China clearly wants to shake up the chip market in response to the embargoes and restrictions affecting the country. The aim is therefore to push local foundries to offer very aggressive prices to manufacturers looking to produce chips. The Chinese government has been investing heavily in its foundries for years, but 2024 marked a new stage. There is talk of new production lines, partnerships with local companies and tax incentives. At the same time, the high-tech press is reporting that Beijing is negotiating with certain manufacturers to offer them unbeatable prices. Of course, many are pointing out that China does not have the latest etching processes and cannot (yet?) compete with Intel or TSMC. However, the aim of slashing prices is to put pressure on the Taiwanese and American industries. By drastically lowering the cost of access to chips manufactured using a “mature” process, the Chinese industry will be putting enormous pressure on its competitors’ margins.
China puts pressure on foundry margins
This acceleration by China is a reaction to US policy, which has also released massive funds to support its champions. With this acceleration, it is possible that things will move very quickly with regard to Intel, which is the only local technical solution that guarantees the United States sovereignty over its chips.
According to a recent report by Hana Securities, Chinese foundries are cutting their prices sharply and are trying to win new customers with price cuts of between 40% and 50% compared to previous contracts. In December, SMIC cut the price of 28nm wafers by 40%, from $2,500 to around $1,500. Since early January, the market has been anticipating that TSMC will be pushed to reduce prices for mature processes above 7nm over 2025. These price cuts by Chinese companies and TSMC should increase the pressure on other global players to also lower their prices, thereby undermining their profitability.
While for most of us, chips manufactured using a process higher than 7nm may not seem to concern our PCs, these etchings are nevertheless used in other very lucrative sectors. Gaura Gupta, Gartner’s vice-president analyst in the semiconductor and electronics team, is worried about the fracturing of the semiconductor ecosystem between the United States/West and China. At the same time as this Chinese dumping, American or Western manufacturers selling chips made using one of the mature processes on the Chinese market could see their products hit by customs duties. Meanwhile, China’s chip manufacturing capacity is expected to more than double over the next five years. In the middle, Europe is watching… passively.
