Patent Landscape of Chip Wafer Manufacturing Industry in China

Tag：intellectual property-patents, telecommunications media entertainment and technology-technology

I. Introduction

The global chip consumer market has a massive capacity and maintained high-speed growth despite the impact of international trade disputes and the COVID-19 pandemic in recent years. The global sales in 2022 reached $573.5 billion, with the largest share in China[1] at $180.3 billion, accounting for 31.4% [2]. Being the largest consumer market, China has yet to establish an integrated and advanced chip industry supply chain.

The chip industry supply chain can be briefly divided into three parts: upstream integrated circuit design, midstream wafer manufacturing, and downstream packaging and testing. Among them, wafer manufacturing is the weakest part of China’s chip industry, AKA "strangle technology", while one of the typical sanctions implemented by the U.S. government is to put Chinese high-tech companies on the “Entity List” barring them from buying components and services from U.S. companies without government approval in order to cut off the supply chain of these Chinese companies.

In fact, due to the high technological barriers in wafer manufacturing sector, including processes such as lithography, etching, ion implantation, diffusion, and thin film deposition, only a few companies possess mature chip wafer manufacturing capabilities. The majority of market share is in the hands of those top players. According to the revenue data of 2022, the combined revenue of the global top 10 wafer foundries amounted to approximately $109.6 billion, accounting for a total market share of 94.56%. Among them, three companies are from China, with a combined revenue of approximately $12.6 billion in 2022, accounting 11% market share[3].  Compared to the vast consumer market, the wafer manufacturing capacity of indigenous companies is insufficient to adequately meet market demands.

In this article, we’d like to analyze the Chinese market and industry from a patent perspective. In order to provide a patent landscape in wafer manufacturing field, 11 Chinese wafer foundries were selected, including the 3 companies mentioned above, as representatives of indigenous patent assignees while the combined revenue of these assignees accounts for over 90% of the total indigenous companies’ revenue. Meanwhile, the remaining 7 foreign wafer foundries in the global top 10 list were selected as representatives of foreign assignees, wherein four are from China’s Taiwan Province, one is from the Republic of Korea, one is from the United States and one is from Israel.

To set up a reliable patent pool in the field of chip wafer manufacturing technology, 700 documents were selected randomly from the patents from 2013 to 2022 filed by the assignees mentioned above.  A manual screening was conducted and the results showed that 401 patents were classified into wafer manufacturing field, 136 patents were classified into packaging and testing field, and 163 patents were in other fields. IPC codes highly relevant to wafer manufacturing were identified and used, after eliminating overlapping codes with other fields, to filter the patents of indigenous and foreign assignees.

We combine patent statistics with our study of online news, press releases, government policies, and corporate financial reports to shed light on the trend of wafer manufacturing technology and industry from a Chinese perspective.

II. Patent Landscape of Indigenous Applicants

Figure 1. Patent filings from indigenous applicants in the field of wafer manufacturing (2013–2022)

Global patent filing activity of indigenous applicants shows a continuously increasing trend since 2013[4]. There are several reasons contributing to such trend.

Firstly, China is the world's largest chip consumer market which leads to strong demand for wafer processing technology and capacity.

Secondly, the Chinese government attaches great importance to the integrated circuit industry at the policy level. Outline of the Long-Term National Plan for the Development of Science and Technology (2006-2020) approved by the State Council of the People's Republic of China (SCPRC) corresponds to a list of strategic IPC main groups which includes H01L27 (Devices consisting of a plurality of semiconductor or other solid-state components formed in or on a common substrate). It’s also a main IPC code we selected to filter patents of wafer manufacturing. In addition, Integrated Circuit is identified as a basic and core strategic scientific area in the Outline of the 14th Five-Year Plan (2021-2025) for National Economic and Social Development and Vision 2035 of the People's Republic of China approved by SCPRC.

Thirdly, we’ve witnessed active government-led investment in the IC field. For instance, China Integrated Circuit Industry Investment Fund, also known as the Big Fund, was established in 2014. The Big Fund raised RMB98.7 billion in the first phase and has invested in more than 50 Chinese companies in the IC field, among which more than RMB21.9 billion was directly invested in wafer foundries. The Big Fund phase II, established in 2019, has a registered capital of RMB204.15 billion and is more inclined to invest in "strangle technology" fields such as wafer manufacturing[5].

