A reminder: please read my post about China’s leading semiconductor foundry SMIC as well: “How is SMIC after US embargo?“
Mature process
What is mature process?
The three terms legacy process, mature process, and non-advanced process have the same meaning, referring to not being an advanced process. Generally speaking, advanced process refers to semiconductor advanced process below 16 nanometers, such as 2 nanometers, 3 nanometers, 4 nanometers, 5 nanometers, 7 nanometers, 8 nanometers, 10 nanometers, 12 nanometers, or 16 nanometers. The definition of advanced processes will change and narrow as semiconductor technology advances. For example, some people no longer classify 16nm or 12nm as advanced processes.
Another way to define it is the scope of semiconductor processes that the US government wants to ban. This is what the United States cares about, and it is mainly aimed at the scope of the semiconductor embargo on China.
TSMC is the world’s largest advanced foundry monopoly and largest wafer manufacturer, and its definition is also representative. In each quarter’s earnings conference, TSMC will list the three processes with the highest revenue share. These three processes are advanced processes defined by TSMC itself. In the fourth quarter of 2024, 3nm will account for 26% of total wafer revenue, 5nm will account for 34%, and 7nm will account for 14%.
Most chips are mature process
In my previous post “6 common wrong semiconductor investment myths“, I pointed out that almost everyone believes that mature process, that is, non-advanced process chips, have limited uses, and chips should mostly be advanced processes. These are two of the biggest misconceptions people have about chip manufacturing.
Chips are comparable to plastics and are almost ubiquitous in modern people’s daily lives. Their importance is beyond doubt. However, cars, televisions, refrigerators, washing machines, various remote controls, household appliances, medical equipment, and even munitions, as well as all electronic devices, the chips used by humans in daily life are all made using traditional processes. In other words, the uses and markets of mature process are far greater than those of advanced processes.
The Semiconductor Industry Association (SEMI) stated that mature process are widely used and account for as much as 3/4 of global chip demand.
China’s mature process is already the best in the world
In April 2024, U.S. Commerce Secretary Gina Raimondo said at a press conference that China produces about 60% of traditional chips.
In July 2024, according to data from the Semiconductor Industry and Equipment Association (SEMI), China’s share of global mature process production capacity in 2023 was nearly 30%. International market research firm TrendForce predicts that this proportion may reach nearly 40% by 2027. The mature process has a wide range of uses and accounts for as much as 3/4 of the global chip demand.
In April 2024, according to a report by the South China Morning Post, China’s production of mature process chips increased by 40% in the first quarter of 2024 alone. Production will reach 36.2 billion in March 2024 alone. Moreover, China’s chip production in the past three months has almost tripled its production in the first quarter of 2019. At this rate, China’s market share of mature process chips will increase from 31% in 2021 to 37% by 2027, further gaining a dominant position in the global mature process chip production.
Regarding future development, TrendForce said that it is expected that the global proportion of mature process production capacity in mainland China will reach 39% in 2027. Several Barclays analysts believe that China’s chip production capacity has the potential to increase by 60% in the next three years, especially the legacy 40-nanometer to 65-nanometer processes, which will be the main contributor to the increase.
Global ranking of China’s foundry
SMIC ranks 3rd in the world
SMIC’s ranking has now risen to third place in the world, and the gap with Samsung is not far behind. For details, please refer to my previous posts of “How is SMIC after US embargo?“, “Mong-Song Liang, the hero of SMIC’s breakthrough in US blockade“, and “Two long-term threats to TSMC: US and SMIC“
Next Chip will be promoted to No. 8
According to TrendForce statistics, Next Chip (aka Hefei Jinghe)’s revenue in the fourth quarter of 2024 climbed to US$344 million due to its active expansion of production and support from Chinese government subsidies, surpassing Powerchip’s US$333 million, and its global wafer foundry ranking rose from 10th to 9th. Next Chip’s total revenue in 2024 will still be slightly lower than Powerchip, ranking 10th in the world.
It is expected that Next Chip will surpass Taiwan’s Vanguard and Powerchip, and Next Chip’s foundry ranking will climb from 10th to 8th.
China’s chip foundry capacity
Manufacturing capacity
According to data from the Semiconductor Industry Association (SIA), China currently accounts for about 20% of the world’s front-end semiconductor manufacturing capacity and about 40% of the back-end manufacturing capacity. China’s market share in mature process semiconductors above 28 nanometers has grown significantly. It is expected that by 2027, about 37% of the world’s wafer manufacturing capacity will be concentrated in China.
