How Can Domestic IC Design Go Highly Profitable?

Analog IC designer Linear Technology achieved a profit margin of more than 75%, surpassing Apple and Microsoft, and is known as the "most profitable company." In the semiconductor field, the international average gross profit level is 40%. The average gross profit level of the Chinese IC design industry is 12.39% lower than the international average, and the average gross profit of China's top ten design companies is 31.3%. A large number of IC design companies have to adopt follow-up strategies due to lack of product definition capabilities. In today's era of high-cost integrated circuits, there is not enough space for scale and gross margin, which means that companies' reinvestment capacity is insufficient.

The reason why the profit margin of IC design industry in China is low has multiple reasons. The degree of product innovation is not enough and the market sales price is not high. A large number of IC design companies have to adopt follow-up strategies due to lack of product definition capabilities. Therefore, the product's innovativeness is not much, and naturally it cannot sell a good price. Due to adopting a follow-up strategy, the time to market is relatively late. Pioneers often squash latercomers by lowering prices, so latecomers have to adopt low-price strategies in order to sell their products. While the forerunners have been downselling this generation of products, they have already prepared a new generation of products. By increasing the sales of a new generation of products, it is still possible to maintain a better price.

The disorderly competition has also led to a drop in product prices. Since everyone's level is almost the same, follow-up strategies are adopted, so there are often similar products from multiple companies at the same time. In this way, competition is exacerbated, so price competition is used, resulting in a further reduction in product prices. Although the overall cost of Chinese companies is lower than that of Europe, the United States, and Japan, it has reduced the occupation of gross profits to some extent. However, due to the lack of technical skills of local companies, it is often necessary to use higher manufacturing processes than those in Europe and the United States. This will increase the hard cost of products. Before and after a drop of one liter, its own advantage is often offset.

Local companies must abandon the "following" development ideas, be bold in innovation and dare to take the lead. This requires companies to accurately grasp the market pulse and user needs. In the local market, we must give full play to the advantages of being well-versed and familiar, and adopt strategies such as personal services and special services, which may lead to some opportunities. To cultivate entrepreneurial spirit, change local competitors to become partners. It is difficult for everyone to unite to achieve integration at all levels and fundamentally avoid vicious competition in the market. However, in the past two years, there has been an integration trend. As long as we stick to it and form some large companies through integration, competition will increase and profit margins will increase.