“Explosive Profit Growth, Blockbuster IPO, and Homegrown Equipment”: China Accelerates Its Semiconductor Drive Despite Technology Gap, While Korea and Taiwan Counter With Advanced Division of Labor

China’s Semiconductor Industry Posts Explosive Profit Growth and Pushes for Technological Self-Reliance
CXMT Makes a Splashy Market Debut, With Solid Growth Foundations Despite Technology Gap
Korea and Taiwan, Semiconductor Powerhouses, Bolster Division of Labor to Stay on Guard

The profitability of Chinese semiconductor manufacturers has improved substantially. The government-led strategy to achieve semiconductor self-sufficiency, pursued over many years, is beginning to generate tangible results on the production floor. The growth of China’s semiconductor sector has also been validated in global markets through the recent blockbuster initial public offering (IPO) of ChangXin Memory Technologies (CXMT). Established semiconductor powers such as Korea and Taiwan, meanwhile, are reinforcing cooperative arrangements centered on advanced, high-value products such as high-bandwidth memory (HBM) in response to China’s rise.

Chinese Semiconductor Companies Ride the AI Boom

According to a July 27 report by the Hong Kong-based South China Morning Post (SCMP), China’s National Bureau of Statistics (NBS) recently announced that profits at major domestic semiconductor manufacturers surged 2,579.5% year on year in the first half of this year. As recently as the first half of last year, profits in China’s semiconductor industry had declined 1.8%. Explosive growth has emerged in just one year. Yu Weining, chief statistician at the NBS, explained that “rapidly expanding AI integration across a wide range of industries has generated demand for massive computing power.”

The impact of the AI supercycle is also clearly evident in the performance of individual Chinese semiconductor-related companies. First-half profits at Shenzhen Longsys Electronics, China’s largest memory-module manufacturer, are estimated to have risen more than 600-fold from a year earlier. Over the same period, net profit at flash-memory design specialist GigaDevice is projected to surge 1,099%, aided by global supply shortages and rising prices. First-half profit at Hygon Information Technology, which supplies central processing units (CPUs) and deep computing units (DCUs), AI accelerator chips, is also expected to increase by as much as 52.3%.

Push for In-House Lithography Equipment

This momentum has also become evident in semiconductor equipment. According to reports from Bloomberg, Reuters, and other foreign media outlets, China has recently accelerated efforts to manufacture its own semiconductor lithography equipment. Shanghai Aisina Electronic Technology Group, a Chinese state-owned enterprise, is said to be leading production of deep ultraviolet (DUV) lithography equipment after absorbing teams from local lithography-equipment startups including Yuliangsheng and Shanghai Micro Electronics Equipment (SMEE). The group aims to produce five lithography systems this year and 20 next year, with deliveries planned for major Chinese chipmakers including Semiconductor Manufacturing International Corp. (SMIC), Hua Hong Semiconductor, and CXMT. Lithography equipment is a critical tool used to project light onto semiconductor wafers and etch microscopic circuit patterns. The market is effectively dominated by Dutch company ASML. China has faced severe disruptions in importing ASML equipment since 2019 because of U.S. sanctions.

Experts remain divided over China’s lithography-equipment development strategy. Global investment bank JPMorgan assessed that China’s equipment remains inferior to ASML products in resolution, throughput, system stability, and yield, making a rapid shift in the competitive structure of the global lithography market unlikely. In actual semiconductor production lines, lower-performing lithography equipment requires repeated processing to create the same circuitry, reducing wafer throughput and increasing manufacturing costs. Frequent equipment failures and process deviations can also raise defect rates and undermine commercial competitiveness. Some, however, argue that China’s progress should not be evaluated solely through the lens of profitability. One market expert noted, “Even if Chinese equipment does not fully match ASML products, the strategic objective of supply-chain self-sufficiency can be substantially achieved if Chinese semiconductor companies can secure the necessary equipment reliably and accumulate production experience,” adding that “equipment makers, fabs, and materials and components companies are collectively narrowing the technology gap step by step through repeated trial and error, supported by government backing.”