China’s chip import and export value
According to mainland customs data, the import value of chips in 2024 was RMB 2.7 trillion, an increase of 11.8% year-on-year. The largest category is “processors and controllers”, with an amount of RMB 1.3 trillion; the second largest category is imported “memory”, with an amount of around RMB 700 billion, accounting for about a quarter of the total import amount.
In 2024, mainland China’s chip exports reached US$159.49 billion, a record high, surpassing mobile phones’ US$134.36 billion to become the single commodity with the highest export value, an annual increase of 17.4%, maintaining 14 consecutive months of growth.
According to statistics, the proportion of domestically produced chips used in Chinese cars has reached 15%.
Overall chip foundry market share
According to Morgan Stanley’s statistics at the end of 2024, China’s chip foundries’ global market share in mature process will increase from 14% in 2017 to 18% in 2023.
How many chip fabs are in China?
According to statistics, as of June 2024, except for 7 wafer fabs that have been suspended, there are currently 44 wafer fabs in mainland China, including 25 12-inch wafer fabs, 4 6-inch fabs, and 15 8-inch fabs. In addition, there are 22 wafer fabs under construction, including 15 12-inch fabs and 8 8-inch fabs.
In the future, manufacturers such as SMIC, Jinghe Integration, Hefei Changxin, and Silan Microelectronics also plan to build 10 wafer fabs, including 9 12-inch fabs and 1 8-inch fab. Overall, it is estimated that by the end of 2024, 32 large-scale wafer fabs will be built in mainland China, and most of them will focus on mature process.
The impact begins to appear
Customers begin to vote with their feet
In November 2024, European chipmaker STMicroelectronics announced a new cooperation plan with Hua Hong Semiconductor, the second largest wafer foundry in the mainland, to produce 40nm process microcontroller (MCU) chips in Shenzhen by the end of 2025 to support its long-term revenue goals.
Who will be the loser?
Since TSMC has almost monopolized the world’s advanced processes, manufacturers have to rely on TSMC; almost all of them can only accept TSMC’s solution of bundling advanced processes and mature process together for sale.
Samsung also has a similar practice, but due to the poor progress in Samsung’s advanced process yield in recent years, Samsung’s approach of bundling advanced processes and mature process for sale together may not be very attractive.
It is expected that China’s monopoly on the world’s legacy semiconductor processes will first hit the two second-tier wafer foundries GlobalFoundries (US stock code: GFS) and UMC (US stock code: UMC), which do not have advanced process capabilities. Among them, UMC will be hurt much more than GlobalFoundries, and the impact on UMC has already been reflected in its stock price. Interested investors can check the stock price trend of UMC in the past year and that will tell you everything.
The share price of Wolfspeed (ticker: WOLF), a component stock of Philadelphia Semiconductor, has been sluggish in the past two years. There are many reasons for this, but one of the reasons is that China has monopolized the world’s legacy semiconductor processes and has begun to threaten its ability to make profits.
For more information about Wolfspeed, please see my post of “Wolfspeed, the upstar of gen 3 semiconductor“
US and Europe are unhappy again
Yes, the United States and Europe thought that the previous semiconductor embargo would restrict China’s semiconductor development for many years. But now the facts are before us: China has monopolized the world’s legacy semiconductor processes. Yes, the United States and Europe are unhappy again.
The U.S. Commerce Department has launched an investigation to assess market distortions. The European Union will soon launch a similar investigation, and both sides will share their findings.
As early as March 2024, Bloomberg cited a draft working statement it obtained, revealing that the EU was considering whether to launch a formal review to assess the extent of European companies’ dependence on mature process chips from China.
Conclusion
According to Bloomberg analysis, contrary to general expectations, the total value of semiconductor-related products imported by the United States from China in 2024 will be approximately US$32 billion, and its import volume will even exceed its exports to China.
Related articles
- “The world’s most well-known oligopoly companies“
- “China is monopolizing world’s chip mature process“
- “How important is semiconductor industry to Taiwan?“
- “How is SMIC after US embargo?“
- “165 billions investment, TSMC moat and competitiveness is fragile“
- “Mong-Song Liang, the hero of SMIC’s breakthrough in US blockade“
- “Two long-term threats to TSMC: US and SMIC“
- “Comparison of SMIC, Rapidus, TSMC, Intel, and Samsung’s new process roadmaps for future chips“
- “Yield rate comparison of SMIC, Rapidus, TSMC, Samsung, Intel’s advanced process“
- “How does TSMC make money?“
- “How was TSMC originally founded? Not by Morris Chang“
- “TSMC Morris Chang’s controversial words and deeds“
- “6 common wrong semiconductor investment myths“
- “Wolfspeed, the upstar of gen 3 semiconductor“
- “ASML, who dominate TSMC’s fate“
- “Why was ASML founded?“
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