Taiwan’s mature lithography segment has begun to feel competitive pressure from China

Although Taiwan is a territory where more than 90% of advanced chips are manufactured, it also remains the largest supplier of chips manufactured using mature technological processes. China has long been nipping at its heels in this regard, and Taiwanese manufacturers are forced to look for new market niches that are currently inaccessible to Chinese competitors for some reason.

Image Source: ASML

The US sanctions have so far been minimal in the mature 28nm and higher process technology areas, allowing the Chinese semiconductor industry to continue expanding its production in this area by leaps and bounds. The annual turnover in this market reaches $56.3 billion, and Chinese participants are provoking serious competition. Chinese contract manufacturers such as Hua Hong and SMIC are threatening the position of Taiwanese veterans such as Powerchip, UMC and Vanguard International (VIS) in the mature chip market.

Taiwanese companies, under pressure from Chinese competitors, are trying to find market niches that are, for various reasons, out of reach for their Chinese rivals. Taiwanese UMC, for example, is currently collaborating with Intel to develop new technologies that will allow it to stand out from its Chinese competitors. The “trade war” between the US and China plays into the hands of Taiwanese manufacturers, since they receive more orders from customers trying to move their production outside of China. As is known, US President Donald Trump has threatened to impose a 100% duty on semiconductor components manufactured outside the country, and while Taiwanese manufacturers can still localize their core business in the US, the Chinese have no chance.

According to TrendForce estimates, last year the share of Chinese companies in the market for services for the production of chips using mature lithography reached 34%, while Taiwan continues to hold 43%. However, by 2027, China may overtake Taiwan in terms of production volumes of such products, and the positions of the United States and South Korea will further weaken. According to SEMI forecasts, of the 97 chip manufacturing enterprises being built between 2023 and 2025, 57 will be located in China.

The trend towards localization of Chinese chip production is even expressed in the desire of local customers to persuade Taiwanese developers to place orders for their production at Chinese enterprises. Chinese authorities are making increasingly strict demands on the level of localization of semiconductor components in those areas of industry where they have a serious influence on market participants.

In such conditions, Taiwanese manufacturers are trying to either master more advanced lithographic standards or pay more attention to advanced chip packaging technologies that allow them to steadily increase their performance without switching to thinner lithography. At the same time, some Western customers are trying to avoid using components of Chinese origin, even if they are manufactured at subsidiaries of Taiwanese companies in China. Geopolitical processes inevitably increase the isolation of the industries of China and Taiwan.