Weak demand in mature process has triggered another wave of foundries’ price reductions. According to a report from Economic Daily News citing industry sources, some foundries have been continuously adjusting their quotes for mature process downward by single-digit percentages (4% to 6%) this quarter.

With mature process production capacity continuing to expand in China, it is reportedly estimated that prices may decrease further in the second quarter, leading to a cumulative reduction of around 10% for the first half of the year.

Overview of Foundries’ Price Reductions in Mature Process

According to the same report citing sources, IC design companies that previously tape out to Chinese foundries primarily focused on driver ICs. However, recently, some power management IC companies have gradually increased orders to Chinese foundries. Currently, the price difference between foundry services in Taiwan and China can be as high as 20% to 30%.

Regarding this wave of price reductions in mature process, an unnamed sources from the IC design industry cited by the report disclosed that the price reduction for Taiwanese foundries is at least in the low single-digit percentage range (1% to 3%), while for Chinese foundries, it is in the mid-single-digit percentage range (4% to 6%). If the order volume is large, prices can be negotiated even lower, or different discount methods may be available.

Reportedly, as Chinese foundries continue to increase their production capacity for mature process, supported by subsidies from the Chinese government, they maintain considerable flexibility in pricing strategies. As long as customers are willing to provide a certain quantity of orders, prices above the variable costs can be negotiated. Therefore, there is indeed room for further price reductions in the second quarter.

Regarding mature process, IC design companies cited in the report mention that the high-demand 28-nanometer process still faces supply shortages and may even see price increases. However, for the 40-nanometer and 55-nanometer processes, where the increase in production capacity outpaces the return of demand, price reductions are essentially the only option.

With China’s significant investment in mature nodes, it is positioned at a time when the global chip industry is poised for recovery. According to a recent TrendForce’s data, China currently has 44 operational fabs, with an additional 22 under construction. By the end of 2024, 32 Chinese fabs will expand their capacity for 28-nanometer and older mature chips.

TrendForce predicts that by 2027, China’s share of mature process capacity in the global market will increase from 31% in 2023 to 39%, with further growth potential if equipment procurement progresses smoothly.

However, compared to the proactive pricing strategies adopted by Chinese foundries, Taiwanese foundries have been relatively firm in their pricing.

For example, TSMC emphasizes that while it has faced significant pricing pressure from counterparts in China recently, the company is not prepared to engage in a price war. Instead, it anticipates seizing opportunities to attract orders from European and American clients. TSMC aims for moderate growth this year.

Regarding IC pricing, IC design companies cited by the report acknowledge that although their IC production costs have decreased, customers also demand price reductions. Caught between customers and foundries, both of which are larger in scale than IC design companies, it is difficult to predict how well operations will perform this year amidst ongoing challenges.

Read more

• [News] China’s ICs Imports Decrease in 2023, Chinese Manufacturers Focus on Mature Processes

(Photo credit: TSMC)

As reported by Indian media Economic Times, India’s Tata group may collaborate with Taiwanese semiconductor foundries like UMC or PSMC to establish the first fab in India, initially producing mature process chips with a planned monthly capacity of 25,000 wafers. If successful, it would mark Taiwan’s semiconductor industry’s first venture into India.

The report addresses the recent escalation of geopolitical tensions, which has led to India’s issues in local chip manufacturing. Thus, India is reportedly looking for major foundries to establish fabs in India, given its substantial demand for semiconductors.

Although neither UMC nor PSMC has formally announced investments in India, as per the Economic Times of India, Tata Group may collaborate with Taiwanese foundries like UMC or PSMC to establish a semiconductor fab in Dholera, Gujarat, India.

Initially targeting the 65-nanometer mature process, the aforementioned fab is expected a monthly capacity of 25,000 wafers, with plans for future upgrades to 48-nanometer and 28-nanometer processes, supporting the production of GPUs, consumer electronics, and Internet of Things (IoT) applications in the coming years.

According to sources cited by the Economic Times of India, Tata Group has finalized the details of the land for this factory and groundbreaking may occur soon. However, Tata Group’s entry into the 28-nanometer process may take some time as it needs to ensure sufficient orders for mature processes in the Indian market.

