In a significant move that underscores the growing synergy between Western and Chinese semiconductor industries, STMicroelectronics (ST) has entered into a collaboration with Huahong Semiconductor, one of China’s prominent wafer foundry companiesAnnounced during an investor day event in Paris, this partnership will focus on the production of 40nm microcontroller (MCU) chips in ChinaThis strategic decision is not merely a response to current market dynamics but is also an affirmation of ST's commitment to achieving its long-term revenue goals.

Verification of this development by industry sources within Huahong indicated a confirmation of the partnership but offered little additional information for public disclosureThis confidentiality reflects the competitive landscape of semiconductor development, particularly within the rapidly evolving Chinese market.

Fabio Gualandris, ST’s Manufacturing Chief, elaborated on the rationale behind selecting China for chip production

He pointed out that the local supply chain benefits include cost efficiency, compatibility with existing systems, and the mitigation of risks associated with government restrictionsMoreover, he highlighted the urgency for companies involved in the automotive sector to engage in production within the country to capitalize on the swift advancements in electric vehicle (EV) developments.

STMicroelectronics is a leading manufacturer of energy-efficient silicon carbide (SiC) chips used predominantly in electric vehicles, servicing well-known clients like Tesla and GeelyJean-Marc Chery, the CEO of ST, underscored the necessity of engaging in the Chinese market, dubbing it an indispensable arena for competing in the electric vehicle field"The pace of innovation is faster here," he stated, stressing that without a footprint in China, companies would find it challenging to remain relevant and responsive to market shifts.

Chery further elucidated the competitive implications of neglecting the Chinese market share

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He warned that yielding space to domestic competitors in this domain could allow them to dominate not only locally but also provide a robust platform for competition against international entitiesThis sentiment echoes a broader trend seen in various sectors, where China's rapid technological advancements have positioned it as a crucial player in global supply chains.

As ST seeks to upscale its operations amidst challenging market conditions, the company is also adapting successful practices from the Chinese market for application in Western marketsThis adaptability was spotlighted during the investor day where ST updated its financial forecasts after reporting concerning drops in revenue due to sluggish demand from the automotive segmentFor the third quarter, ST’s revenue declined year-on-year by 27% to $3.25 billion, while net profits plummeted by nearly 68% to $351 million, emphasizing the volatility affecting the semiconductor industry broadly.

Looking ahead, ST anticipates generating approximately $13.27 billion in revenue for the full year of 2024, marking a 23% decline compared to the previous year

This prediction reflects the company's third revenue forecast adjustment in a single year, highlighting the challenging climate within the global semiconductor market.

In June 2023, ST announced a $3.2 billion investment with Sanan Optoelectronics, a Chinese chip manufacturerTogether, they plan to establish a new 8-inch silicon carbide device manufacturing facility in ChongqingThis venture is emblematic of the trust and mutual benefits envisioned within collaborative frameworks, allowing both parties to leverage respective strengths in the rapidly expanding field of power semiconductor technologies.

Huahong Semiconductor, identified as China’s second-largest wafer foundry, ranks sixth globally according to market analysisThe company’s revenue was recorded at $708 million for the second quarter of 2024, and it has shown commendable growth with a reported quarterly revenue of $526.3 million, reflecting a sequential increase of 10%. The rising gross margin at 12.2% also indicates Huahong's improving financial resilience amidst industry challenges.

As the global demand for 12-inch wafer production escalates, Huahong is not only enhancing its technical capabilities but is also ramping up its 12-inch manufacturing capacity with aspirations to lead globally in distinctive 12-inch process technologies

Reports indicate that sales from 12-inch wafers have surged to constitute 50% of total sales volume, marking a significant uptick from previous periodsAs the company progresses with its second-phase 12-inch chip production line in Wuxi, revenue contributions from this new line are expected in the first half of the coming year.

Alongside this strategic scale-up, Huahong Semiconductor continues to deepen its emphasis on developing specialized wafer foundry servicesThe company provides a diverse range of platforms, including embedded and standalone non-volatile memory options, power devices, analog and power management, and RF logic, thereby catering to a broad swath of industry needs.

Huahong's approach encompasses an active investment in its proprietary intellectual property (IP) services, including design and testing, to further augment its product offering and competitive edge

Recognizing that technological innovation is fundamental to its growth, Huahong persistently focuses on research and development initiatives that culminate in critical breakthroughs within chip manufacturing processes.

In the third quarter of 2024, Huahong reported notable sales performance across various technology nodesThe revenue for 55nm and 65nm nodes reached $116.6 million, reflecting a year-on-year increase of 33.5%, driven by soaring demand for CIS and other power management applicationsSimilarly, sales from 90nm and 95nm technologies also saw an uplift of 13% year-on-year due to rising requirements for MCUs and related products.

Moreover, Huahong is intensifying its efforts in the special process technology domain, particularly in power device manufacturingThe company has introduced a new generation of power semiconductor technology designed specifically to meet the demands of advanced applications like electric vehicles and renewable energy generation