors — which are predominantly based in North America — who decide to attack the China market.  Quite a few of the smaller EDA vendors have maintained a "wait-and-see" attitude because they were unfamiliar with the Asian business infrastructure and concerned about software piracy.  But now that China has entered the World Trade Organization and both China and Taiwan are taking tangible steps to protect intellectual property, the playing field has opened up.

PCB Manufacturing Under Pressure From China

The Taiwan Printed Circuit Association predicts that PCB production in Taiwan will rebound in 2002 to about $4.1 billion after dropping 8-10 percent last year.  Fine-pitch (4-5 mm line width) flexible PCBs with as many as 20 layers are forecast to be especially popular this year.  The demand for these PCBs, which are typically being designed for mobile phones and Internetworking products, is expected to improve dramatically as the world economy recovers.

"Many PCB manufacturing businesses worldwide are being moved to China, and as a result, China will be the only nation that will continue to show revenue gains," says Hayao Nakahara, president of N.T. Information (Huntington, NY).  "However, the more than 30 percent capacity increase there over a very short time will intensify a price war in the next few years, making profits hard to come by."

Even so, China’s share of worldwide PCB manufacturing revenue may be more than 17 percent in 2005, and it could reach 20 percent beyond 2005.

Taiwan’s Software Industry

Taiwan’s software industry has grown since 1998 to a domestic industry of around NT$163 billion and an export industry of around NT$120 billion in 2001.  The main markets for Taiwan’s software exports are the U.S., Japan, Hong Kong, and mainland China.  While multimedia applications are already an important part of this picture, new EDA technology and embedded software (both as tools and as intellectual property that is designed into products) represent good opportunities for Taiwan’s Information Technology (IT) talent.

Strategies for Success

China’s rapid advancement is becoming a huge challenge with which Taiwan must compete, but it is possible to carve out a successful niche in this region using a strong electronic design capability as a foundation.  With increasing globalization occurring in a business sense, it is increasingly doubtful that Taiwan can succeed as an independent island just offshore from a mainland that is willing to take political or even possibly military action to prevent that independence from occurring.

On the other hand, the entire world is starting to feel the effect of China’s abundance of low-cost labor — not just Taiwan.  As more and more businesses move into China to cut costs, it is important for all countries to protect their local businesses and domestic resources of skilled labor, whether it be through training, higher education, or correct utilization of price supports and tariffs.  It is the responsibility of governments and corporations to follow intelligent policies that do not disenfranchise workers, tax bases, or ecosystems.

China’s high-tech industry is ramping up so quickly thanks to the benefits of a retooling cycle, along with the help of highly trained outside experts to guide the local engineers.  These are things that can benefit any high-tech center in terms of technical capabilities, design cycle times, and quality of results.

Taiwan would be well advised to focus its considerable talent and resources on the unique applications in which it can differentiate itself and excel, and then develop its people and institutions around these goals.

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