PSMC Chairman Frank Huang revealed in early 2023 that he had received an invitation to assist in setting up a plant in India, but he did not disclose the details or the inviting party at that time.

PSMC has yet to announce any investments in India.

Instead, they have partnered with the Japanese company SBI Holdings, Inc. to establish a joint venture for a 12-inch fab in Japan. This venture will be located in the Second Northern Sendai Central Industrial Park in Ohira Village, Kurokawa District, Miyagi Prefecture. It is planned to produce chips ranging from 28 to 55 nanometers, with an initial monthly capacity of 10,000 wafers and an ultimate goal of 40,000 wafers, focusing on the automotive chip market.

UMC has also been reportedly sending representatives to India for inspections and discussions regarding the opportunity to establish facilities there, as disclosed by Indian media in recent years.

However, UMC has yet to take any action to invest in India. Instead, in 2022, the company initiated its strategy to establish a new 22-nanometer fab in Singapore, with plans for completion by the end of the second quarter of this year and mass production slated to begin in early 2025, with an initial monthly capacity of 20,000 to 30,000 wafers.

UMC and PSMC didn’t comment on the matter on February 20th. “UMC does not comment on market speculations.” a spokesperson for UMC said, cited by Economic Times.

Read more

• [News] Tata Reportedly Partners with Pegatron for iPhone Assembly in India
• [News] iPhone Manufacturing Dominance: One Leader, Two Contenders, One Challenger

(Photo credit: Tata Group)

China is actively investing in chips with a mature process of 20nm and above. According to Chosun Ilbo, some insiders signal a potential shift of over 50% of global mature-node chips production to China within the next 2 to 3 years. As semiconductors focusing on mature process account for 75% of overall chip demand, China’s growing influence in this sector raises significant security concerns.

During the APEC SME Technology Conference and Fair in Qingdao on the 9th of this month, Wei Li, former Vice President of SMIC, emphasized the necessity for China to prioritize the localization of semiconductors with a 20nm process and above. This category includes semiconductors focusing on mature process, where Li acknowledged China’s technology lags behind international counterparts by more than 5 years.

Despite China’s efforts for independent development, the semiconductor industry faces comprehensive restrictions from the United States, heavily relying on imports for materials, equipment, and design software, with only about 10% being domestically produced. China, holding over 1/3 of the global chip market, struggles with a self-sufficiency rate below 15%, hindering its industrial progress, especially with foreign countries imposing export controls on advanced process and equipment.

According to South Korean media reports, concerns have arisen within the industry about the potential impact on the global semiconductor supply chain as China expands its mature processes. Despite the recent surge in demand for advanced chips like AI chips and servers, semiconductors focusing on mature process still constitute 75% of overall demand. These chips are crucial not only in autonomous vehicles, automobiles, and home appliances but also in military applications. If China monopolizes this market, it could lead to a severe security crisis.

China is rapidly increasing its market share in the mature-node chips sector, with the government offering up to a 10-year corporate tax exemption for new domestic semiconductor plants. Last year, SMIC invested USD 8.9 billion in Shanghai to build a 28nm plant.

Data from TrendForce indicates that China plans to construct 32 semiconductor plants by 2024, surpassing Taiwan’s 19 and the United States’ 12.

China’s Wafer Fabs Hits 44 with Future Expansion 32, Mainly Targeting on The Mature Process

China’s Expansion into the mature process market poses big challenges for Korean enterprises. Chinese companies are gaining ground in various sectors, including the image sensor market, encompassing DDI semiconductors used in OLED panels. Beyond manufacturing capabilities, China has achieved noteworthy levels of design expertise in semiconductor technologies.

On the other hand, in previous press release, TrendForce predicted China’s mature process capacity to grow from 29% this year to 33% by 2027. Leading the charge are giants like SMIC, Hua Hong Group, and Nexchip, while Taiwan’s share is estimated to consolidate from 49% down to 42%.

