According to a report from the Reuters, the CEO of European chip manufacturer STMicroelectronics (ST) has announced a new plan to collaborate with Chinese foundry Hua Hong, China’s second-largest custom chip manufacturer, to produce 40nm microcontroller chips in Shenzhen by the end of 2025.

CEO Jean-Marc Chery emphasized the importance of having local manufacturing in China, stating that it is crucial for maintaining the company’s competitive edge, the report notes.

The report highlights that Chery’s comments come amid growing demands from the European, U.S., and Chinese governments for more local chip manufacturing.

However, while many semiconductor companies have been expanding their operations in Singapore and Malaysia to better serve Asian markets, ST is the largest producer of energy-efficient Silicon Carbide (SiC) chips, which are widely used in electric vehicles by major customers such as Tesla and Geely, and Chery emphasized that the Chinese market is indispensable, since it is the world’s largest and most innovative market for EVs.

He emphasized that it is not feasible to compete effectively without a local presence in China, as per the report.

Chery stated, “If we cede our market share in China to another company working in the industrial or automotive sector, Chinese companies will dominate their market,” further noting that “with such a large domestic market, this would provide them an excellent platform to compete in other countries,” as noted by the report.

Chery’s remarks came after the company updated its long-term financial forecast during an investor day. The company has faced significant challenges resulting from a downturn in the industrial chip market, according to the report.

The report also quotes ST’s manufacturing chief, Fabio Gualandris, who explained that the decision to produce in China is driven by several factors, including the cost-effectiveness of the local supply chain, compatibility challenges, and potential risks associated with government restrictions.

Furthermore, Gualandris highlighted that manufacturing chips outside China would mean missing out on the country’s rapidly advancing EV development cycle, emphasizing that “the Chinese market is developing faster, and if you are not there, you cannot react in time,” as the report notes.

The report also points out that in 2023, ST established a SiC joint venture in Chongqing with Chinese company San’an. The project includes a chip factory and a substrate factory, focusing on the production of SiC power chips and substrates.

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(Photo credit: STMicroelectronics)