TAIPEI – Powerchip Technology from Taiwan made a deal with the city of Hefei in eastern China in 2015 to build a new chip foundry. The company thought that this would help it get into the lucrative Chinese market more easily.
Nine years later, though, that Chinese manufacturer, Nexchip, has become one of its biggest competitors in the legacy chip space. It does this by taking advantage of the fact that Powerchip had to give up making integrated circuits for Chinese flat panels because of Beijing’s call for localization, which led to big price cuts.

Chinese foundries like Nexchip are quickly taking market share in the important $56.3 billion market for so-called legacy or mature node chips made on 28 nanometer technology or bigger. This is a trend that made the Biden administration start an investigation and is scaring the Taiwanese industry.

These Chinese foundries, such as Hua Hong and SMIC, are a threat to Powerchip’s long-term power.

Executives in Taiwan said that this means Taiwanese foundries have to either go back or look for more advanced and specialized methods.

“Mature-node foundries like us must transform; otherwise, Chinese price cuts will mess us up even more,” Frank Huang, chairman of UMC, told Reuters. He also said that the industry was facing “severe challenges” because of the growth of capacity around the world and that UMC was working with Intel to make more advanced, smaller chips and move away from making traditional chips.
Trade issues between Washington and Beijing may ease the pain a bit, according to business leaders in Taiwan. They said that companies that want to protect their supply chains are looking for chips made outside of China.
President Trump of the United States, on the other hand, has said he wants to put taxes of up to 100% on semiconductors made outside of the US.
Vanguard International did not want to say anything. When asked for comments, SMIC, Nexchip, and Huahong did not reply.

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In recent years, the U.S. has stopped Chinese foundries from working on high-end chip technology. Instead, they have focused on making older chips and have been able to undercut Taiwanese competitors on price thanks to strong funding from Beijing and a willingness to accept lower margins, say Taiwan chip execs.
In the past few years, Chinese companies have greatly improved their ability to make legacy chips. TrendForce says that in 2024, China had 34% of the world’s mature node production capacity and Taiwan had 43%.

China is expected to have a bigger share than Taiwan by 2027. South Korea and the US, on the other hand, are expected to lose ground, with shares in the single digits.

According to the consulting firm SEMI, 57 of the 97 new factories that will start making things from 2023 to 2025 will be in China.
Taiwanese foundries can still compete because their processes are more stable and their production yield rates are higher, but an executive at a Taiwanese chip designer said that Chinese foundries have become more active in trying to get business since 2023.
That person and another person who worked at another Taiwanese chip designer said that Chinese customers, especially in consumer-focused industries like panels, were asking Taiwanese chip designers to hire Chinese fabs to make the chips. This was in line with Beijing’s call for Chinese companies to make their supply chains more local.
The matter was too sensitive for both people to give their names.
They said that Chinese government-owned companies like China Mobile and China Telecom have also been making it harder to use parts made in China.
When asked for comments, China Mobile, China Telecommunications Corporation, and China’s Ministry of Industry and Information Technology did not give any.
WHAT TRUMP DID
Galen Zeng, a senior research manager at the global market intelligence company IDC, said that Taiwanese chip designers and foundries would probably specialize their processes and move away from legacy chips. However, Chinese competition would still hurt their profits in the medium term.
Huang from Powerchip said that the company is going to focus less on making display driver and sensor chips, which are mostly used in China, and more on 3D stacking, a method that combines logic and DRAM memory chips to make computers faster and use less power.
With a 19% stake, the company is still Nexchip’s second-largest backer, but it doesn’t have any control over the company.
Huang said, “We won’t be able to do business for chips that will be used in China. We have to leave, or we won’t be able to stay in business.”
Washington’s efforts to slow down China’s chip industry growth could provide some relief. At the same time, ties between Beijing and other countries are getting worse, which forces customers to divide supply chains into China-for-China and non-China networks.
Huang told Reuters that they were already seeing orders that were supposed to go to China being sent to their sites in Taiwan. They think this will happen more often.
An executive from a Taiwanese chip design business, who asked to remain anonymous because the matter was sensitive, said that since 2023, they had been getting more orders from customers outside of China who wanted to make chips.
“Some customers will tell us that no matter what, they don’t want us to tape out chips in China; they don’t want ‘Made in China,’” he said.