TSMC, UMC, and Samsung are the frontrunners in this technology currently. Yet, Chinese players like SMIC and Nexchip are hot on their heels, swiftly closing the gap. SMIC’s 28HV and Nexchip’s 40HV are gearing up for mass production in 4Q23 and 1H24, respectively—narrowing their technological gap with other foundries.

China’s Share in Mature Process Capacity Predicted to Hit 29% in 2023, Climbing to 33% by 2027, Says TrendForce

As China enhances its influence over mature-node chips, both the U.S. and the EU are contemplating countermeasures. Despite months of discussions, there are still no concrete results regarding these potential measures.
(Image: SMIC)

In the previous articles (China Strives to Break Through U.S. Restrictions in Mature Processes, Aiming for Over 30% Global Share by 2027 and China’s Wafer Fabs Hits 44 with Future Expansion 32, Mainly Targeting on The Mature Process) we explored the overall layout of Chinese wafer fab and developments in 12-inch and 8-inch wafer foundries. This article shifts to navigating the challenges of preventing oversupply while strategically pushing forward in the realm of mature processes.

Due to the counterattack of international giants in mature processes leads to fierce competition for orders, the recent surge in mature processes over the past two years in fact has brought pressure to Chinese wafer fabs. From the perspective of the industry chain, it may also cause industry overcapacity.

The popularity of mature processes can be traced back to its extensive application market, research and development of advanced processes approaching the limit of Moore’s Law.

No need to say it also reflects the regular operation of market dynamics. In the current economic downturn, the demand for automotive electronics and industrial control systems(ICS) is booming, with 80% of their demand falling under mature processes. As the AI trend rises, many high-end AI and computing chips in China cannot adopt advanced processes, prompting a reconsideration of design changes to use multiple mature process chips instead of a single high-end process chip. This not only ensures shipments but also indirectly increases the synchronous multiplier of mature process chips.

Can Specialty Processes Become a Blue Ocean for China?

With the emergence of new demands in downstream application scenarios, the variety of semiconductor products continues to increase. Industry insiders state that global foundries are competing to target mature process wafer foundries. In this context, Chinese wafer fabs should focus on creating differentiation.

Therefore, specialty processes are gradually gaining attention in the current development of wafer foundries. In comparison to advanced logic processes, specialty processes particularly emphasize the research, innovation, and application of new materials (SiC and GaN are currently popular), new structures, and new devices. Specialty processes highlight wafer processes with custom capabilities for special IP and diverse technological categories. This is considered an important development branch beyond Moore’s Law, which involves continually reducing the linewidth to enhance chip integration.

Specialty process product categories are extensive and can form a competitive advantage in specific areas. These mainly include embedded/independent non-volatile memory, power devices, analog and power management, sensors, and other process platforms.

Representative enterprises in China’s specialty process industry include SMIC, Huarun Microelectronics, and Huahong Group. These companies attach great importance to the development of specialty processes. To meet the differentiated demands for product functionality and performance in the market, enterprises continually research and innovate wafer manufacturing process technologies, evolving into differentiated manufacturing processes.

For example, Huahong Semiconductor’s specialty processes include power management, radio frequency, power devices, and other platforms, especially in wafer foundry for power devices; Huarun focuses on high-voltage power BCD, high-performance BCD, high-reliability BCD, high-precision analog, MEMS, and six major special power device simulation wafer foundry processes.

Major wafer foundries have always attached great importance to the development of specialty processes. TSMC’s specialty process is leading by far, while GlobalFoundries and UMC are also focusing on mature processes and specialty processes. It is not difficult to predict that there will be fewer and fewer participants chasing advanced processes in the future, and new entrants will compete for the market in specialty processes.
(Image: SMIC)

Despite the U.S. sanction on the semiconductor industry in China, China is still positively looking for further development.

Following our discussion on the shifts of Chinese wafer fabs in the previous article (China’s Wafer Fabs Hits 44 with Future Expansion 32, Mainly Targeting on The Mature Process), this article focuses on the application of 8-inch and 12-inch wafers, as well as provides detailed account of Chinese foundries’ strategic positioning in the landscape.

