On April 11, the China Semiconductor Industry Association issued a document clarifying that the country of origin for semiconductor products is determined by the location of their tape-out.

Upon the release of this news, the A-share semiconductor sector rebounded significantly, with analog chip companies such as Naxin Microelectronics, SGB Microelectronics, and Siray Microelectronics, as well as radio frequency chip firms like Wejie Chuangxin, hitting their daily trading limits.

The reason is straightforward: most analog chip manufacturers, especially the top ten global players represented by Texas Instruments (TI) and Analog Devices (ADI), employ the Integrated Device Manufacturer (IDM) model.

TI's fabs are primarily located in Texas (Sherman, Richardson, Dallas), Utah, and Aizu, Japan, with over 80% of its production capacity in the US. ADI's wafer production capacity is concentrated in the US (Massachusetts, Oregon, Maine) and Ireland. Therefore, according to the import customs declaration rules released by the China Semiconductor Industry Association, these analog chip companies' products will face "additional tariffs" when entering China.

The rule that "the place of tape-out is the country of origin" will inevitably curb the import of American analog chips, thereby benefiting the development of domestic analog chips.

At the 2024 Annual Industry Collective Performance Briefing for the Chip Design Segment on the STAR Market, held on April 17, the head of an analog chip company stated that their customer orders have increased notably recently.

After years of anticipation, the opportunity for domestic analog chips has finally arrived.

China's analog market is vast.

According to market data, WSTS updated its forecast in autumn 2024, predicting that global analog IC sales in 2024 will be approximately $79.433 billion, or close to RMB 600 billion. Some institutions estimate China's analog market size at around RMB 300 billion, essentially equivalent to half of the global analog chip market.

However, leading domestic analog chip manufacturers generate sales of roughly between RMB 2 billion and RMB 4 billion. Among them, Sitronix, listed in Taiwan, China, is expected to exceed RMB 4 billion in revenue in 2024, but to enter the list of the top ten global analog chip design companies, its revenue needs to at least double to around RMB 8 billion, or over $1 billion.

Over the past two years, domestic analog chip companies have faced "tremendous pressure."

On one hand, the analog chip market is experiencing a downturn, with overall demand relatively weak. Even international analog chip giants are struggling. In 2024, TI and ADI's revenues declined by 10.7% and 23.4%, respectively, with TI seeing declining revenues for two consecutive years. This downturn has naturally affected domestic companies, and the harsh market conditions have posed challenges for domestic analog chip manufacturers.

On the other hand, they face price pressure from international giants. Due to the market downturn, these giants have chosen to engage in a direct "price war." This is the core area where domestic analog chips are suppressed. TI has told some customers, "Whatever price domestic manufacturers offer you, we will offer you a lower price," or bundles its analog products with its DSP products for sales. These tactics are used to regain market share in China.

The impact of this price war is substantial. TI boasts nearly 140,000 analog devices across 17 major categories, each with tens to dozens of sub-product lines for different scenarios. Its high market share is rock-solid.

The design process of analog chips relies on the accumulation of development experience, with a long R&D cycle. Once a product is mature and stable, user stickiness is high, and the usage cycle is long. These characteristics lead to oligopolistic competition and high concentration among analog chip manufacturers.

Moreover, TI itself adopts the IDM model, enjoying economies of scale and cost advantages. Even when engaging in a price war, its gross profit margin will still be higher than that of domestic Fabless manufacturers. An insider told the author that, leveraging fabs built over the past few years, TI has the capability to produce chips with significant cost advantages, giving them the strength to engage in a "price war."

TI is one of the world's earliest companies to invent integrated circuits, with a history spanning over a century, evolving from transistors to integrated circuits.

The time gap between TI and other analog chip companies has made it seem like an insurmountable task for Chinese analog chip companies aiming to undermine TI's market foundation.

This price race has been fierce, with some media describing it as "unscrupulous price cutting." Local giants whose main businesses compete with TI's analog chips have been significantly impacted.

A representative company is Naxin Microelectronics, which directly competes with TI. During 2021 and 2022, Naxin Microelectronics' gross profit margin was in the range of 50% to 55%, at the top level in the domestic industry. However, by 2024, its gross profit margin had plummeted to around 30%, which is at a relatively low level within the domestic industry. This is mainly because Naxin Microelectronics has performed exceptionally well in the automotive sector, and the more high-end the field they venture into, the greater the impact from TI's price war.

Because of this, on January 16 of this year, the Ministry of Commerce initiated an anti-dumping and countervailing investigation into US exports of mature process chips.

Insiders point out that some manufacturers even sell chips below cost to clear inventory. Considering these manufacturers' influence on the market, their practices, bluntly put, could potentially stifle growing Chinese competitors in their infancy.

At that time, the Ministry of Commerce spokesperson stated that relevant domestic chip industries had reflected that for some time, the Biden administration had provided substantial subsidies to the chip industry, enabling American companies to gain unfair competitive advantages and export relevant mature process chip products to China at low prices, damaging the legitimate rights and interests of domestic industries in China.

This directly weakened the price advantages of giants like TI and ADI. At that time, Dongxing Securities pointed out that the price competitiveness of domestic analog chips in the mid-to-low-end market had increased by 20% to 30%, and the penetration rate in the high-end automotive electronics field was expected to jump from 10% to 30%.

