"It Wasn't Technology That Toppled Samsung Electronics, But a Flood of Supply"...The China-Led Fear Sweeping the Semiconductor Sector [Tech Talk]

China's Semiconductor Surge Shakes Incumbents
China Achieves Dominance in Legacy Semiconductors Through Aggressive Pricing
Concerns Grow Over the Erosion of Established Market Leaders' Power

Editor's NoteFrom AI and semiconductors to communications and biotechnology, we are here to unravel essential yet unfamiliar technologies in simple terms for readers.

Recent reports that China has succeeded in localizing deep ultraviolet (DUV) lithography equipment have caused the stock prices of American and Asian semiconductor companies to fluctuate sharply. The stock price of ASML, the leading extreme ultraviolet (EUV) lithography equipment manufacturer, even plummeted by over 6% during trading hours. While many industry observers still believe that Chinese semiconductor technology has not yet reached Western levels, the real concern lies in the uniquely Chinese phenomenon of overproduction in its so-called "semiconductor rise." The legacy semiconductor market, where China is already a player, has become saturated with Chinese-made chips, leading to plummeting prices.

China's DUV Shakes Up Established Semiconductor Leaders

China Semiconductor. The Asia Business Daily DB

According to The Information, a U.S.-based IT media outlet, and other sources on July 27 (local time), an anonymous Chinese state-owned enterprise has begun manufacturing immersion-type DUV lithography equipment. Immersion-type DUV is considered to be a more advanced technology compared to standard DUV and is reportedly capable of handling precision processes of about 7 nanometers (nm).

Production of immersion-type DUV lithography equipment in China is expected to reach five units this year and twenty units next year. This is still far short of meeting China's domestic demand. Nevertheless, the stock prices of major semiconductor companies in South Korea, Taiwan, Japan, the United States, and the Netherlands have experienced significant volatility.

China Lags in Technology but Excels in Low-Price Offensive

The headquarters of SMIC, a legacy semiconductor foundry manufacturer in China. SMIC official website

Lithography equipment is used to etch nanometer-scale circuit designs onto the surface of semiconductor wafers using light. As one of the most challenging steps in semiconductor manufacturing, Dutch company ASML has maintained a monopoly in this space for decades, making it an obstacle to China's semiconductor ambitions. The newly localized immersion DUV equipment in China is still presumed to offer lower performance than ASML's advanced models.

However, the very fact that China is now potentially capable of sub-10nm “leading-edge semiconductor” fabrication is a warning sign for the global semiconductor industry. This development raises the risk of China's signature low-price competition and overproduction being repeated on an expanded scale. China has previously achieved success in the legacy semiconductor sector by employing these very strategies.

How China Dominated the Legacy Semiconductor Market With a Market Share Expansion Strategy

Semiconductors are commonly classified according to circuit line width. Chips at 10nm or less are labeled as “leading-edge semiconductors,” while those at 28nm and above are referred to as “legacy semiconductors” or “mature semiconductors.” Leading-edge chips are mainly produced by familiar companies such as TSMC and Samsung Electronics Foundry and are at the core of cutting-edge technologies employed in smartphones, electric vehicles, and artificial intelligence (AI) chips.

Legacy semiconductors at 28nm or above serve different purposes. These processes are mainly used in custom chips (ASICs) found in industrial robots and consumer electronics. While their performance is lower, they have the advantage of being inexpensive and highly power-efficient, making them suitable for factories and machinery.

Chinese memory company Changxin Memory Technologies (CXMT). Reuters Yonhap News

According to market research firm Rhodium Group, China's share of the legacy semiconductor market more than doubled from 15% in 2015 to 33% in 2023. This aggressive expansion was largely fueled by substantial government subsidies supporting Chinese companies. At the same time, established legacy semiconductor firms such as TSMC, unable to withstand China’s low-price competition, closed down their production lines and shifted focus to developing more advanced semiconductors.

Chinese legacy semiconductor production facilities continue to pursue expansion strategies today. Legacy semiconductors, although extremely inexpensive, may be even more important to industry than leading-edge chips, because nearly every electronic device used in daily life contains Chinese legacy chips. According to an internal survey by the U.S. Bureau of Industry and Security (BIS), two-thirds of American companies use computer chips manufactured by Chinese contract manufacturing firms.

China's Advancements in Memory Semiconductors Raise Concern

The rise of Chinese semiconductors threatens to erode the price leadership of previously dominant companies and eat into their profit margins. Such concerns came to the forefront during the initial public offering (IPO) of Chinese memory company Changxin Memory Technologies (CXMT), which sent ripples around the world. On July 27, when CXMT listed on the Shanghai Stock Exchange, its share price soared by more than 400% in a single day, making it the largest domestic company by market capitalization and even surpassing Intel in the U.S.

On the same day, however, the stock prices of Samsung Electronics and SK hynix plunged by 13% and 14%, respectively, triggering circuit breakers on both the KOSPI and KOSDAQ indices. In a recent report, Morgan Stanley projected that CXMT would increase its DRAM production capacity to 388,000 wafers per month from 2023 to 2028, and that its market share would grow from 18% in 2013 to about 23% by 2028. There are growing concerns that the oligopoly previously maintained by Samsung, SK hynix, and Micron in the memory market could be broken by Chinese players.

This content was produced with the assistance of AI translation services.