The number of chip companies in China has been steadily declining, particularly following the imposition of U.S. sanctions in 2019-2020. This situation worsened in 2022-2023 due to a slowdown in chip demand. According to DigiTimes, over 22,000 chip-related firms have disappeared since 2019, with 2023 marking a record-setting extinction.
In 2023, a record 10,900 chip-related companies lost their registration, a significant increase from the 5,746 closures in 2022. On average, 30 Chinese chip-related companies closed their doors each day in 2023. This trend aligns with the five-year pattern, which witnessed the closure of over 10,000 Chinese chip-related companies in 2021-2022. The spike in 2023 underscores the growing challenges in chip design, semiconductor manufacturing, and wafer fab equipment sectors.
As of 2023, out of 3,243 chip design companies in China, more than half were generating annual revenues of less than 10 million CNY. This financial difficulty reflects the struggles in chip design, semiconductor manufacturing, and wafer fab equipment sectors. Many companies are not only experiencing sales challenges but are also suffering financial losses from unsold stock due to market oversupply and broader downturns in the semiconductor industry resulting from wider economic circumstances.
The root of these challenges includes missteps in planning, such as overproduction in anticipation of high sales from the work-from-home trend induced by the Covid-19 pandemic. However, as demand waned with the pandemic's abatement, companies were left with excessive inventory they couldn't sell, which is losing value over time.
Smaller companies are especially hindered by a lack of investments. U.S. restrictions on investments in the Chinese semiconductor industry, combined with European reluctance to invest in Chinese chip companies with U.S. sanctions in place, contribute to this problem. While larger companies have sought alternative suppliers and procured third-party tools to adapt, smaller companies lack the resources to do so.
Despite the Chinese government's investments in the chip industry, it cannot support every chip startup. Consequently, the record number of companies shutting down reflects the challenging times faced by the industry, including low demand, overstock, and funding difficulties. This has resulted in a shift toward larger companies dominating China's semiconductor industry, with smaller startups struggling to sustain themselves.
