In 2015, Taiwanese company Powerchip Technology $6770.TW signed an agreement with the city of Hefei in eastern China to establish a new chip manufacturing plant. The goal of this venture was to strengthen Powerchip's position in the promising Chinese market. However, after nine years, the market dynamics have significantly evolved.
Utilizing generous government subsidies, the Chinese company Nexchip has become one of the largest competitors to Powerchip in the legacy chip manufacturing sector. Despite initial terms of market entry, Beijing required Powerchip to abandon its once-lucrative business of producing integrated circuits for Chinese flat panels, allowing Nexchip to rapidly expand its presence.
Chinese foundries, such as Hua Hong $600160.SS and SMIC $0981.HK, are quickly increasing their market share in the sector, which is valued at $56.3 billion. These companies specialize in producing so-called mature chips using 28-nanometer technology and larger.
1. Government Subsidies: Companies like Nexchip receive substantial discounts and support from the Chinese government to ramp up production.
2. Strategic Shift: China's change in strategy has enabled Nexchip to swiftly expand its manufacturing capacities.
3. Price Pressure: The discounts on Chinese chips have challenged the longstanding dominance of companies like Powerchip, UMC $2303.TW, and Vanguard International $VNG.BK.
The rise of Chinese chip manufacturers has raised concerns not only among Taiwanese companies but also in the global semiconductor industry. The Biden administration has initiated an investigation to assess the impact on global supply chains.
- Price Reduction: Chinese companies, offering substantial discounts, are exerting price pressure on other global manufacturers.
- Capacity Expansion: Chinese entities plan further expansion of their manufacturing capacities, thereby strengthening their market positions.
Current changes signal a significant redistribution of power within the global semiconductor market. Asian companies like Powerchip, UMC, and Vanguard International face new challenges due to China's active policy in developing its own manufacturing sector. Continued competitive pressures and the emergence of new technologies to maintain leadership positions are expected in the future.
The strategic adoption of new technologies can lead to a rise in the company’s market valuation
Introducing innovative technology can significantly enhance the company’s asset value in the market
Experimenting with different business strategies may reinforce the company's market stance
Introducing innovative technologies can potentially increase the company's market capitalisation
It's fascinating how market dynamics have shifted, giving Nexchip the upper hand in just a few years!