Taiwan Legacy Chip Industry Faces Growing Pressure from China’s Rapid Expansion
Recent years have brought existential challenges for the Taiwan legacy chip industry because of the increasing competition from Chinese semiconductor manufacturers in the market. The global leadership position of Taiwan in semiconductor manufacturing extends to AI chip production but its dominance in the mature-node market diminishes because China increases its domestic chip capacity.
According to Reuters, Taiwan’s Powerchip Technology entered into a deal with the Chinese city, Hefei in 2015 to set up a new chip foundry for better access to the country’s market. But now, the Chinese foundry, Nexchip has become the biggest competition in the legacy chip space.
China’s Growing Footprint
Chinese semiconductor competition has transformed the production of legacy chips within the Taiwan semiconductor industry through its intense market competition. Nexchip is one of the many Chinese foundries that rapidly acquired market share in the $56.3 billion legacy chip market. The sector produces mature node semiconductors which are manufactured using 28-nanometer technology and larger nodes.
Frank Huang, chairman of Powerchip Investment Holding and its listed unit Powerchip Manufacturing Semiconductor Corporation, said, “Mature-node foundries like us must transform; otherwise, Chinese price cuts will mess us up even further.”
Chinese foundry Nexchip along with other Chinese foundries build production capacity through state aid to challenge Taiwanese foundry companies. The market expansion of Nexchip proves significant in mature-node production while competing directly against dominant Taiwan-based chipmakers including United Microelectronics Corp. (UMC) and Vanguard International Semiconductor Corp. (VIS).
UMC told Reuters, “The expansion of capacity globally had created “severe challenges” for the industry and that it was working with Intel to develop more advanced, smaller chips and diversify beyond legacy chipmaking.”
Taiwan’s Strategy
To counter the threat posed by Chinese semiconductor competition, Taiwan’s chipmakers are reassessing their strategies. While the Taiwan legacy chip industry has historically focused on efficiency and innovation, companies are now considering diversifying their production bases and investing in new markets.
The rising competition from Chinese semiconductors has forced Taiwanese makers to review their industry approaches. The Taiwan legacy chip industry maintained its core focus on efficiency and innovation before companies started to examine new production base options for market expansion.
Taiwanese manufacturers relocate their manufacturing operations outside China to safeguard their operations from geopolitical uncertainties and increasing Chinese dominance in chip development. Taiwanese firms simultaneously work to boost their legacy chip technological abilities through new material integration and energy efficiency enhancements for beating Chinese competitors.
Some Taiwanese manufacturers are shifting production to regions outside of China to mitigate risks associated with geopolitical tensions and China’s growing self-sufficiency in chipmaking. Additionally, Taiwanese firms are looking to enhance their technological capabilities in legacy chips by integrating new materials and improving energy efficiency to stay ahead of Chinese rivals.
AI Chip Market
While Taiwan continues to dominate the advanced AI chip market, its focus on high-end chip manufacturing has left gaps in the lower-end semiconductor sector, where China is rapidly gaining ground. Chinese foundries have been blocked by the U.S. from manufacturing advanced chip technology. SO now, they have focused on legacy chips and are competing with Taiwanese manufacturers on price, according to Taiwan chip executives, who said such a strategy was made possible by strong funding support from Beijing and a willingness to accept lower margins.
The projected market growth for AI chips exceeds expectations however mature chip technologies dominate automotive and industrial automation sectors. Taiwanese firms who put AI chip production before legacy chips face the potential disadvantage of surrendering market share to Chinese foundry Nexchip and additional industry competitors.
