Chinese Government Subsidies Target Yet Another U.S. High Tech Industry: "Silicon Wars" Lead to New Industry Paradigm According to this Interview with Mark Li, Senior Analyst for Sanford C. Bernstein & Company

Wall Street Transcript

67 WALL STREET, New York - October 4, 2012 - The Wall Street Transcript has just published its Semiconductors Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Semiconductor Capital Equipment - Cloud Computing - Mobile Device Consumer Demand - Enterprise Data Storage Demand - High Computing Power Technology - Semiconductor Inventory Burnoff

Companies include: Taiwan Semiconductor Manufactu (TSM), United Microelectronics Corpor (UMC), Advanced Semiconductor Enginee (ASX), Intel Corporation (INTC), Apple Inc. (AAPL), QUALCOMM Inc. (QCOM), Semiconductor Manufacturing In (SMI) and many others.

In the following excerpt from the Semiconductors Report, an expert analyst from Sanford C. Bernstein & Company discusses the increasing competitive pressures for the sector and the implications for investors:

TWST: You believe China is poised to develop its domestic fabless industry. What factors do you believe will contribute to that development? And what do you believe the ramifications will be for the sector?

Mr. Li: I think there are three factors that would benefit the development of China fabless industries. Number one is talent. China actually has much more engineering and science university graduates every year compared to the U.S. or other developed countries, and they tend to be pretty eager and pretty keen to work hard.

The second reason is market. To make a fabless successful, the company actually needs to be close to the market, so the company can quickly identify the customer needs and turn technologies into different devices to fulfill the needs of market. Being in China allows Chinese companies to quickly understand unique requirements of Chinese customers. For example, low-end smartphones are emerging in China right now. Their requirement - the requirements of this Chinese consumer are quite different from the requirement of typical iPhone users, and they are much more focused on price. They often purchase handsets from retail channels more than from operators. So you see these different behaviors, different requirements from the consumers in this region, and being in China allows Chinese companies to tailor their products earlier for them. This is the second reason why I think the industry can prosper going forward.

The third reason that supports the development of Chinese fabless industry is the protection of the Chinese government. The government constantly helps Chinese fabless companies either in the form of R&D grants or tax breaks. The government also develops proprietary standards solely for the China market. For example, the Chinese actually have their own 3G communication standard. So they ask the biggest operator in China to operate with this proprietary standard. Domestic players normally had earlier access to these standards. They tend to have products earlier for these standards as well. So with all these reasons, I do believe, in the long run, the Chinese fabless industry will be playing an important role.

And for the U.S. or other design companies in the world, they need to deploy more resources in China. Now indeed, many of these companies already have some R&D centers in China already. In addition to that, I think it's also important for them to understand the requirements of consumers in China. They cannot always take the old products used in the U.S. and sell them with a lower price in China as often. Chinese customers have different requirements. So it's quite important for companies in other countries to actually look into the requirement carefully and tailor-make the product for the consumers there.

TWST: What are some of the key differences between the semiconductor sector in China and the U.S. that U.S. investors should be aware of?

For more from this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers, and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

View Comments (0)