Taiwan's legacy chip industry contemplates future as China eats into share​

Taiwan’s legacy chip manufacturing industry is facing tough competition from Chinese foundries.

When Taiwan's Powerchip Technology entered a deal with the eastern Chinese city of Hefei in 2015 to set up a new chip foundry, it hoped the move would help provide better access the promising Chinese market.

Nine years later, however, that Chinese foundry, Nexchip, has become one of its biggest rivals in the legacy chip space, leveraging steep discounts after Beijing's localisation call forced Powerchip to give up the once-lucrative business making integrated circuits for Chinese flat panels.

Nexchip is among Chinese foundries quickly winning market share in the crucial $56.3 billion industry of so-called legacy or mature node chips made on 28 nanometre technology and larger, a trend that prompted the Biden administration to initiate an investigation and is alarming Taiwanese industry.

These Chinese foundries, which include Hua Hong and SMIC, are threatening the long-held dominance of Powerchip, UMC and Vanguard International in the market for chips used in cars and display panels by slashing prices and embarking on aggressive capacity expansion plans.

Taiwanese foundries are then forced to retreat or pursue more advanced and speciality processes, executives in Taiwan said.

“Mature-node foundries like us must transform; otherwise, Chinese price cuts will mess us up even further," said Frank Huang, chairman of Powerchip Investment Holding and its listed unit Powerchip Manufacturing Semiconductor Corporation , which the company was reorganised into in 2019.

UMC told Reuters that the expansion of capacity globally had created "severe challenges" for the industry and that it was working with Intel to develop more advanced, smaller chips and diversify beyond legacy chipmaking.