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Taiwan’s Legacy Chip Industry Faces Competition as China Expands Market Share

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Taiwan’s legacy chipmakers, once dominant in the production of mature node chips, are grappling with increased competition from Chinese foundries that are rapidly expanding their market share. The shift began in 2015 when Taiwan’s Powerchip Technology entered a deal with China’s Hefei city to establish a foundry, Nexchip. Initially hoping to access the promising Chinese market, Powerchip now faces Nexchip as a major competitor, leveraging Beijing’s support and steep price discounts. This rivalry is most prominent in the $56.3 billion market for 28-nanometer chips, which are commonly used in sectors like automotive and display panels.

Chinese foundries, including Nexchip, Hua Hong, and SMIC, have aggressively expanded production capacities and undercut Taiwanese prices, further intensifying competition. The increased Chinese capacity has prompted concerns in Taiwan’s chip industry, with Powerchip and other Taiwanese companies like UMC and Vanguard International now focused on more advanced or specialized chip technologies.

Taiwanese chipmakers are struggling to maintain their foothold in the mature node segment as Chinese firms benefit from substantial state backing and lower margins. According to TrendForce, in 2024, China is projected to control 34% of global legacy chip production, surpassing Taiwan’s 43% share by 2027. The situation is made worse by the U.S. trade tensions, with U.S. President Donald Trump proposing up to 100% tariffs on semiconductors produced outside the U.S., which could impact Taiwanese exports.

Chinese foundries have become more aggressive in their efforts to capture business from Taiwanese clients. Many Chinese customers, particularly in consumer sectors like display panels, are increasingly opting to use Chinese fabs, following Beijing’s push for domestic supply chain localization. Taiwanese chip designers have acknowledged that they must adapt to survive, with some already shifting focus to more advanced technologies like 3D stacking, which combines logic and DRAM chips to enhance performance.

Despite the growing Chinese competition, some relief may come from the U.S. efforts to restrict China’s chip industry, particularly in light of rising geopolitical tensions. Taiwanese chipmakers are beginning to receive orders from international clients asking for chips to be made outside of China, a shift away from previous reliance on Chinese foundries.

Chinese Companies Embrace DeepSeek’s AI Amid Growing Frenzy

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Chinese companies, including Great Wall Motor and major telecom providers, are quickly integrating the AI model released by DeepSeek, capitalizing on its attention and breakthroughs. Great Wall Motor, China’s first listed automaker, confirmed that it had embedded DeepSeek’s AI into its connected vehicle system, branded “Coffee Intelligence.” This integration marks a significant shift as the company seeks to enhance its technological offerings.

Meanwhile, China’s Ministry of Industry and Information Technology (MIIT) announced that the country’s three largest telecom operators—China Mobile, China Unicom, and China Telecom—are collaborating with DeepSeek to promote the inclusive application of AI technology. This move is part of a larger trend as companies rush to incorporate the model into their products.

DeepSeek’s AI platform has sparked investor interest, fueling speculation about its disruptive potential across China’s tech sector. Stocks of Chinese companies tied to AI, including chipmakers, software developers, and data center operators, have surged in response to this new development. Capitalonline Data Service and MeiG Smart Technology, two listed companies, experienced significant stock price jumps after announcing their integration of DeepSeek’s AI. However, both firms have cautioned investors, stating that the impact on their future business performance remains uncertain.

Other industry giants like Tencent and Huawei have also joined the wave, revealing they have integrated DeepSeek’s model into their own offerings. The rapid adoption highlights the growing impact of DeepSeek’s AI on China’s tech landscape.

Qualcomm Shares Fall on Downbeat Forecast for Licensing Business

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Qualcomm’s (QCOM.O) shares dropped by around 5% in early trading on Thursday following a disappointing forecast for its patent licensing business, despite strong expectations for quarterly sales and profits. The chipmaker revealed that its licensing business, which contributed 14.8% to its total revenue in the reported quarter, would experience no sales growth this year due to the expiration of its agreement with Huawei Technologies (HWT.UL).

TD Cowen analysts had initially expected the removal of Huawei’s royalty payments to have a mild impact, but they noted that the development adds to the “wall of worry” surrounding Qualcomm’s stock. However, analysts pointed out that Qualcomm has secured licensing agreements with two other Chinese smartphone manufacturers, which may help mitigate some of the losses.

The company’s first-quarter performance exceeded expectations, driven by strong demand for AI features in mobile devices, and is often seen as a barometer for broader smartphone industry trends. Qualcomm’s second-quarter sales forecast of $10.75 billion, with adjusted profits of $2.80 per share, surpassed analysts’ estimates of $10.34 billion and $2.69 per share, respectively, as reported by LSEG data.

While Qualcomm credited growth in its smartphone division to strong sales from China, powered by government subsidies and flagship smartphone launches, it also highlighted positive performance across other business segments, including handsets, autos, and IoT.

Despite gains in 2024, Qualcomm’s stock has underperformed AI chip leader Nvidia (NVDA.O), whose shares surged by 171%. Qualcomm’s stock has increased by 6% this year, far surpassing the losses seen by competitors like Intel (INTC.O), which saw a 60% decline, and Advanced Micro Devices (AMD.O), which dropped by 18%.

As a result of the company’s outlook, Qualcomm’s median price target decreased slightly to $192, down from $199 prior to the report, according to LSEG data. The company’s forward price-to-earnings ratio stands at 15.02, significantly lower than Nvidia’s 27.64 and Intel’s 32.21.