Fourthly, in the context of international trade disputes, the U.S. government keeps implementing measures such as escalating export controls, introducing the Chips and Science Act, adding more and more Chinese companies on the “Entity List” etc., in an attempt to sever the chip supply chain in China. This has made it increasingly difficult for indigenous companies to access foreign wafer foundry services and products. Such plight has greatly stimulated Chinese enterprises and capital, leading to a consensus within the integrated circuit industry to strengthen and enhance the wafer manufacturing capability of indigenous companies.

Consequently, driven by market demand, government policy, and financial support, as well as international trade disputes, indigenous wafer foundries will continue to increase R&D investment and therefore we expect to see rapid patent filing growth over the next decade.

Figure 2. Global patent family size of indigenous applicants in the field of wafer manufacturing (2013–2022)

The polygonal lines in Figure 2. show the proportion of patent filings from indigenous applicants in major jurisdictions over the last 10 years. Over 76% of patent applications were filed in China, the second important destination is the U.S., accounting for about 15%. Only a small part, about 9%, was filed in other jurisdictions (mainly in EU and WIPO). However, Chinese applicants had been filing more and more patents overseas since 2015. In 2015, the percentage of foreign patent filings was only 7.5% while the number exceeded 20% in the past five years. The increasing patent activities in other jurisdictions indicates that indigenous applicants have been paying more on global portfolio. Such trend is also illustrated by the increase of average patent family members shown as grey bars in Figure 2.

It is noteworthy that the proportion of PCT applications has also increased significantly after 2017, from an average of 1% in the first five years to an average of 6% in the second five years. According to our statistics, more than 80% of PCT applications come from storage chip manufacturers. A further analysis was conducted.

Figure 3. Patent filings from indigenous storage chip manufacturers in the field of wafer manufacturing (2013–2022)

Figure 3. shows an obvious surge of patent filings beginning in 2017. Wherein, foreign jurisdictions drew great attention as the proportion of overseas patent filings is 41% and the average size of patent families is 5.9, which is much more than the figure of other indigenous applicants. Such trend is likely to suggest that storage chip manufacturing technology is an important breakthrough point for China to promote wafer processing services and products to the global market.

III. Patent Landscape of Foreign Applicants

Figure 4. CN patent filings from foreign applicants in the field of wafer manufacturing (2013–2022)

Bars in Figure 3. show the CN patent filings of applicants from foreign origin. The patent filing activity met its first peak in 2017 then slowed down until around 2020, especially for applicants from the U.S., which accounted for an average of 9% of patent applications in 2013-2017, but sharply declined to less than 1% after 2018. The brewing trade dispute between China and the U.S. since 2018 might cause great concern among U.S. applicants. The U.S. government has taken a series of measures, such as adding Chinese companies to Entity List which had caused U.S. wafer manufacturers to lose a large number of customers from China. Later in 2021, the U.S. government conducted a 100-Day Review on 4 key categories of technologies, including semiconductor manufacturing and advanced packaging, emphasizing the "enhancement of the ecosystem" of U.S. domestic semiconductor manufacturing. Then in 2022, the U.S. Bureau of Industry and Security amended Export Administration Regulation (EAR) to further add gallium oxide and ECAD software, which are strongly related to chip manufacturing, to the Commercial Control List. As China was identified under NS (Column 2), it will be more difficult for commercial cooperation between Chinese and U.S. enterprises in the field of chips. This trend is likely to continue, since the U.S. enterprises found it hard to explore market in China, they will inevitably lose interest to obtain CN patents. In summary, under the background of Sino-U.S. trade disputes, it will be difficult for the American wafer processing enterprises to take profit from Chinese market, and therefore they will have no willingness to invest in the CN patents.

