Positive signs but some old problems · TechNode

China’s Semiconductor Design Industry: A Year of Unprecedented Growth Amid Persistent Challenges

In a year marked by geopolitical tensions and technological hurdles, China’s semiconductor design industry has posted its most impressive growth figures yet, expanding by a staggering 29.8% to reach approximately $118 billion in revenue. This remarkable achievement comes despite ongoing restrictions and the industry’s struggle with fragmentation and market pressures.

The Numbers Tell a Complex Story

The Chinese semiconductor design landscape now comprises 3,901 companies, representing a 7.6% increase from the previous year. While this growth in company numbers might initially appear positive, it masks a troubling reality: the industry remains highly fragmented, with most players operating on a small scale.

Breaking down the revenue distribution reveals the stark challenges facing the sector. While the average revenue per company stands at $30.3 million – a significant increase from $25 million last year – this figure is skewed by a small number of successful players. The reality is that 3,070 companies (78.7% of the total) earn less than $14.1 million annually, with 2,061 companies subsisting on less than $1.4 million in revenue.

The employment landscape mirrors this fragmentation. Only 39 companies employ more than 1,000 workers, while a staggering 86.5% of companies have fewer than 100 employees. This concentration of small players creates an environment of intense competition and limited economies of scale.

Product Focus and Market Dynamics

The industry’s product portfolio remains heavily weighted toward mid-to-low-end telecommunications and consumer electronics chips, which together account for two-thirds of all revenue. This focus on lower-value segments contrasts sharply with global trends, where processor chips typically represent 25% of the market – compared to just 7.7% in China.

The AI and automotive semiconductor sectors have seen increased interest and investment, but their impact on the broader industry remains limited. This suggests that while these high-growth areas are attracting attention, they haven’t yet translated into meaningful shifts in the industry’s overall composition.

The Talent Challenge

The semiconductor design industry faces a unique talent paradox. While there’s sufficient supply of mid-to-low experience workers, the competition for top talent has created a vicious cycle. Highly skilled engineers can command world-leading salaries, but many companies struggle to afford these wages. This has led to high employee mobility, as professionals move between companies in search of better compensation packages.

The Involution Problem

Chinese companies continue to face pressure from domestic customers demanding low prices, while foreign customers increasingly seek non-Chinese suppliers. This “involution” – a term describing a situation where increased input doesn’t lead to proportional output growth – creates a challenging environment for sustainable business development.

Positive Developments and Innovation

Despite these challenges, several positive trends are emerging. The industry’s growth rate of 29.8% significantly outpaces global averages, demonstrating resilience in the face of geopolitical pressures. A particularly noteworthy development is China’s advancement in RISC-V server chip design. Companies like Spacemit and Sophgo have progressed from designing RISC-V intellectual property to producing complete server solutions, including accelerator cards and full server products.

This innovation in RISC-V technology represents a strategic response to restrictions on ARM IP and demonstrates how constraints can drive technological advancement. No other country appears to be pursuing RISC-V server chip development at this scale, potentially positioning China as a leader in this emerging technology sector.

Access to Critical Resources

Despite restrictions, many Chinese design companies continue to have access to crucial resources. Most notably, many companies still utilize TSMC’s advanced manufacturing capabilities and US-based Electronic Design Automation (EDA) tools. This access remains vital for producing competitive, high-performance chips.

Future Outlook and Challenges

Looking ahead, the industry faces several critical challenges. The prediction that China’s IC design industry will reach $141 billion in revenue by 2030 would require it to account for approximately 14% of the global semiconductor market – a target that some experts view with skepticism.

The path forward requires addressing several key issues:

1. Industry Consolidation: The current fragmentation must be addressed through mergers and acquisitions to create companies capable of competing globally.

2. Product Mix Evolution: Chinese companies need to shift focus from mid-to-low-end products to higher-value segments, particularly in processors and specialized chips.

3. Price Competition: Moving away from price-based competition toward value-based differentiation is crucial for sustainable growth.

4. Supply Chain Independence: While current access to TSMC and US EDA tools remains, developing domestic alternatives is essential for long-term security.

Conclusion

The year has been marked by unprecedented growth and significant challenges. While the industry has demonstrated remarkable resilience and innovation, particularly in areas like RISC-V technology, fundamental issues of fragmentation and market positioning persist. The coming years will be crucial in determining whether this growth can be sustained and whether the industry can overcome its structural challenges to become a true global leader in semiconductor design.

The contrast with last year’s more pessimistic outlook is striking. Where once decline seemed possible, now robust growth offers hope. However, translating this growth into sustainable, competitive advantage remains the industry’s primary challenge. As we look toward 2026, the question isn’t whether China’s semiconductor design industry can grow, but whether it can evolve into a more concentrated, innovation-driven sector capable of competing at the highest levels of the global market.

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