By 2012, $42.1 billion in Chinese-designed semiconductors will be bought for use in China, up 63.8% from $25.8 billion in 2007, iSuppli said. The main reason for the trend is the drop in manufacturing outsourcing to China by foreign electronic equipment makers.
"China's semiconductor industry now is undergoing a transformation, with an increased focus on designing chips for electronic products that are popular in the nation," Kevin Wang, senior manager for China Research at iSuppli, said in a statement.
Chinese and Hong Kong-based electronics manufacturers are the main drivers behind the demand. Foreign original design manufacturers that develop and make goods for Chinese electronics makers also are contributing to the growth.
"In the electronics industry, China often is seen simply as a low-cost manufacturing region," Wang said. "However, the rise of the semiconductor design business in China shows that the nation’s high-tech future increasingly will reside in capitalizing on local brainpower to produce innovative products that appeal to the domestic audience."
Mobile handsets are expected to be the largest user of Chinese semiconductors, consuming $9.8 billion worth of domestically designed chips by 2012, more than double the amount in 2007, iSuppli said. The fastest-growing segment in the use of Chinese semiconductors over the next few years will be mobile communications infrastructure equipment. Second will be LCD TVs.
China's use of all kinds of semiconductors -- foreign and domestic -- is expected to rise to $81 billion this year, a 7% increase from 2007, iSuppli said. Consumption is expected to increase at a compound annual growth rate of 7.7% from 2007 to 2012, which is less than a third of the CAGR for the previous five-year period.
Foreign chipmakers are not the only companies that need to worry about China's domestic businesses. Chinese productivity software maker Evermore Software recently released Integrated Office 2009 to challenge Microsoft's Office 2007.