Chips, China, and the AI Reckoning: Reflections on 25+ Years in Semiconductors (Part 1)
I’ve been in the semiconductor industry for over 25 years. I’ve seen cycles come and go, booms turn to busts, and vice versa. That’s the rhythm we’ve lived by. But this one feels different.
The COVID-19 pandemic triggered an acute supply shock. It wasn’t just a shortage. A global scramble for capacity led to widespread overbuying across nearly every segment. Now we’re facing the aftermath: a slow, uneven recovery shaped by high inventory levels and cautious demand.
But this is more than just a post-pandemic correction. Two powerful forces are reshaping the industry: the rise of AI as a new computing platform and China’s growing strength as a global semiconductor player.
Andy Grove once said that inflection points are moments when market dynamics shift by a factor of ten. Right now, we may be facing two of them at once.
Industry forecasts may look promising on the surface. But experience tells me to dig deeper. Most companies haven’t fully recovered. Without a clear strategy to adapt, many risk falling behind in a market that is changing fast.
AI and China: A Divide Unlike Any I've Seen
According to McKinsey’s estimates, the semiconductor industry is projected to reach $1 trillion in annual revenue by 2030, with generative AI contributing as much as $300 billion. However, this growth will not be evenly distributed. Companies not strategically aligned with AI or Chinese market trends risk long-term stagnation. To remain competitive, semiconductor firms must urgently reevaluate their operating models, product portfolios, and go-to-market strategies.
- AI-Exposed Players: Could see sustained CAGR between 18% and 29%.
- Memory Segment: Poised to rebound with CAGR of 17% to 23%, driven by data center momentum.
- Non-AI/Non-China Players: Face a significant slowdown, with projected CAGR of just 2% to 3%, well below historical levels.
- Mainland China Players: May achieve CAGR of 14% to 20% as domestic capabilities scale.
Recent company earnings reflect this reality. NVIDIA and AMD reported strong AI-driven demand across cloud and edge segments. Meanwhile, legacy analog, MCU, and commodity mobile chipmakers continue to struggle. China remains a major growth engine, particularly in EVs and industrial automation, even as geopolitical friction clouds the outlook.
Most semiconductor companies are still operating below pre-downturn levels. Inventory remains elevated across both manufacturers and distributors, signaling that the recovery is fragile and uneven. On average, days of inventory are approximately 45% higher for manufacturers and 25% higher for distributors compared to 2019.
This outlook signals a fundamental reshaping that goes beyond anything I experienced during the internet boom or mobile revolution. For companies not strategically positioned around AI or China, growth is likely to fall well below the historical norms we've come to expect.
To understand where the momentum is (and isn’t), let’s break it down by market segment.
Diverging End Market Trends: Where Growth (and Weakness) Are Showing
Datacenter and AI
The data center and AI computing segment is on fire in a way we haven't seen since the early days of the internet. Major suppliers tied to AI workloads reported standout results in Q1'25 beyond NVIDIA's 69% YoY jump, other data center chip makers also boomed. For instance, memory makers are finally seeing improved order trends thanks to surging AI server deployments requiring high end memory (HBM and DDR5). Samsung noted that cloud AI investments are driving strong demand for not just GPUs but the memory and storage that accompany them. The net effect is double digit growth in any semiconductor business geared to AI or high-performance computing, making it the single largest growth driver for the industry.
Automotive & Power Electronics
The automotive semiconductor market, particularly related to electric vehicles (EVs) and advanced driver assistance systems, remains a long-term growth engine but experienced a near term dip as inventories normalize. Many automotive focused chipmakers that had enjoyed two years of shortage fueled sales are now seeing a correction that reminds me of previous inventory cycles, but with a twist.
For example, NXP and Microchip each saw their revenues fall by high single to double digits year on year, and onsemi, a leader in EV power chips, flagged in early 2025 of continued "soft demand for battery powered car" electronics, including a slowdown in orders for its SiC power devices.
