Nexchip is part of a wave of Chinese foundries, like Hua Hong and SMIC, that are rapidly gaining ground in the $56.3 billion market for legacy or mature node chips, which are made using 28 nanometer technology and larger. This trend has caught the attention of the Biden administration, prompting an investigation and raising concerns within the Taiwanese industry.
These Chinese competitors are challenging the long-standing market leaders—Powerchip, UMC, and Vanguard International—by cutting prices and aggressively expanding their production capabilities. As a result, Taiwanese foundries are feeling the pressure to either scale back or shift their focus to more advanced and specialized processes.
Frank Huang, chairman of Powerchip Investment Holding and its subsidiary Powerchip Manufacturing Semiconductor Corporation, which was reorganized in 2019, stated, “Mature-node foundries like us must transform; otherwise, Chinese price cuts will mess us up even further,"
UMC also shared with Reuters that the global capacity expansion has posed "severe challenges" for the industry, and they are collaborating with Intel to create more advanced, smaller chips while diversifying away from legacy chip production.
Taiwanese executives believe that the trade tensions between Washington and Beijing might provide some relief, as companies look to secure supply chains and find chips produced outside of China.
However, former U.S. President Donald Trump has indicated plans to impose tariffs as high as 100% on semiconductors manufactured outside the U.S.
Vanguard International chose not to provide any comments. SMIC, Nexchip, and Huahong also didn’t reply to inquiries for their input.
MORE AFFORDABLE AND AGGRESSIVE
After being blocked by the U.S. from accessing advanced chip technology in recent years, Chinese foundries have focused on legacy chips and are underpricing their Taiwanese competitors, thanks to substantial backing from Beijing and a willingness to accept lower profit margins, according to Taiwan chip industry leaders.
In recent years, Chinese firms have significantly ramped up their legacy chip production capabilities. TrendForce reports that in 2024, China held 34% of the global mature node manufacturing capacity, while Taiwan accounted for 43%.
By 2027, it's expected that China's share will overtake Taiwan's, with South Korea and the U.S. projected to see their shares shrink to single digits.
According to consultancy SEMI, out of 97 new fabrication plants set to begin production between 2023 and 2025, 57 will be located in China.
While Taiwanese foundries still have the edge in areas like process stability and production yield, one executive from a Taiwanese chip design firm noted that since 2023, Chinese foundries have become much more aggressive in seeking business opportunities.
This executive, along with another from a different Taiwanese chip design company, mentioned that Chinese clients—particularly in consumer sectors like panels—are increasingly urging Taiwanese designers to collaborate with Chinese fabs for chip production, aligning with Beijing's push for localizing supply chains.
Both individuals requested anonymity due to the sensitive nature of the topic.
Additionally, companies linked to the Chinese government, such as China Mobile and China Telecom, have been imposing stricter requirements for using domestically produced components, they noted.
China Mobile, China Telecommunications Corporation, and the Ministry of Industry and Information Technology did not respond to requests for comments.
THE TRUMP EFFECT
Galen Zeng, a senior research manager at IDC, a global market intelligence firm, indicated that Taiwanese chip designers and foundries are likely to refine their processes and move away from legacy chips. However, they will still face profitability challenges due to competition from China in the medium term.
Huang from Powerchip mentioned that the company intends to decrease its involvement in display driver and sensor chips, which are primarily utilized in the Chinese market, and instead concentrate on 3D stacking. This technique combines logic and DRAM memory chips to enhance computing performance while minimizing power consumption.
Powerchip holds a 19% stake in Nexchip, making it the second-largest shareholder, although it does not engage in active management.
Huang stated, "For chips intended for the Chinese market, we cannot continue this business... We must exit, or survival will be impossible."
Some relief may arise from U.S. initiatives aimed at limiting the growth of China's chip industry, coupled with deteriorating relations between Beijing and other nations, which compel customers to separate their supply chains into China-specific and non-China networks.
Huang informed Reuters that they are already witnessing a shift in orders that would have typically gone to China, now being redirected to their facilities in Taiwan, and they anticipate this trend to increase.
An anonymous executive from a Taiwanese chip design firm revealed that since 2023, they have been receiving a growing number of requests from international clients to produce chips outside of China.
"Some clients explicitly state that they do not want us to manufacture chips in China; they prefer 'Made in China' to be avoided," the executive remarked.