Taiwan China tensions will likely grow as semiconductor market share swings.

China’s industrial area share will rise to 29% by 2027, up 2% from 2023, while Taiwan’s will decrease from 46% in 2023 to 43% in 2027. Source: Shutterstock

IDC: Taiwan semiconductor supply chain shrinking, China set to benefit

  • Semiconductor makers are implementing “China + 1” or “Taiwan + 1” production strategies, reshaping the global foundry and assembly/test industry.
  • China’s industrial area share will rise to 29% by 2027,  while Taiwan’s will decrease by 3%.
  • The United States will make some gains in the advanced process part, and its share for 7nm and below is expected to reach 11% in 2027

For several decades, Taiwan has stood as the epicenter of global semiconductor manufacturing, producing over 60% of the world’s semiconductors – but of late, China has been raising its game.

According to the latest IDC report, there will soon be significant changes in the global semiconductor landscape. Taiwan’s share of the global chip manufacturing supply chain, including foundry operations and assembly and testing, is anticipated to reduce in the coming years.

In contrast, China’s share is predicted to grow, driven by shifts in semiconductor policies and geopolitical tensions between various governments. The report, titled The Impact of Geopolitics on Asia’s Semiconductor Supply Chain: Trends and Strategies, says that implementing the CHIP acts and semiconductor policies by various countries will be the main factors behind the changes in market dynamics.

In the report, published last week, Helen Chiang, IDC’s Asia-Pacific semiconductor research lead and Taiwan country manager, wrote, “Geopolitical shifts are fundamentally changing the semiconductor game.” She meant that CHIP acts and semiconductor policies have led to manufacturers being required to set “China + 1” or “Taiwan + 1” production plans. 

Such an overhaul has driven a new global layout for the foundry and assembly/test industry, leading to a regional development in the semiconductor industry chain. “While immediate impacts might be subtle, long-term strategies are focusing more on supply chain self-reliance, security, and control,” she said, noting that the industry operation will move from global collaborations to multi-regional competitions.

Chiang is right, considering major industry players have been making strategic moves. “In terms of foundry, TSMC, Samsung, and Intel are spearheading advanced processes in the US, which will gradually exert influence in the foundry field. Meanwhile, even as China grapples with developing advanced processes, its mature processes have developed rapidly under the impetus of its domestic demand and national policies,” she noted.

How will the market share between China and Taiwan change?

Based on the categorization by production location, IDC thinks the proportion of overall industrial areas in China will continue to increase, reaching 29% in 2027, an increase of 2% from 2023. In contrast, Taiwan’s market share is expected to fall from 46% in 2023 to 43% in 2027, while the US will make some gains in the advanced process part. “Its [the US] share for 7nm and below is expected to reach 11% in 2027,” Chiang added.

Taiwan China foundry market share by 2027. Source: IDC

Source: IDC

IDC’s latest chip industry projection indicates that Beijing’s pursuit of self-sufficiency in high-tech industries has advanced, even in the face of efforts led by the US to reduce mainland China’s role in global technology supply chains. “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.

The Biden administration is reportedly preparing to revise its export control regulations this month, intending to restrict China’s access to more semiconductor manufacturing equipment and address loopholes in trade restrictions related to AI chips. Simultaneously, the European Union is evaluating export control measures for critical technologies, including semiconductors and AI.

The moves by the US and Europe were triggered by China’s pursuit of technological self-sufficiency, which had recently received a boost from Huawei Technologies’ 5G-enabled Mate 60 Pro series smartphones. Because a cutting-edge processor powers those devices, it was viewed as a success against US-led tech sanctions, which included limiting access to advanced chip manufacturing equipment. 

Twiwan China and the semiconductor war.

Semiconductor markets are predicted to swing in the next handful of heartbeats.

While the exact source of this state-of-the-art processor, the Kirin 9000s, remains undisclosed, it is widely speculated to have originated from Semiconductor Manufacturing International Corp, China’s largest chip foundry, based on third-party teardowns of the Huawei handset.

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

Assembly and test to flourish in Southeast Asia

Taiwan China Assembly and Test market share. Source: IDC

Source: IDC

Given the influence of geopolitics, technological development, and talents in semiconductor assembly and testing, IDC highlighted that leading integrated device manufacturers (IDM) in the US and Europe have begun investing more in Southeast Asia. “Outsourced semiconductor assembly and test (OSAT) companies have begun to shift their attention from China to Southeast Asia,” the report stated.

Thus, IDC has predicted that Southeast Asia, especially Malaysia and Vietnam, will make further headway in OSAT, achieving a 10% global share by 2027. Meanwhile, Taiwan’s share is predicted to  decline to 47% in the same year, from 51% in 2022. 

Semiconductors are the future. Wars have been fought for less.