This recent pullback is largely cyclical: carmakers are digesting excess inventory after the supply crunch, and EV sales growth temporarily moderated amid economic uncertainties. Auto supplier inventory now sits about 10 days above the historical median.
Indeed, some suppliers still notched growth in segments of auto analog IC leaders with broad portfolios (e.g. Texas Instruments, Analog Devices) managed modest YoY gain, partly due to strength in industrial and power management products that overlap with EV infrastructure.
Beyond this, a major shift is unfolding. China's rapid expansion in mature-node and power semiconductors is reshaping the global landscape, making technology more affordable and competitive. Supported by subsidies, Chinese fabs are offering cost-competitive solutions, prompting global players to adapt strategically, enhance efficiency, and explore new opportunities for innovation and growth.
Mobile & Consumer Electronics
Demand in traditional consumer-driven segments, notably smartphones, PCs, and home electronics, remains relatively weak in a way that concerns me more than previous consumer downturns. After the pandemic era boom and bust, these markets have not yet returned to a strong growth footing. Smartphone unit volumes are flat to down in many regions, and even the mighty Apple and Samsung have seen only tepid shipment upticks.
Pricing and margins are under pressure in mobile chips, with 5G handset demand leveling off and intense competition (including new Chinese chipset vendors in low end smartphones).
PC demand likewise remains weak with global PC shipment languishing at roughly 2019 levels, and excess inventory from retailers has only recently cleared. Consumer IoT and electronics (smart appliances, TVs, etc.) show a mixed picture with pockets of growth in IoT gadgets, but broader softness in big ticket consumer devices.
This weakness in consumer/mobile end markets dragged down companies like Intel (which reported essentially flat revenue year on year amid PC doldrums). Notably, one bright spot is Chinese OEMs in the smartphone space: some chip demand has been propped up by Chinese phone makers increasing orders, recovering from a severe 2022 slump.
Overall, however, executives should plan for consumer electronics to provide only a modest lift in the near term. Any growth here will likely stem from premium innovation (e.g. AI features in phones and PCs, AR/VR devices) rather than volume expansion.
Industrial & IoT
The industrial semiconductor market (factory automation, IoT sensors, power management for equipment) had a strong run in 2021/22 and is now moderating in ways that feel familiar from previous cycles. Certain areas like industrial IoT connectivity and sensors continue to grow steadily as digitization spreads in manufacturing and smart infrastructure.
However, broader industrial chip orders have been somewhat hampered by the global economic slowdown and China's gradual recovery. Industrial end users are working through inventory accumulated during the lead time crisis. PMI indices suggest manufacturing is sluggish in the US and Europe, translating to cautious ordering of automation components.
Still, the secular trend toward Industry 4.0, combined with massive stimulus for infrastructure and clean energy (which involves plenty of sensors and power ICs), buoys the mid-term outlook. Executives should watch inventory levels and lead times in these channels.
Recent data from Morgan Stanley shows that inventory for US industrial is at a historical high at 28 days above the historical median. As that excess works down, a demand pickup could follow later in the year.
The China Challenge: A Rising Strategic Giant
I've watched China evolve from a manufacturing base to a formidable market player. But what I'm seeing now represents a strategic shift with a new level of capabilities and determination.
Investments in North America and Europe
China's semiconductor players are rapidly expanding outside of their region to participate in the global market. Once focused on domestic markets, China based semiconductor firms (spanning mature logic, memory, and power devices) are now investing in Europe and North America. They are signing distributors and setting up local design support teams in key markets, adopting the same "demand creation" models of Western firms, like the one I've worked with, to engage customers. The strategic intent is clear: capture share worldwide.
Power Electronics, MCUs, and Memory
Mature nodes and power semiconductors have become focal points in the evolving competitive landscape. With strong support from state subsidies, Chinese foundries have rapidly scaled their mature node chip production, significantly increasing global capacity. In fact, US analysts estimate that China can already supply "well over half" of worldwide demand for legacy process semiconductors and is expected reshape global supply dynamics with lower cost solutions.