CXMT Enters the Stock Market Amid Intensifying Attention

Global financial-market interest in China’s semiconductor sector has also risen sharply in recent months. On its first trading day on July 27, CXMT—China’s largest and the world’s fourth-largest DRAM producer—closed at $7.35, up 465.82% from its IPO price of $1.30, immediately becoming the largest company by market capitalization on mainland Chinese exchanges, with a valuation of approximately $458 billion. Japanese investment bank Nomura set a target price of $17.40 for CXMT, 1,239% above its IPO price. U.S. investment bank Goldman Sachs said, “CXMT’s listing should not be seen as a simple IPO, but rather as an event marking China’s semiconductor self-sufficiency strategy entering a full-fledged commercialization phase.”

Another U.S. investment bank, Morgan Stanley, said in a recent report that “CXMT will expand its DRAM production capacity to 388,000 wafers per month over the five years from 2023 to 2028,” estimating that its market share would rise from 18% in 2013 to around 23% by 2028. MS Huang, an analyst at market research firm Counterpoint Research, also projected in a report this month that “CXMT’s monthly production capacity will exceed 300,000 wafers by year-end, approaching Micron’s level.” CXMT has secured up to approximately $10 billion through the IPO and plans to invest aggressively in capital expenditures, aiming to join the global top three by 2030.

Can the Market Landscape Change?

Some market participants, however, continue to question CXMT’s underlying competitiveness. The company still trails the three leading players—Samsung Electronics, SK hynix, and Micron—in both technological capabilities and product mix. While the leading companies compete primarily in HBM for AI semiconductors, CXMT’s core products remain commodity DRAM used in PCs and smartphones. The HBM products CXMT has been developing are considered several generations behind those of industry leaders. It is also unclear whether the company has accumulated sufficient proprietary technologies and process know-how. Last year, Korean prosecutors indicted former Samsung Electronics employees on allegations that they transferred information related to 10-nanometer-class DRAM production processes, equipment specifications, process sequences, and yield-improvement methods to CXMT. According to prosecutors, one researcher manually copied information covering hundreds of Samsung production-process stages, and the material was used by CXMT to establish its DRAM manufacturing process.

Still, it is difficult to dismiss CXMT’s long-term growth potential outright. With access to China’s vast domestic market, CXMT can maintain sales volumes and accumulate manufacturing experience even if its initial products deliver somewhat lower performance and yields. It also has the financial capacity to endure short-term losses and high production costs while continuing investment, backed by the Chinese central and local governments. This is an especially favorable environment for DRAM manufacturing, where data accumulated through actual mass production translates into yield improvements. As output rises, it becomes easier to identify defects arising in processes such as etching, deposition, and lithography, while data needed to optimize equipment settings and material combinations accumulates rapidly.

Strengthening the Korea-Taiwan Cooperation Framework

As the growth of China’s semiconductor industry becomes increasingly visible, Korea and Taiwan—established semiconductor powers—have moved to defend their positions through supply-chain cooperation. According to the Bank of Korea’s recently released “Map of Korea’s Major Manufacturing Production and Supply Chains,” Taiwan accounted for 19.9% of Korea’s semiconductor exports last year, a notable increase from 9.0% in 2022. China retained its position as the largest destination for semiconductor exports, as it had in 2022, but both its share of exports, which fell from 53.1% to 40.3%, and export value, which declined from $75.808 billion to $74.456 billion, decreased.

The Bank of Korea cited the spread of generative AI as the driving force behind the shift. As AI adoption has spurred a surge in investment in data centers and AI computing infrastructure, semiconductor demand has shifted from CPUs and DRAM toward graphics processing units (GPUs) and HBM. This, it explained, has further solidified a global division of labor in which U.S.-based Nvidia supplies AI accelerators, Taiwan’s TSMC provides advanced foundry and packaging services, and Samsung Electronics and SK hynix supply HBM.