Chip foundries that quit the race for leading-edge process technology around 2018 face a new threat: rivals in China that are dumping mature-node chips, according to two of three analysts interviewed by EE Times.
U.S. government officials, after signaling concerns about the surge in capacity for months, on Dec. 23 2024, announced an investigation into what the Biden administration called China’s unfair trade practices. The measure follows a series of export controls and prohibitions the administration has taken to slow the advance of China’s tech industry.
The Office of the U.S. Trade Representative is launching a Section 301 investigation to examine what it called “China’s targeting of mature-node chips for dominance and the impact on the U.S. economy.” In addition, the investigation will assess China’s impact on the production of silicon-carbide substrates or other wafers used as inputs.
“China’s massive capacity buildup since 2018 gives it the ability to flood markets with mature- and essential-node chips, including silicon-carbide power devices for auto and industrial requirements,” TechInsights vice chair Dan Hutcheson told EE Times. “Currently, China’s capacity can address well over half of mature- and essential-node chip demand. Moreover, its fab whitespace and unboxed tools give it a ceiling of almost 100%. Global fab utilization for mature- and essential-node chips is well below 80%.”
Another research group covering the chip industry supports that view.
“Mature-node capacity today exceeds demand by a significant margin,” SemiAnalysis analyst Sravan Kundojjala told EE Times. “The mature-node foundry utilization rate dropped to a low 70% in 2024.”
Despite the drop, China’s overall capex in the logic and foundry segments soared in 2024 by about 30% from the previous year, according to SemiAnalysis.
Profitability of mature-node chips took a big hit in 2024 due to excess capacity, underutilization and reduced demand, Kundojjala said. SemiAnalysis estimates that with the exception of foundry leaders TSMC and Samsung, global mature-node operating profit in 2024 plunged by 23% from the previous year. Mature-node average selling prices declined 5% on average, Kundojjala said.
“Current mature-node capacity can support demand for another two to three years,” he added. “However, given the aggressive capex plans of Chinese companies, the problem is unlikely to abate.”
Tougher competition
Established foundries like United Microelectronics Corp. (UMC) and GlobalFoundries, as well as mature-node integrated device manufacturers like ST Microelectronics and Texas Instruments, will face increasing competition from China’s Semiconductor Manufacturing International Corp. (SMIC), Hua Hong and chipmakers affiliated with tech giant Huawei, according to SemiAnalysis.
More than a dozen Chinese companies, including SMIC, Hua Hong, Nexchip and XMC, are increasing mature-node capacity, Kundojjala said.
Some like SMIC are repurposing the chip tools they are allowed to import for multi-patterning that achieves finer process nodes, he added.
China has no option but to focus on mature nodes (10 nm and above) due to restrictions that the U.S. has created to prevent China’s entry into advanced nodes, Kundojjala said. In 2023, SMIC’s production of 7-nm silicon crossed a red line set by the U.S. government to keep China stalled at the 14-nm node.
Specialty companies like GlobalFoundries, UMC, X-FAB and Tower need not worry much about Chinese capacity at present because they have significant single-source business, according to SemiAnalysis.
“We estimate up to one fourth of the global mature-node business can come under attack from Chinese competition, but this will take multiple years to pan out,” Kundojjala added.
China will not flood the global market with mature-node chips, according to Paul Triolo, senior VP for China and Technology Policy Lead at DGA Group.
“Leading mature-node companies outside China will continue to compete on the basis of quality, trusted relations and competitive prices,” he told EE Times. “Relationships here are important, and OEMs will continue to want to work with reliable mature-node semiconductor manufacturers and do not typically want to change vendors because of minor price differentials. A big question will be the degree to which foreign OEMs will want to become dependent on Chinese suppliers, given the geopolitical tensions around U.S.-China relations and the potential for significant disruptions of China-based production in the event of a military conflict over Taiwan.”
Old playbook
China has used its industrial development playbook in the past to target and capture markets for solar panels, mobile devices, EVs and consumer electronics, Hutcheson said.
“It starts with massive shotgun subsidies,” he said. “Winners are not chosen up front by the government. China’s approach results in hundreds and even thousands of market entrants. It then relies on oversupply to kill off the weak, while letting the market choose the winners. It’s laissez-faire capitalism on steroids. It’s proven very effective for winning markets.”
There is evidence that the glut of mature-node ICs has nearly eliminated profits, according to TechInsights. In China, Hangzhou Silan MultiChip has delayed its 300-mm fab, and Century Goldray Semiconductor has filed for bankruptcy, according to Hutcheson.
China may outflank U.S. restrictions and potential tariffs by flooding world car markets with cheap electric vehicles running locally made mature-node and essential chips, according to Hutcheson.
“With the (new) Trump administration coming in, the U.S. government’s role will clearly shift from examining the issue to acting on it with tariffs,” he said. “As for the end game, expect more retaliation from China’s side. So far, they’ve been relatively mild, playing a long game.”
It will be very difficult to impose component tariffs on Chinese semiconductors used in products imported by many U.S. businesses, Triolo said.
“It is not clear that such tariffs would have any impact as an incentive for U.S. or allied companies to increase mature-node capacity,” he added.
It is likely that the tech war will escalate, according to analysts EE Times interviewed earlier this year.
Policy funk
The issue of mature-node overcapacity has the U.S. and Europe in a policy funk, according to Triolo. Government officials are concerned that China may take over the mature-node business just as it did with solar panels and EVs, he said in an article published by think tank Center for Strategic International Studies (CSIS). Because mature-node chips are commodities, unlike EVs or photovoltaics, overcapacity is the wrong lens through which to view the issue, he notes.
The goal for Chinese firms like SMIC and Hua Hong to expand capacity is primarily to meet domestic demand, according to Triolo.
“With China still importing a huge majority of its domestic semiconductor consumption needs, there are commercial drivers for expanding domestic capacity,” Triolo said in the CSIS article. “U.S. export controls have also accelerated this trend, both by preventing companies like SMIC from being able to focus on advanced-node production and by spurring the Chinese government to encourage companies in China to seek domestic alternatives to foreign suppliers for both hardware and software across a range of government organizations and industrial sectors,” he said.
The tech war between the U.S. and China will push chipmakers selling in China to source mature-node chips more locally, according to SemiAnalysis.
Some of China’s new mature-node capacity will likely be used by foreign companies as they adopt a “China for China” strategy, Kundojjala said.
Leave a Reply
You must Register or Login to post a comment.