Analysts warn China's aggressive chip fab expansion could lead to future price war

News
By Anton Shilov
published

Could make chips made on mature nodes cheaper, but will probably make some companies disappear.

SMIC Shenzhen
(Image credit: SMIC)

With dozens of fabs being built in China and coming online over the next few years, China is poised to expand its chipmaking capacities dramatically. Most of these fabs will produce chips using mature process technologies, enabling China to flood the chip market on these nodes. Meanwhile, experts from market research company TrendForce warn that this could lead to an oversupply of capacity, making foundries cut their quotes, and some may go bankrupt. 

China currently has 44 wafer fabs, excluding seven inactive ones. Among these, 25 are 300-mm fabs, five process 200-mm wafers, and four process 150-mm wafers, according to TrendForce. By the end of 2024, companies like SMIC, HuaHong, Nexchip, CXMT, and Silan aim to add ten more wafer fabs to this list, comprising nine 300-mm fabs and one 200-mm facility. There are 23 more fabs under construction, including 15 300-mm and eight 200-mm facilities, bringing the total new wafer fabs to 32, and all of them are expected to come online in the coming years.

(Image credit: TrendForce)

These new and upcoming fabs focus primarily on mature process technologies, specifically 28nm and thicker. To build those fabs, Chinese companies acquired hundreds of lithography tools from ASML, and importing lithography equipment from the Netherlands saw a 1050% surge in 2023. This indicates a concerted effort by China to ramp up its chip manufacturing capabilities, particularly in mature technologies that are used to build chips for a wide range of applications, including consumer electronics and Internet-of-Things.

TrendForce

(Image credit: TrendForce)

TrendForce forecasts a global ratio of mature (greater than 28nm) to advanced (less than 16nm) semiconductor processes at around 7:3 from 2023 to 2027. With China's capacity in mature processes expected to grow from 29% to 33% by 2027, there's potential for a significant influx of these chips into the global market, potentially triggering a price war. This growth also indicates a trend towards increased localization in sectors like display driver IC (DDIC), CIS/ISP, and power management ICs (PMICs), posing risks of client erosion (i.e., smaller fabless chip designers go bankrupt) and pricing pressures for smaller foundries with similar processes.

Anton Shilov
Anton Shilov
Freelance News Writer

Anton Shilov is a Freelance News Writer at Tom’s Hardware US. Over the past couple of decades, he has covered everything from CPUs and GPUs to supercomputers and from modern process technologies and latest fab tools to high-tech industry trends.

35 Comments Comment from the forums
  • phead128
    US: nothing personal, but I can't let you build bleeding edge nodes.
    China: Alright, I'm focused to build legacy nodes, which will reduce global supply shortages I guess
    ....
    US: nnnnnoooo.... I didn't mean like that!! ***Embargo, sanction, tariffs***This essentially is protectionism through and through, none of this "National Security" bs.
    Reply
  • bit_user
    phead128 said:
    US: nothing personal, but I can't let you build bleeding edge nodes.
    China: Alright, I'm focused to build legacy nodes, which will reduce global supply shortages I guess
    Why do you think they wouldn't flood the market on bleeding edge nodes, too, if they could?

    phead128 said:
    This essentially is protectionism through and through, none of this "National Security" bs.
    Agree to disagree.
    Reply
  • TCA_ChinChin
    bit_user said:
    Why do you think they wouldn't flood the market on bleeding edge nodes, too, if they could?
    I'd be even happier if they did, since it would mean cheaper higher tech stuff too instead of just cheaper electronics that can rely on older nodes.
    Reply
  • phead128
    bit_user said:
    Why do you think they wouldn't flood the market on bleeding edge nodes, too, if they could?
    oh, so you prefer a monopoly or a global shortage of chips with sky high prices instead?
    Reply
  • bit_user
    TCA_ChinChin said:
    I'd be even happier if they did, since it would mean cheaper higher tech stuff too instead of just cheaper electronics that can rely on older nodes.
    But the old playbook applies: corner the market and jack up the price. Once the other fabs go out of business, do you really think China won't raise their prices? It's not like they haven't done it before, in other industries, but I guess people keep getting lured in to their trap by short-term greed.
    Reply
  • bit_user
    phead128 said:
    oh, so you prefer a monopoly or a global shortage of chips with sky high prices instead?
    That's a false dichotomy.
    Reply
  • RedBear87
    bit_user said:
    Why do you think they wouldn't flood the market on bleeding edge nodes, too, if they could?


    Agree to disagree.
    In the first place, Chinese companies, which are separate from the Chinese government, wouldn't have wanted to re-invent the wheel, so to speak, and they would have rather preferred to focus on improving what was already available, simply because it was the quickest way to get more competitive. That was what Huawei was doing before the US government started its Crusade against the People's Republic of China and its tech sector. Also, if you disagree with the idea that this is, essentially, protectionism, it might be nice to elaborate on that point. Many outside the all-might United States of America get exactly that impression. You guys are engaging in protectionism, and industrial policy under Biden, in a scale that wasn't seen in generations.
    Reply
  • bit_user
    RedBear87 said:
    if you disagree with the idea that this is, essentially, protectionism, it might be nice to elaborate on that point.
    The US has no sanctions against Taiwan or fabs in most countries around the world, whether they're operated by an American company or not. That doesn't fit the definition of protectionism I'm familiar with.
    Reply
  • ThomasKinsley
    bit_user said:
    The US has no sanctions against Taiwan or fabs in most countries around the world, whether they're operated by an American company or not. That doesn't fit the definition of protectionism I'm familiar with.
    You're absolutely right. The sanctions being applied against China are because of geopolitics, not protectionism. Arguably the CHIPS Act is a form of protectionism and a desire for greater national security in the event of a Taiwan invasion.

    But before this gets too political, I will bring it back to tech by saying maybe now GM will finally have enough chips for their vehicles. They kept making excuses for well over a year saying they could not procure enough chips for heated seats and blind-spot monitoring when other companies (e.g., Ford, VW, Tesla) had more than enough. It's up to American companies to find novel uses for these chips, especially with an ensuing price war that will make them more affordable than ever.
    Reply
  • Notton
    Counterpoint: Some companies have already fallen far behind, release trash products, and deserve to disappear.

    For instance, I don't want a product that uses...
    Mediatek wifi
    Killer NIC
    AMD bluetooth
    InnoGrit IG5236
    etc.
    Reply