From a cost perspective, producing a 12-inch wafer incurs approximately 50% more cost than an 8-inch wafer. However, the chip output from a 12-inch wafer is nearly triple that of an 8-inch wafer, leading to a cost reduction of roughly 30% per chip. As manufacturing processes improve and yields increase, the cost of 12-inch wafers is expected to further decline in the future.

In terms of applications, a clear distinction emerges between 12-inch and 8-inch wafers. The versatility of 12-inch wafers is evident, covering a broad range of practical applications. As depicted in the table below, 8-inch wafers are primarily utilized for mature and specialized processes, focusing on the 0.13-90nm range.

8-inch wafers’ downstream applications are concentrated in industrial, mobile, and automotive sectors, encompassing power devices, power management chips, non-volatile memory, MEMS, display driver ICs, and fingerprint recognition chips, among others. The surging demand for power devices in automotive electronics and industrial applications has been a key driver for recent production expansions.

Currently, the market demand for 8-inch wafers remains robust. However, there is a trend of decreasing 8-inch production lines in the market. This shift is primarily due to the industry’s mainstream adoption of 12-inch wafers. Given the significant capital required to establish 12-inch wafer fabs (often exceeding billions of US dollars), many foundries are reevaluating their 8-inch wafer production lines. These lines face challenges such as outdated equipment (mostly sourced from the second-hand market), upgrades difficulties, and lower returns compared to 12-inch wafers. Consequently, an increasing number of major companies are transitioning their focus from 8-inch to 12-inch wafers.

While the quantity of 8-inch wafer fabs is far less than that of 12-inch wafer fabs, their presence is significant. According to data from SEMI, China has maintained rapid development in 8-inch wafers. It is projected that by 2026, China’s market share in 8-inch wafers will increase to 22%, with a monthly production capacity reaching 1.7 million wafers, ranking first globally. By the end of 2025, companies including Huahong, Sien, Silan, Yangdong Microelectronic, GTA Semiconductor, SMEIIC, Zkjx, Hwdz, and Eaerkey are expected to establish a total of nine new 8-inch wafer fabs.

China’s Semiconductor Focus: 33% Mature Process Capacity by 2027

Based on product requirements, we can categorize semiconductor processes into specialty processes and logic processes. Logic processes further divide into mature processes (28nm and above) and advanced processes (nodes below 28nm, primarily 16/14nm and below).

Considering the current scenario, challenges in advanced process technology and high expenditures have confined major players in advanced processes to Intel, TSMC, and Samsung. This year, Samsung and TSMC announced the mass production of 3nm processes, marking the most advanced nodes currently available. Examining China’s situation, the semiconductor industry, having started relatively late, is currently focusing on mature and specialty processes due to factors like equipment and material limitations and changes in the international landscape.

It’s worth noting that, apart from Chinese wafer fabs intensively researching mature processes, many major companies have started to reverse their focus on mature processes in the past two years. Companies such as TSMC, Samsung, Intel, UMC, and GlobalFoundries are actively expanding their mature process capacities.

Among them, UMC’s bet on mature capacities is unprecedented. It became the world’s first wafer foundry to announce leaving research and development of advanced processes. Since 2018, UMC has strategically focused on improving the company’s return on investment, particularly targeting processes of 28nm and above.

According to TrendForce, the compound annual growth rate of global semiconductor foundry capacities from 2021 to 2024 is expected to reach 11%. 28nm capacity is expected to be 1.3 times that of 2022 by 2024, making it the most actively expanded node in mature processes. It is anticipated that more applications of specialty processes will transition to 28nm. Moreover, from 2021 to 2024, the global capacity of mature processes (28nm and above) is expected to maintain a stable share of over 75%. This indicates the potential and significance of positioning in the mature process and specialty process markets.

TrendForce predicts that, with the expansion of mature process capacities below 28nm, mature process capacities are expected to account for 70% of the top ten foundries’ capacities by 2027. China is expected to hold 33% of mature process capacities in 2027, with the possibility of continuous upward adjustments.

(Image: SMIC)