This includes silicon carbide (SiC) devices, critical for electric vehicles and industrial systems, where Chinese companies have introduced highly competitive pricing. As a result, industry analysts anticipate a significant shift in mature chips with expanded Chinese production driving prices to more accessible levels." For example, 6-inch SiC wafers that cost $1,500 each two years ago are now offered by Chinese suppliers at $500 or less, making advanced technologies more affordable and accelerating adoption. A wave of emerging Chinese firms, backed by state support, is contributing to a more dynamic and competitive global SiC ecosystem.
Chinese memory makers are likewise advancing and redefining global industry dynamics. Yangtze Memory Technologies (YMTC), China's top NAND producer, recently unveiled a 294-layer 3D NAND chip, an accomplishment achieved despite US export restrictions. This breakthrough, using hybrid bonding, saw YMTC overtake some global competitors in terms of layer count and density, highlighting how quickly Chinese firms are narrowing technology gaps in memory.
At the same time, China’s ambitious capacity expansions are adding significant momentum to global supply in memory and other mature segments. Industry analysts expect the NAND flash market to face high supply levels in 2025. In response, established global players are strategically adjusting output levels, underscoring how the evolving landscape is prompting agility and resilience across the industry.
Another example is with MCUs. STMicroelectronics general-purpose MCU portfolio, once a staple across automotive and industrial designs, faced mounting pressure in 2024, particularly in China. Domestic vendors like Espressif and GigaDevice have rapidly closed the capability gap in general-purpose MCUs, offering increasingly competitive feature sets at lower cost. These local challengers, helped by state support and ecosystem alignment, have made significant inroads with Chinese OEMs. The result: STMicroelectronics lost an estimated 10% market share last year in China.
China’s Auto Chip Localization Accelerates
Chinese automakers are fast-tracking efforts to integrate domestically produced semiconductors into future vehicle platforms. According to Nikkei, brands like BYD, Geely, SAIC, and Changan plan to launch vehicles using 100% China-made chips by 2027, with some targeting mass production as early as 2026.
This shift reflects a broader government-backed strategy to enhance China’s technological independence in the semiconductor sector. While not mandatory, the 100% domestic chip goal has become a strategic focal point for industry alignment. Automakers like GAC Group are already working with local foundries such as SMIC and CanSemi to qualify domestic components across the supply chain.
Most automotive chips can be built on mature nodes, an area where China now holds significant capacity. However, foreign chips still dominate advanced domains like ADAS and cockpit compute, where players like NVIDIA, STMicro, NXP, and Infineon remain entrenched. In response, foreign vendors are partnering with Chinese foundries to keep pace with local demand.
Meanwhile, local innovation is rising fast. EV brand XPeng has designed its own AI chip, Turing, to power smart vehicle platforms, claiming performance beyond NVIDIA's offerings. Backed by Volkswagen’s $700M investment, XPeng’s chip ambition underscores the strategic importance of local silicon in global EV partnerships.
Where To From Here?
China’s rapid, state-supported expansion in mature-node, memory, microcontrollers, and power semiconductors is creating intense global pricing competition that is rapidly driving an increase in market share.
This ambitious state-supported drive for innovation and market expansion has strong historical roots. In the 1970s, US companies faced significant challenges and had to rethink their strategies during a difficult economic period that saw government backed Japanese semiconductor firms create a more competitive ecosystem in the global DRAM market. It took a focused effort and policy support for the US to regain its leadership in memory technology.
Whether history repeats or rhymes, the lesson is clear: early action matters.
As the semiconductor landscape continues to evolve rapidly, staying ahead requires not only understanding current shifts but also anticipating what’s next. Look out for part 2 of this blog series where I'll focus on navigating market transitions.
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