Old chips are mass produced, US fears China will 'destroy' the market

The Biden administration is implementing technology export controls to block China’s access to advanced chips used in AI and the military . In response, Beijing has poured billions of dollars into semiconductor factories that are not subject to sanctions.

It's worth noting — such chips are still essential in the global economy , serving as key components for everything from smartphones to electric vehicles to military hardware.

In contrast to advanced semiconductors that are manufactured on the thinnest process (currently 3nm), older generation chips are typically built on processes from 28nm and above - technology introduced more than a decade ago.

The move has raised fresh concerns about China's potential influence and triggered discussions about imposing further sanctions on the world's second-largest economy.

Bloomberg sources said that the US is determined to prevent China from using chips as "leverage" in geopolitical competition between the two giants.

“The amount of money that China is subsidizing the expansion of its mature-node and legacy-chip manufacturing capacity is something we need to look at and work with our allies to get ahead of,” Commerce Secretary Gina Raimondo said at the American Enterprise Institute.

Senior officials from the European Union (EU) and the US are concerned that China may dump older chip models in the market in the near future, pushing Western companies to rely more on the mainland for this type of semiconductor.

The importance of “legacy-chips” was demonstrated by the supply shock that rocked companies during the peak of Covid-19, including automakers and Apple - the world's largest company by market capitalization at the moment. The chip shortage cost businesses hundreds of billions of dollars.

These simple semiconductor components, such as power management circuits, are essential for products like low-cost smartphones and electric vehicles, as well as military equipment like missiles and radars.

Risk to the market

US export control restrictions imposed in October 2022 have slowed China's development of advanced chip manufacturing capabilities, but they have had little impact on the country's ability to use technologies older than 14nm.

China is leading the way in new construction and expansion of 300mm process chip foundries.

Meanwhile, Washington and Europe are also trying to boost domestic chip production to reduce their dependence on Asian supplies. But Western semiconductor manufacturers will have to compete with heavily subsidized Chinese factories.

The massive investments have allowed Chinese companies to continue to be a source of chips for the West, despite rising tensions between the world's two largest economies.

In 2022, despite being blacklisted, 20% of sales by SMIC, China's largest chip company, came from US-based partners, including Qualcomm.

China is building older chip manufacturing facilities faster than anywhere else in the world. Beijing will build 26 new fabs using 200- to 300-mm wafers by 2026, compared with about 16 in the entire Americas, according to estimates from the SEMI Microelectronics Association.

“There are many attractions in mid-tier and large-tier semiconductors, including electrification of mobile vehicles, the energy transition, industrial IoT, telecom infrastructure deployment, battery technology, etc.,” said Peter Winnink, CEO of foundry equipment maker ASML. “And these are also areas where China is leading unrivaled.”

(According to Bloomberg)

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