China's largest microchipmaker opened the country's most advanced semiconductor manufacturing plant Saturday, launching China into the top ranks of the global chipmaking industry.

Semiconductor Manufacturing International Corp., founded in 2000 by a Taiwanese executive who spent 20 years at U.S. chipmaker Texas Instruments Inc., cut the ribbon on its fifth factory at a ceremony in Beijing.

The plant is China's first to process silicon wafers that are 300-millimeter in diameter. These yield more than twice as many chips as the previous generation of 200-millimeter wafers.

Only a handful of the world's largest global chipmakers in the United States, Europe, Taiwan and South Korea can afford the billion-dollar investments needed for 300-millimeter factories.

"It's a breakthrough for China's semiconductor industry," said Byron Wu, the China research manager for iSuppli Corp., an El-Segundo, California-based technology market research firm.

SMIC, as the chipmaker is known, is the fifth-largest semiconductor foundry, or company that manufactures chips designed by other firms. SMIC has counted Texas Instruments, Broadcom Corp. and Germany's Infineon Technologies AG as key customers.

Poised to become the world's largest market for semiconductors in 2006, according to government estimates, China is rushing to develop a strong domestic chip industry, of which SMIC represents the crown jewel. China has more than 300 million mobile phone users and is seeing booming demand for computers, televisions and other electronics amid strong economic growth.

But for China to compete with the likes of the United States, it cannot simply rely on a single premier chip foundry, some analysts point out. More attention must be paid to growing the country's chip design capabilities and base of equipment and materials suppliers, they say.

"I think the whole supply chain is going to need to develop," said Dan Tracy, a senior director at San Jose, California-based trade group Semiconductor Equipment and Materials International.

That may take some time. SMIC officials note that it may be five to seven years before China will have 10 domestic chip designers with more than US$100 million in annual sales.

"Design houses in China are very strong in marketing. What they need is experienced designers to design the products," SMIC chief executive Richard Chang told reporters.

There is fierce competition from the more developed foundry industry in Taiwan. The largest foundry, Taiwan Semiconductor Manufacturing Co. already has two 300-millimeter factories and is set to open a third by the end of this year.

Growing chip capacity also poses its own threat to the likes of SMIC. Overproduction four years ago, combined with the bursting of the Internet and telecommunications investment bubbles, brought on the industry's worst-ever downturn.

Chang has shrugged off concerns about overcapacity, saying his company's factories are virtually fully booked with customer orders into next year. He adds that SMIC will be able to ride the wave of China's burgeoning demand, which could see growth all the way through 2010, even if demand elsewhere in the world weakens.

SMIC partnered with German chipmaker Infineon and Japan's Elpida, a joint venture between NEC Corp. and Hitachi Ltd. to develop its 300-millimeter wafer technology.

Source: Shenzhen Daily/agencies