Why the Tsunami of Chinese 'Old-Style Semiconductors' Is a Concern [Tech Talk]

Legacy Semiconductors Made with 28nm+ Process
The Rice of Industry Used in Virtually All Products
China and Taiwan Expected to Control 70% of Global Market
Growing Concerns Over Reproduction of Chinese 'Low-Cost Offensive'

The U.S. administration under Joe Biden has begun assessing the current state of the so-called 'legacy semiconductor' market, signaling another major shift in the industry. Legacy semiconductors are low-cost chips that have not received much spotlight in the U.S.-China power struggle. However, their impact on the global economy, especially national security, is even more decisive than that of advanced semiconductors.

'Legacy Semiconductors' Using Mature Node Processes

Semiconductors manufactured with nodes of 28 nanometers or larger are referred to as legacy semiconductors.
[Image source=TSMC website]

Today, the semiconductor industry is commonly divided into 'leading-edge semiconductors' and 'legacy semiconductors.' Leading-edge semiconductors are made using cutting-edge ultra-fine processes and are mainly used in smartphones, artificial intelligence (AI) computer chips, and main memory semiconductors. Legacy semiconductors, on the other hand, are produced using already mature process technologies.

There is no firmly established standard that clearly separates what is leading-edge and what is legacy. However, the industry generally considers node sizes of 28 nanometers (nm) or larger as mature semiconductors, while those made with processes of 10 nm or smaller are treated as leading-edge semiconductors.

By this standard, large-scale production of leading-edge semiconductors began less than a decade ago. Foundry companies capable of contract manufacturing leading-edge semiconductors include only a handful such as TSMC, Samsung Foundry, and Intel Foundry Services. Still, the vast majority of semiconductors produced worldwide remain legacy semiconductors.

The True 'Rice of Industry' Used in Virtually All Manufactured Goods

Legacy semiconductors are embedded in all manufactured goods necessary for our daily lives, such as home appliances and infrastructure. [Image source=Yonhap News]

So, where exactly are legacy semiconductors used? They are embedded in virtually all manufactured goods that make up our daily lives. Examples include industrial robots, automobiles, home appliances, power grid equipment, and even analog semiconductors used for subway signal reception?all of which are types of legacy semiconductors.

In particular, legacy processes dominate semiconductors used in the defense industry. Power semiconductors and communication semiconductors used in missiles, rockets, and military radios are typical examples. Because of this, the influence of legacy semiconductors on the global economy is much greater than that of leading-edge semiconductors. A disruption in leading-edge semiconductor supply would cause difficulties in procuring high-end smartphones, supercomputers, and high-spec gaming PCs. However, a shortage of legacy semiconductors would affect nearly all manufacturing industries, militaries, and public infrastructure worldwide.

Previously, the semiconductor shortage that severely impacted the global automotive industry in 2021 was caused not by leading-edge but by a lack of legacy semiconductors. The shortage was especially acute for semiconductors with node sizes between 20 and 28 nm, mainly used in high-performance microcontroller (MC) products for vehicles.

China and Taiwan Control Over 70% of the Global Market

What particularly worries the U.S. government is the industrial structure in which most legacy semiconductor production today is concentrated in China and Taiwan. Notably, China has recently made significant progress in the legacy semiconductor field. A Chinese company called SMIC has independently developed DUV lithography equipment capable of drawing 28 nm node circuits, enabling China to produce legacy semiconductors directly without importing equipment from overseas companies.

In fact, market research firm TrendForce forecasts that by 2027, 42% of global legacy semiconductors will be produced in Taiwan and 33% in China. The U.S. accounts for only 5%, and South Korea just 4%.

Of course, much of the 'core technology' for legacy semiconductors is still held by Western companies in the U.S., the U.K., and elsewhere. However, legacy semiconductors are already technologically mature components. This means that price competitiveness has a greater market impact than technological superiority. If the 'Chinese low-cost offensive' already seen in electric vehicles, batteries, and steel is replicated in legacy semiconductors, it will only be a matter of time before the majority of semiconductors above 28 nm are dominated by Chinese products.

Will the Chinese Low-Cost Offensive Be Reproduced in Semiconductors?

Robotics, one of the industries dependent on legacy semiconductor supply.

As mentioned earlier, the technological edge in legacy semiconductors still belongs to Western companies. Leading examples include Texas Instruments in the U.S., a powerhouse in analog semiconductors; ARM in the U.K., the standard in industrial MC design technology; and German Infineon and Dutch NXP, leaders in automotive semiconductors. So how did Western companies come to allow China to gain an advantage in semiconductor production?

Ironically, efforts by various countries to achieve 'advanced semiconductor self-reliance' may have inadvertently caused imbalances in legacy semiconductor supply. In fact, a significant portion of the Biden administration's CHIPS Act subsidies is currently being invested in TSMC's Arizona foundry, which produces leading-edge semiconductors at 5 nm and below.

In March, the Center for Strategic and International Studies (CSIS), an international security think tank based in Washington, D.C., warned about the imbalance in legacy semiconductor supply. The institute's report stated, "The main cause of the legacy chip shortage is simply insufficient investment," noting that "only one-sixth of total semiconductor investment is currently directed toward legacy semiconductors."

The reason Western companies are reluctant to invest in legacy semiconductors is simple: legacy semiconductors are much cheaper than leading-edge ones, meaning they have lower profit margins. Moreover, few companies have the capacity to compete on price with subsidized low-cost Chinese products.

Ultimately, to avoid dependence on countries like China and Taiwan in the legacy semiconductor sector, it is necessary to increase investment incentives for domestic legacy semiconductor manufacturers while also strengthening price competitiveness. This is why governments worldwide, including the U.S., face increasingly difficult challenges.