China’s semiconductor industry may be on the brink of one of its largest consolidations in recent years. Hua Hong Semiconductor, the country’s second-largest foundry, is reportedly seeking to acquire a controlling stake in Shanghai Huali Microelectronics (HLMC) through a mix of share issuance, cash, and a supporting capital raise. The move, reported by ijiwei and Security Times, comes as Hua Hong aims to address competition issues it pledged to resolve during its IPO.
If completed, the transaction would significantly reshape the domestic foundry landscape. Both companies are under the umbrella of Huahong Group, but they operate with different strategic focuses: Hua Hong is known for specialty processes, while HLMC has been building expertise in advanced logic technologies. According to EETimes China, Hua Hong announced the plan on August 18, prompting a trading halt that could last up to 10 trading days.
Strategic Capacity Consolidation
The centerpiece of the proposed deal lies in HLMC’s Fab 5, an 8-inch facility established in 2010 with production capacity of around 38,000 wafers per month, supporting nodes from 55nm to 28nm. It also owns Fab 6, a 12-inch plant focused on 28nm to 14nm processes. Importantly, Fab 5 houses 65/55nm and 40nm process lines that overlap with Hua Hong’s existing operations. By acquiring HLMC, Hua Hong would gain full control of these overlapping technologies, eliminating competition within the group while consolidating mature-node capacity.
The acquisition aligns with broader industry trends in China, where foundry players are seeking to optimize resources and improve competitiveness as demand surges for chips produced at legacy and mature process nodes. These nodes remain critical for automotive, IoT, and power management applications, areas where China has been striving to build greater self-sufficiency.
Negotiations Still Ongoing
While Hua Hong has signed a preliminary agreement with parent company Huahong Group, key deal terms—including equity valuation, cash contribution, and the scale of fundraising—remain under negotiation. Prospective sellers include several major state-backed investors, such as the Shanghai IC Industry Investment Fund, the National IC Industry Investment Fund Phase II, and the Shanghai Guotou Leading IC Private Equity Fund.
Strong Financial Momentum
The consolidation push comes on the heels of robust financial results. In the second quarter of 2025, Hua Hong Semiconductor reported revenues of $566 million, an 18.3% year-on-year increase, according to the Hong Kong Economic Journal. Net profit attributable to shareholders rose 19.2% to $7.95 million. Capacity utilization reached a record 108.3%, up from 102.7% in the previous quarter and 97.9% a year earlier—reflecting strong demand across its product lines.
Implications for China’s Foundry Landscape
Should the deal go through, it would not only resolve internal competition between Hua Hong and HLMC but also mark a significant step in China’s broader semiconductor consolidation strategy. By strengthening its control over mature-node production capacity while maintaining specialization in niche processes, Hua Hong would be better positioned to compete with both domestic rival SMIC and global foundry players.
For China’s semiconductor sector, the move underscores a long-term policy emphasis: rationalizing industry structure, pooling resources, and building stronger champions in critical technology fields.