US sanctions transform China into legacy chip production juggernaut — production jumped 40% in Q1 2024

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The U.S. purposefully excluded older chips from its export sanctions.

HLMC
(Image credit: HLMC)

U.S. semiconductor export sanctions could be backfiring: China's output of legacy semiconductor chips grew by a whopping 40% in the first quarter of 2024, according to a report from SCMP. The massive surge in production suggests China could become the global leader in legacy chip production.

A big reason for the surge: There are no trade restrictions on 'mature chips,' or chips that utilize 28nm or older process technology. The U.S. government purposefully left these chips out of its sanctions to ensure supply chain resistance; these older chips are used extensively in a range of important devices, such as cars and basic electronics (e.g. toasters, phones, and medical equipment), and disrupting the supply chain could cause global issues. Also, the U.S. government determined that these chips do not pose a threat to national security (at least, not in the way newer chips do). 

As a result, China's national semiconductor output of legacy chips reached an all-time high, with 36.2 billion units produced in March alone. Reports claim that China's output over the past three months is almost three times what it produced in Q1 2019, which was when China started implementing its plan to bring chip production back in-house. 

Thanks to U.S. sanctions, most new Chinese investments have focused on mature semiconductors rather than bleeding-edge semiconductor nodes. Heavy state-wide backing has also assisted and is believed to be the main proponent driving China's huge production gains — to the point where China is overproducing chips.

At this rate, China is headed toward global dominance of legacy chip production, according to reports. China's mature-process production capacity is expected to reach 39% of global market share by 2027 — up from 31% last year.

This trend could continue beyond 2027 if the U.S. continues to enforce its current regulations. China has had no choice but to produce chips using older process technologies, as it has no mainstream method of competing with companies such as Intel and TSMC on bleeding-edge process nodes. China is desperate to become self-sufficient, but it has no way of obtaining the proper lithography tools needed to build cutting-edge microchip processors.

Ultimately, China still relies heavily on chip imports (of the chips it can still receive, that is). In fact, reports reveal that China's semiconductor imports have grown by 12.7% in Q1 2024, so it's not doing the best job at pursuing self-sufficiency ... yet. 

Aaron Klotz
Aaron Klotz
Freelance News Writer

Aaron Klotz is a freelance writer for Tom’s Hardware US, covering news topics related to computer hardware such as CPUs, and graphics cards.

35 Comments Comment from the forums
  • punkncat
    Demand drives production as well as innovation. Sort of a no brainer.
    Reply
  • ohio_buckeye
    Not only that but what a move. One can imagine a lot of your electronics in everything from cars to mp3 players likely are using these legacy chips. So basically allowing a monopoly to be created it sounds like.
    Reply
  • thestryker
    ohio_buckeye said:
    Not only that but what a move. One can imagine a lot of your electronics in everything from cars to mp3 players likely are using these legacy chips. So basically allowing a monopoly to be created it sounds like.
    This has been the natural progression of peak fabrication because they all wind down old nodes. In the case of Intel they were historically pretty aggressive with this so I don't think they have any 200mm fabs left (this was a driving force behind them wanting to buy Tower). It's not possible for a company to spin up a new old node fab so it's left to existing or government subsidized and we can guess which this is.
    Reply
  • ivan_vy
    USA prohibits cutting edge chips, China mass produce legacy chips and flood the world markets.
    *surprised pikachu face
    basic economy of scale and the revenue will fund R&D including eventually proper lithography tools.
    one might think lawmakers don't know enough about economy and technology.
    Reply
  • Pierce2623
    punkncat said:
    Demand drives production as well as innovation. Sort of a no brainer.
    It seems you missed the part of the article where they’ve overproduced and went beyond demand. China doesn’t do innovation. They just do IP theft.
    Reply
  • punkncat
    Pierce2623 said:
    They just do IP theft.

    I sure won't fault you for that part of the statement.
    Reply
  • Pierce2623
    ivan_vy said:
    USA prohibits cutting edge chips, China mass produce legacy chips and flood the world markets.
    *surprised pikachu face
    basic economy of scale and the revenue will fund R&D including eventually proper lithography tools.
    one might think lawmakers don't know enough about economy and technology.
    If China started a program today to build a 3nm node. It would take 10 years at least if they’re trying to build their own lithography tools, too( which they’ll seemingly have to do to hit 3nm)
    Reply
  • williamcll
    Pierce2623 said:
    It seems you missed the part of the article where they’ve overproduced and went beyond demand.
    Overproduction is a lie by bigger chip producers to gauge and inflate prices. There's always a demand
    Reply
  • daris98
    People always underestimate the market scale of "legacy chips". TSMC has 32% of its money coming from the planar transistor business (28 nm or older) and considering the skyrocketing demands they had as the market leader on cutting edge nodes, that number is absolutely massive.

    However, as time goes by, the gap between legacy and cutting edge might either be more and more prominent or will diminish. Critical computing infrastructure, especially ones that needs brute forcing (AI for instance) is expected to see a divergence, but we never know if that's ever true as someone might come up with a workaround by using less transistors (though apparently unlikely). If true, we're not even sure if it's an ever growing trend either.

    On the other hand, budget consumer electronics can stay at the 7 nm generation in a long time. Any computer with the 16 nm generation process is still deemed fast these days, in comparison to say what 32 nm was to 90 nm (e.g. Sandy Bridge vs Prescott). The world should always be ready for China's slippery industrial strategies.
    Reply
  • gg83
    If not mature nodes, China would have put that money and more into bleeding edge. Either way China would have taken a percentage of global production. This isn't worth an article. It's just an anti-sanction pro China propaganda peice.
    Reply