China's memory chip makers are pushing into the lower-end of the market even as the country faces an increasingly steep uphill battle to achieve its self-sufficiency goals amid ongoing geopolitical tensions and a global semiconductor shortage.
Yangtze YTMC and Changxin Memory Technologies represent a new disruptive force in the sector and are expected to increase global capacity by 29 per cent between 2020 and 2022, economists from investment bank Natixis said on Wednesday.
"Even though it is coming from a very low base, it is probable that some mainland China firms will put pressure on market leaders," Gary Ng, Asia Pacific economist at Natixis, said in a virtual conference call, adding that an expansion of low-end products from Chinese memory chip makers could add downwards price pressure on suppliers in the memory chip sector.
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China has flagged an ambitious yet loosely-defined goal - as part of its industrial upgrade blueprint known as Made in China 2025 - to achieve 70 per cent self-sufficiency in semiconductor production by 2025.
The self-sufficiency drive has been ramped up amid rising tensions between the US and China in the technology sector, giving domestic suppliers with inferior technologies a better chance to be considered in procurement, according to several industry experts the South China Morning Post has interviewed recently.
Amid a global semiconductor crunch, which continues to cause disruption in the auto industry and beyond, China is among major global economic powers, including the US and EU, planning heavy investment to boost the semiconductor industry.
However, as the current semiconductor industry relies on global supply chains built up over many years, it is almost impossible for any one country to achieve full self-reliance, said Ng from Natixis.
Global research and advisory firm Gartner predicted in a report last month that the global chip shortage could persist until the second quarter of 2022 as capacity continues to run tight in foundries.
"The semiconductor shortage will severely disrupt the supply chain and will constrain the production of many electronic equipment types in 2021. Foundries are increasing wafer prices, and in turn, chip companies are increasing device prices," said Kanishka Chauhan, principal research analyst at Gartner.
Nevertheless, while a bane for some, the crunch has been a boon for revenue growth at global foundries. Research firm TrendForce said in a recent report that quarterly revenue at the top 10 foundries reached a record high in the first quarter on soaring demand for various end devices.
Firms like Taiwan Semiconductor Manufacturing Co (TSMC) have already started ramping up capacity to cope with the shortage, but this could cause overcapacity in the future, especially in the low-end memory chips where Chinese companies are making progress.
"There might be a point in time where supply exceeds demand, which will then raise the question of whether there are too many chips in the world," Ng said.
Additional reporting by Celia Chen
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