Tech war: Taiwan’s share in global semiconductor manufacturing supply chain to decline, while mainland China poised for gains, IDC report says

Taiwan’s global share in foundry work and outsourced assembly and test are expected to fall to 43 per cent and 47 per cent, respectively, by 2027
Mainland China’s share in foundry and assembly and test are forecast to rise to 29 per cent and 22.4 per cent, respectively, in the same period

Semiconductors

Xinmei Shen

Published: 7:30pm, 5 Oct 2023

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Taiwan’s share in the global chip manufacturing supply chain – covering foundry work and the field of assembly and test – is expected to decline over the next few years, while mainland China’s portion will continue to increase amid changes brought by various governments’ semiconductor policies and geopolitical tensions, according to a report by market research firm IDC.

“Geopolitical shifts are fundamentally changing the semiconductor game,” Helen Chiang, IDC’s Asia-Pacific semiconductor research lead and Taiwan country manager, wrote in the report published earlier this week.

IDC projected Taiwanese chip makers’ share in foundry work to fall to 43 per cent by 2027, down from 46 per cent this year. The island’s share in outsourced assembly and test (OSAT) – the downstream part of the industry’s supply chain, which is vital for ensuring a chip’s quality and efficiency – is estimated to decrease to 47 per cent by 2027 from 51 per cent in 2022.

Mainland China’s foundry share, meanwhile, is forecast to reach 29 per cent by 2027, representing a 2 per cent increase from this year, according to IDC. China’s share in OSAT work globally is expected to grow to 22.4 per cent by 2027, up from 22.1 per cent in 2022, an IDC representative said on Thursday.

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IDC also predicted that Southeast Asia, especially in Malaysia and Vietnam, will make further headway in OSAT, achieving a 10 per cent global share by 2027.

The Biden administration’s signing of the Chips and Science Act in August last year and the semiconductor policies pushed by various countries have led chip firms to overhaul their “global layout for foundry and assembly and test”, the IDC report said. That meant adopting either a “China + 1” or “Taiwan + 1” production plan.

“The industry’s operation will move from global collaboration to multi-regional competition,” IDC’s Chiang wrote.

IDC’s latest chip industry forecast shows that Beijing’s quest for hi-tech self-sufficiency has progressed, despite US-led efforts to cut mainland China out of the world’s technology supply chains.

Semiconductors sit at the centre of a fully-fledged tech war between the world’s two largest economies, with the US imposing various trade sanctions that have stymied China’s ambitions to achieve technological self-reliance.

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“Even as China grapples with the development of advanced chip manufacturing processes, its mature processes have developed rapidly”, the IDC report said, on the back of domestic demand and national policies.

In terms of foundry work, Taiwan Semiconductor Manufacturing Co, Samsung Electronics and Intel Corp are spearheading advanced manufacturing processes in the US, which will gradually exert influence in the chip production landscape, according to the report.

The Chips Act, which was meant to make the US self-reliant in chip manufacturing, is expected to make the world’s largest economy’s share of foundry work in the advanced 7-nanometre and below processes reach 11 per cent by 2027, according to IDC.

Taiwan currently produces more than 60 per cent of the world’s semiconductors and over 90 per cent of the most advanced chips, while the US accounts for only about 12 per cent of global chip output.

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The Biden administration is said to be planning to update its export control rules as soon as this month, which would curb China’s access to more chip-making tools and close some loopholes in the trade restrictions on artificial intelligence (AI) chips, according to a Reuters report earlier this week. The European Union is also assessing export control measures in critical technologies that include semiconductors and AI.

Still, mainland China’s tech self-sufficiency ambitions recently received a boost from Huawei Technologies’ launch of its new Mate 60 Pro series 5G smartphones, which are powered by a mystery state-of-the-art processor that is being hailed as a triumph against US-led tech sanctions that include restricted access to the most advanced chip-making equipment.

Semiconductor Manufacturing International Corp, mainland China’s biggest chip foundry, is widely speculated to have been behind that 5G processor, the Kirin 9000s, based on third-party teardowns of the Huawei handset.

Despite facing export controls from the US, Japan and the Netherlands, mainland China’s chip foundries are expected to increase their share in terms of the mature 12-inch wafer production capacity to 26 per cent by 2026, up from 24 per cent in 2022, according to a report in July by research firm TrendForce.