Overall, Taiwan Province, accounting for 66%, is the top foreign origin of CN patent filings related wafer manufacturing field. In spite of the impact of international trade disputes, the position of China as an important consumer market of Taiwanese applicants has not been fundamentally affected. Applicants from the Republic of Korea contributed the second-largest number of patent filings, accounting for 28%. Similar to the situation in Taiwan Province, Korean applicants are also paying great attention to the Chinese market and making continuous investments in CN patents. Patent fillings from all other origins only account for 6%. Although China has a large consumer market and a strong demand for wafer foundry service, only top players from a few origins have the ability to enjoy the market share while the technology R&D and patents are also concentrated in these leading companies.

The polygonal lines in Figure 4. show the percentage of CN patent filings from foreign applicants in total. The quantities of patents fluctuated between 2013 and 2020 but the percentage kept decreasing because of the continuous rise of applications filed by indigenous applicants. Such trend suggests that Chinese wafer manufacturers will gradually gain advantages in domestic technology competition. This percentage rebounded in 2021 and 2022, which might be attributed to the decreased business activity of indigenous applicants due to the impact of the COVID-19 pandemic. Nevertheless, it’s still inaccurate to give a judgment at this moment due to the delay between patent filing and publication.

Figure 5a & 5b. Foreign patents from indigenous assignees and CN patents from foreign assignees in the field of wafer manufacturing (2013–2022) divided by family sizes

In this analysis, patent families from Chinese assignees only filed at CNIPA were filtered to leave a dataset of “foreign patents from indigenous assignees” as shown in Figure 5a. For both foreign patent families from indigenous assignees and patent families with CN members from foreign assignees, most of the patent families have 2 to 5 members as the target markets for these wafer foundries are limited to a few jurisdictions. For Chinese assignees, the major overseas target markets are the United States and Europe while for foreign assignees, the target markets include the United States, Europe, the Republic of Korea, and Chinese Taiwan.

Only 9.5% of the patent families from Chinese assignees have more than 5 members compared to 26.7% of foreign assignees. Furthermore, the average number of family members for Chinese assignees is 3.3 and for foreign assignees, the number is 4.5. The data illustrates that Chinese wafer foundries have clear target markets when filing patents in other jurisdictions while foreign assignees are benefited from a wider global market.

Figure 6. Applications and granted patents from indigenous and foreign assignees (2013–2017)

Bars in Figure 6. show the CN applications and granted patents from indigenous and foreign assignees[6]. For both indigenous and foreign assignees, as the number of applications kept increasing from 2013 to 2017, the patent grant rate remained relatively stable. However, applications from foreign assignees have a higher average grant rate, 87.5%, as opposed to 80.4% of indigenous assignees. Since an international search would be conducted for PCT applications, amended applications are more likely to be granted by the Chinese patent office.

IV. Key findings and insights

1. The most important target market of Chinese wafer foundries is still the local market, but they have also shown a clear willingness to expand into foreign markets, in particular, storage chip manufacturing technology may be a breakthrough. In the past 10 years, the patent footprint of Chinese players in the wafer manufacturing field is mainly in China (76%), which attests to the fact that most indigenous assignees target the local market. Their average number of foreign patent families members is 3.3, which shows that the foreign target markets are quite limited. It is noteworthy that in recent years, the proportion of applications in other jurisdictions has increased significantly, indicating a strong desire to expand to other foreign markets. In particular, for storage chip manufacturers, the proportion of foreign applications is 41% and the average number of patent families members is 5.9, both are much higher than the average for all wafer foundries (24%, 3.3), which may mark that storage chip manufacturing technology is an important breakthrough point for China in promoting wafer processing services and products to the global market.

2. The percentage of granted patents among CN applications, from both indigenous and foreign assignees, remained approximately stable from 2013 to 2017. But the average grant rate of applications from foreign assignees is higher than indigenous since the PCT application could be amended after an international search before entering China.

3. Although the current global chip is under “overcapacity cycle” which has caused revenue decline for major chip manufacturers over the past few months, this may mean more opportunities for the development of China’s chip industry. Backed by the huge market as well as policy and investment support from the Chinese government, unprecedented resources are poured into the sector. The independent innovation will assist China's chip industry, especially wafer manufacturing, to rise and finally survive their foreign counterparts.

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