August 09,
2006
China Components: Part Two-China’s Grabbing Share in the Component Market
This
article is the second in a series of three articles that look at the growth of
component production in China.
While
component manufacturers in China are not large producers when compared to the
Chinese manufacturers of finished consumer goods they serve, they are growing.
Domestic component suppliers are taking a larger share of the Chinese component
market, and within a few years, they will most likely begin to make inroads into
the other Asian markets as well as European and North American component
markets.
Ravi
Kichloo, SVP of semiconductor business development, worldwide, at Phoenix-based
Avnet Inc., notes that Chinese parts manufacturers are not yet worldwide
producers. “While it is well known that the Chinese component manufacturing
activity is on the rise, there has not been any large impact yet on a global
basis.” Kichloo sees an impact, however, on China’s home market. “Although
difficult to define by percentage, it would appear that for the domestic
market, there is a rise in the Chinese manufacturing activity, particularly on
the passives, connectors and discrete semiconductors, as well as some
components used for the digital consumer applications like mobile phones.”
One
of the advantages domestic producers have in China’s component market is their
proximity to the massive consumer products manufacturers. “As far as usage in
the domestic market, a local component manufacturer with local knowledge is
certainly well-placed to handle the logistics side, which offers an advantage
over the foreign manufacturers,” says Kichloo.
Those
tracking the component industry expect China’s domestic component producers
will target markets outside China and Hong Kong in the long run. In the
meantime, these producers are building their strength at home. “While the long
term intention of these manufacturers is certainly to go global, so far the
usage is primarily in the domestic markets,” says Kichloo.
The
Chinese domestic market for electronic components is massive all by itself.
China’s consumption of electronic parts has grown substantially in recent
years. In semiconductors alone, China has surpassed all other markets. “China
is Asia’s largest region, and semiconductor consumption in Asia already exceeds
that of North America and Europe,” says Peter Kong, president of Arrow Asia
Pac, a unit of Arrow Electronics Inc. in Melville, N.Y. “According to SIA
monthly shipment data (www.sia-online.org),
Asia is the only region to have maintained consistent growth during the last 12
months. This is largely driven by China and Hong Kong.”
Because
of this growth, China has become a critical market for components and a natural
location for the production of massive quantities of electronic parts. “China
is an increasingly important market for the semiconductor and electronic
component industry,” says Kong. “For 2006, the China and Hong Kong
semiconductor market is estimated to be worth around $70 billion. Over $10
billion of that is produced in China, manufactured by both local and
international companies.” He notes that manufacturers in China and Hong Kong
now consume more than 50 percent of Asia’s total market for semiconductors.
China’s
component market is continuing to grow at a steeper rate than markets in
Europe, North America or even other regions of Asia. The growth is coming both
from manufacturers that produce products to be shipped globally and those that
produce products to be consumed by China’s quickly expanding middle class. “The
China and Hong Kong semiconductor market have been growing over 20 percent
annually since 2005, and this should continue until 2008,” says Kong. “The
total semiconductor market in China is expected to be worth $99 billion by
2008.”
When
you look at China’s entire electronics market, it’s expanding slightly slower
than the semiconductor market, but it’s still going at a good clip. In a few
short years it will likely reach half a trillion dollars. “The total electronics
product market in China and Hong Kong has been growing at a compound rate of
over 16 percent since 2005, and this should continue until 2008,” says Kong.
“The total electronics product market in China and Hong Kong is expected to
grow to more than $386 billion by 2008.”
The
next installment in our series on China’s component manufacturers will look at
the advantages and disadvantage of domestically produced components from China
and Hong Kong.
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