Hua Hong Semiconductor, China’s second-largest contract chipmaker, plans to acquire equity interests in its sister foundry Shanghai Huali Microelectronics to consolidate resources and meet growing demand for legacy chips.

The company suspended trading of its shares on the Nasdaq-style Star Market of the Shanghai Stock Exchange for up to 10 days starting Monday, pending board, shareholder, and regulatory approval of the deal.

Hua Hong’s Hong Kong-listed shares will continue to trade, and the stock closed down 6.2% at HK$48.1 on Monday.

The proposed acquisition would be financed through a mix of cash, share issuance, and raising matching funds.

Legacy chips, produced with 28-nanometre or larger processes, remain in demand for use in vehicles, consumer electronics, network equipment, home appliances, factory automation systems, medical devices, and military systems.

🔗 Source: SCMP

🧠 Food for thought

1️⃣ China’s legacy chip consolidation reflects broader market dominance strategy

Hua Hong’s acquisition of Shanghai Huali represents a microcosm of China’s systematic approach to expanding its influence in the global legacy semiconductor market.

China has rapidly expanded its share of global legacy chip production from just 17% in 2015 to 31% by the end of 2023, with projections showing it could reach 47% by 2027, potentially overtaking Taiwan’s projected 36% market share12.

This expansion has been fueled by state subsidies exceeding $150 billion since 2014, enabling Chinese firms to engage in competitive pricing strategies that undercut Western competitors by 20-40%2.

The consolidation move by Hua Hong aligns with this national strategy, as combining resources allows Chinese foundries to achieve greater economies of scale while competing more effectively against international rivals.

2️⃣ Legacy chips hold strategic value despite being “older” technology

The focus on legacy chips reflects their critical importance across modern economies, challenging the perception that older semiconductor processes are less valuable.

The U.S. Department of Defense estimates that 99.5% of its capabilities depend on legacy chips, highlighting their essential role in defense systems, automotive applications, and industrial equipment2.

The COVID-19 pandemic exposed significant vulnerabilities in legacy chip supply chains, particularly affecting the automotive sector with widespread production halts due to chip shortages2.

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