The semiconductor industry in China has undergone a tumultuous period marked by the imposition of sanctions by the US. From 2019 to 2020, these sanctions triggered a notable decline in the number of chip companies operating in China. This decline further intensified between 2022 and 2023, significantly impacting the market landscape.
Vanishing Chip Companies: A Record-Breaking Trend
TMTPost, citing the Digital Times, reported a staggering disappearance of over 22,000 chip-related companies since 2019, setting a disconcerting record in 2023. Specifically, in 2023, a shocking 10,900 chip-related companies deregistered—a figure that notably surpassed the 5,746 companies in 2022. This translates to an average closure rate of 30 Chinese chip-related enterprises per day, showcasing the severity of the situation. The period between 2021 and 2022 already witnessed the closure of over 10,000 Chinese chip-related companies. However, the peak in 2023 underscores the escalating challenges faced by the chip design, semiconductor manufacturing, and wafer fab equipment industries.
Economic Struggles and Industry Insights
Wei Shaojun, the head of integrated circuit design at the China Semiconductor Industry Association and a professor at Tsinghua University, shed light on the scenario in 2023. Among the 3,243 chip design companies, a significant portion—more than half—generated less than 10 million yuan in annual revenue. These entities encounter not only sales-related hurdles but also grapple with losses attributed to unsold inventory. The oversupplied market, coupled with a generally sluggish semiconductor industry due to the economic environment, compounds their challenges.
Root Causes and Impacts
One of the fundamental issues contributing to this predicament relates to flawed planning. In anticipation of a surge in sales due to the work-from-home trend fueled by the pandemic, numerous companies ramped up chip production in 2021 and 2022. However, as the pandemic’s impact diminished, demand dwindled, leading to a market crash in late 2022 and early 2023. This sudden shift left companies burdened with considerable unsalable stock, gradually losing value over time.
Furthermore, inadequate investment poses a significant hurdle, especially for smaller companies. Restrictions imposed by the US on investments in the Chinese semiconductor industry, alongside European investors’ hesitancy amid sanctions, exacerbate this challenge. While major players like Yangtze Memory Technologies Co. have invested substantially to explore alternative suppliers and procure third-party equipment, smaller companies lack the resources to sustain similar endeavors.
The Present and the Road Ahead
The year 2023 has proven to be an arduous period for China’s chip industry, particularly for smaller-scale companies. The record number of closures underscores the adversities they face, including low demand, surplus inventory, and financial constraints. Consequently, many companies have opted to exit the industry, leading to a shift in dominance from smaller startups to major corporations within China’s semiconductor landscape.
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