Chinese foundries, such as Semiconductor Manufacturing International Corp (SMIC) and Hua Hong Semiconductor Group, are increasing capacity amid fears of new US technology sanctions, according to an industry report.
As the country’s chipmakers lag behind players such as Taiwan Semiconductor Manufacturing Co (TSMC) and Samsung Electronics in chip processing technology, they are “actively” increasing investments in new capacity to meet demand for existing chips used in applications such as cars and consumer electronics.
Total capacity of China-based foundries will increase 15 percent to 8.9 million wafers per month this year, and 14 percent to 10.1 million next year, outpacing the global average growth of 6 percent. hundred and 7 percent for the same period. according to a report from SEMI, an industry association based in the United States.
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As a result, China is expected to account for around 30 percent of total global wafer capacity next year, SEMI said.
A wafer manufacturing clean room at a Hua Hung Semiconductor factory. Photo: Document alt=A wafer manufacturing clean room at a Hua Hung Semiconductor factory. Photo: Handout>
“Despite potential risks, China is actively increasing investments to increase the capacity of its smelters, in part due to its efforts to mitigate the impact of (U.S.) export controls,” the association said in the report . Chinese chipmakers including Nexchip, SiEn (Qing Dao) Integrated Circuits Co and memory chipmaker ChangXin Memory Technologies are all expanding.
The pace of investment has already sparked concerns about overcapacity, with Washington launching the first salvo. The Biden administration will apply tariffs on $18 billion in Chinese imports, including a 50% hike on semiconductor imports from China starting next year, to protect the local US chip industry.
“Chinese manufacturers were stockpiling (chip manufacturing) tools in 2023,” Boris Metodiev, senior semiconductor manufacturing analyst at TechInsights, said during a recent webinar. “Unprecedented demand in China means sales of wafer manufacturing equipment in China have reached an all-time high.”
Metodiev noted that sales of semiconductor wafer manufacturing equipment in China jumped 48 percent last year, compared to a global growth rate of 1 percent. “That means if you take China out of the equation, all other regions actually declined by 15 percent,” he said.
Expansion comes later Semiconductor sales in China has fallen for two consecutive years amid a slow economic recovery after Beijing abruptly ended its draconian zero Covid-19 policy at the end of 2022.
Analysts have warned that China’s ongoing expansion plans will lead to excess production capacity over the next two years, which could lead to lower prices if Chinese factories start selling into the global market.
In the past, China relied on imports for most of its chip needs, but amid a relentless drive for self-sufficiency and increased U.S. sanctions, that has changed. China imported 479.5 billion integrated circuits (ICs) in 2023, a year-on-year decrease of 10.8%, with an import value of $349.4 billion, a decrease of 15.4 % from the previous year, according to Chinese government data. Customs administration.
A worker inspects a silicon wafer at TankeBlue Semiconductor Co in Beijing, January 24, 2024. Photo: Xinhua alt=A worker inspects a silicon wafer at TankeBlue Semiconductor Co in Beijing, January 24, 2024. Photo: Xinhua >
Chinese foundries such as SMIC and Yangtze Memory Technologies Corp, are already benefiting from the country’s localization dynamics. Industry reports indicate that local foundries have seen a faster recovery in capacity utilization – a measure of fab production activity – compared to their global counterparts, due to domestic production substitution policies. China for integrated circuits and other technological products.
Hua Hong Semiconductor, China’s second-largest foundry focused on mature and specialized technologies, has seen its capacity utilization operating at maximum levels and is expected to increase prices by 10% in the second half, according to a note from the bank. American investment Morgan. Stanley posted last week.
Some lines at Chinese foundries are already operating at full capacity due to strong customer demand, according to a TrendForce research note published Wednesday. He said the traditional inventory stockpiling peak in the second half could extend the limited capacity situation until the end of the year, with price adjustments reflecting efforts to ease profit pressure rather than a complete recovery of demand.
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