Overall, however, domestic analog chip manufacturers' performance in 2024 was significantly impacted. Full-year 2024 results showed that Wejie Chuangxin's net profit loss was RMB 23.7 million, a year-on-year decrease of 121.13%; Biyi Micro's net profit loss was RMB 17.1709 million, with a year-on-year narrowing of losses; Silan Microelectronics' net profit loss was RMB 33.05 million, with a year-on-year narrowing; and Naxin Microelectronics' net profit loss was RMB 403 million, a year-on-year decrease of 31.95%.

Despite the impact from international giants, domestic analog chip manufacturers have not been idle.

Huawei Hisilicon's AC9610 chip surpasses similar European and American products in performance indicators, with a precision of 24 bits and a sampling rate of up to 2M, finding applications in high-end equipment fields such as radar and medical devices; SGB Microelectronics' 24-bit high-precision ADC chip breaks TI's monopoly; and Naxin Microelectronics has a domestic market share of over 60% in the isolation chip field, with its automotive-grade products covering numerous well-known automakers.

Currently, domestic chip companies can cover almost all product categories required by the automotive industry and have gradually established product advantages in some categories, with market performance on par with foreign companies. However, in more product categories, Chinese chip companies are still in the initial stages of breakthrough and have a long way to go.

In the earlier-mentioned emergency notice regarding the determination rules for the "country of origin" of semiconductor products, after the implementation of tariffs, China's 125% tariff will increase the cost side for US companies such as TI and ADI.

"In the past two years, domestic analog chip companies have been deeply affected by TI's pricing strategies. If imports of American analog chips decrease significantly in the future, domestic analog chip prices and the competitive landscape are expected to improve," said an executive of an analog chip listed company in an interview.

Even if TI's 12-inch fabs can reduce costs by 40%, as the fabs are located in the US, tariffs will offset the cost advantages, partially negating the expected price reductions and mitigating the intensity of price competition.

After TI's price advantage is weakened, Chinese analog chip manufacturers may further expand their share among localized customers.

Jiang Yanbo, Chairman and General Manager of Synopsys Microelectronics, stated at the performance meeting that amid the constant changes in international trade policies, the company's production, operations, and order situation were normal in the first quarter of this year, with customer orders showing a certain year-on-year increase. It is understood that Synopsys Microelectronics' products include battery safety chips, battery gauge chips, and charging management and other analog chips.

Yu Faxin, Chairman of Zhenlei Technology, also stated on April 17 that the company has recently seen a significant increase in newly signed orders and projects, and the company's management is very confident in the company's business development in 2025. Its main products include RF transceiver chips and high-speed, high-precision ADC/DAC chips, power management chips, microsystems, and modules.

In fact, this tariff policy has broken the vicious cycle of 'low prices for market share,' and domestic manufacturers finally have room for technical trial and error. "According to our estimates, the combined revenue of Chinese analog chip manufacturers accounts for 6% to 8% of the global market share (with leading manufacturers only having around 1% market share), leaving ample room for further localization," said Citibank.

From the perspective of industrial chain layout, domestic analog chip manufacturers are accelerating their grab for market share, driving continuous growth in demand for wafer foundry services. Under this trend, local specialty process fabs such as Hua Hong Semiconductor are embracing development opportunities.

Hua Hong Semiconductor demonstrates unique competitive advantages with its mature process platforms and international cooperation experience. The company not only cooperates with STMicroelectronics in the 40nm MCU field but also maintains close interactions with international giants such as Infineon, fully validating its technical strength and service capabilities.

From the perspective of product layout, Hua Hong specializes in specialty process foundry for RF, analog chips, and MCUs, which happens to meet the supply chain needs of American IDM manufacturers. Amid the current global trend of industrial chain localization, Hua Hong is expected to further undertake orders from international giants and achieve sustained business growth by leveraging its technical accumulation and capacity advantages.

The future layout of domestic analog chip manufacturers can be summarized into three points:

First, seize future growth opportunities in the analog market. Despite the current downturn in analog chips, the market growth potential for analog chips is still significant. For now, there are several markets that can see substantial growth: the automotive market, humanoid robots, and the AI market.

Local analog chip manufacturers primarily enter the automotive market with power management chips, with products mostly applied in low value-added areas. When automakers choose analog chip suppliers, they consider cost, supply chain security, and technical performance comprehensively, leaving ample room for the localization of analog chips. Additionally, analog chips play a crucial role in humanoid robots, widely used in multiple core areas such as power management, signal conversion and processing, and sensor signal processing.

Second, focus on niche areas. Manufacturers achieve differentiated competition by focusing on specific niche areas. For example, Naxin Microelectronics has achieved a significant market share in the fields of isolation chips and PV inverter chips, with a market share of up to 35% for isolation chips and over 50% for PV inverter chips.

Third, strengthen supply chain cooperation. Domestic wafer foundries and packaging and testing factories cooperate deeply to ensure supply chain stability. Siray Microelectronics' 0.18μm specialty process production line, in collaboration with Hua Hong, has achieved 100% local tape-out for automotive-grade chips.

For domestic analog chip companies, this tariff is a great opportunity. However, to break the internal competition within the analog chip industry, it is more crucial to "seek differentiated innovation." It's not just about replacing foreign chips in situ but about focusing on application innovation and blazing a differentiated path domestically.