EntryUpdated 2026/10/25

Why Did Cheap Old Chips Become a Security Problem?

Because the pain of losing supply has nothing to do with how advanced a chip is and everything to do with whether anyone else makes it. A mature-node chip may cost very little, yet without it a car plant stops, and production of such chips is concentrating in a few places.

Read this first: Money Can Build Fabs. Why Not a Chip Supply Chain?

The two are not points on one axis, so the same instruments do not work on both

Node	Where it goes	Who can make it	What losing it does	Do export controls bite?
Advanced nodesChasing speed and efficiency	Phone and server processors, compute accelerators. A few high-value products take most of the volume.	A handful of production lines, built with equipment from an even smaller set of suppliers.	Flagship products from a few firms are delayed or downgraded. Painful, but confined to particular industries.	Yes. The barrier is equipment, and equipment is physical, crosses customs, and comes from few enough sources to track shipment by shipment: every condition that traditional controls need.
Mature nodesChasing stability, durability, long life	Vehicles, industrial motor control, grid inverters, medical equipment, appliances, drone flight controllers and power modules: spread across the physical economy.	Technically, anyone: proven equipment, widely known processes, skills that are not scarce. In practice capacity is becoming more concentrated, and the cause is price, not technology.	The line stops. One missing low-cost microcontroller keeps a car from leaving the factory; the damage depends on whether anyone else can make the part, not on its price.	Barely. There is no equipment barrier to hold. The competitor here is not technology but capital willing to absorb losses, and export controls do little against a price war.

Advanced and mature nodes are more like a sports car and a truck than a new model and an old one. Ranking them on one axis is the standard misreading, and its cost shows up in the last column: export controls bite on the top row because the barrier is equipment, and barely touch the bottom row because there is no equipment barrier to hold.

The “what losing it does” column explains why the cheap parts deserve more scrutiny. The damage depends on whether anyone else can make the part, not on its price, and cheap parts are exactly the ones nobody bothers to trace. Trace them and you often find only two or three firms worldwide making that part.

Source: Impactful Creative, compiled from the division of labour described on this page and the glossary entries on mature nodes, advanced nodes, and foundries

Is a mature node just an obsolete node?

No. A mature node is a process generation that has been in stable volume production for years, and it is still in use mostly because the application does not need anything newer.

Made on the latest node, a chip that drives a car window motor would simply be more expensive, more power-hungry, and less tolerant of heat. Vehicles, industrial equipment, power management, and sensors need stability, durability, and long product lifetimes, which is exactly what mature nodes do well. In these applications, “advanced” is the wrong fit.

Advanced and mature nodes are more like a sports car and a truck than a new model and an old one. Ranking them on a single axis is the most common misreading of the subject, and it is where the errors that follow begin.

Where are mature-node chips actually used?

In almost everything that moves. A car contains hundreds to thousands of chips, the overwhelming majority of them on mature nodes. The same goes for factory motor controls, grid inverters, medical equipment, household appliances, and drones’ flight controllers and power modules.

That creates an asymmetry: the value of advanced nodes is concentrated in a few high-priced products, while the value of mature nodes is spread across the physical economy. Losing the first affects a handful of flagship products; losing the second affects production lines themselves.

The car-chip shortage that began around 2021 showed exactly this. What ran out was not the most advanced compute silicon but low-cost microcontrollers and power management chips, and one missing part, however cheap, was enough to keep a car from leaving the factory.

These chips have existed for decades, so why are they a problem now?

Because the distribution of capacity is changing, and what is driving the change is price, not a technical breakthrough.

The technical barrier for mature nodes is low: the equipment is proven, the processes are widely known, and the skills are not scarce. Anyone can build a fab, and nobody can stop anyone else from building one. When one side backs large-scale expansion with policy, the added supply pushes prices down, and once prices fall below other fabs’ operating costs, those fabs stop investing and gradually exit.

This is what overcapacity means geopolitically. On the surface it is a market phenomenon; in effect it concentrates capacity in whoever can sustain low prices the longest. It requires no unlawful act, only capacity and patience, and it works the same way as the price war described in the critical minerals explainer. The technology never changed; what is changing is who holds the capacity.

How is this different from an ordinary shortage?

A shortage ends; concentration does not. In a shortage, supply and demand are temporarily out of step: prices rise, capacity follows, and the problem goes away. Concentration is a structural change that remains after prices settle.

The remedies are opposite, too. A shortage calls for short-term allocation: priority rules, extra shifts, temporarily relaxed specifications. Concentration calls for long-term purchase commitments, because nobody builds into a price war without a committed buyer, and that is a different thing from a construction subsidy.

There is a simple test for which one you face: if prices rose 30% today, would new supply appear within six months? If yes, it is a shortage; if no, it is concentration. Mature nodes have been drifting toward the latter.

The foundry model also makes the problem harder to see. Buyers deal in modules and finished goods, with packaging houses, module makers, and system integrators in between, so by the time they feel it, it is usually the day the line stops.

Five steps, each of them an ordinary market outcome on its own

Policy-backed expansion at scaleStep 1 · still time
The technical barrier is low: proven equipment, widely known processes, skills that are not scarce. Anyone can build, and nobody can stop anyone else from building. Export controls have nothing to grip here, because there is no equipment barrier.
Supply rises, prices fallStep 2 · still time
This step looks like an ordinary market outcome, and buyers even benefit. It is also the one stage outsiders notice, and most of them read it as good news. Demand-side instruments such as long-term offtake and price floors only work if applied at this stage.
Other fabs stop investing and drift outStep 3 · turning irreversible
Once prices fall below operating cost, exit is rational, and it happens one firm at a time. No single exit is an event, so none triggers a response. By the time it can be called a trend, most of the exits have already happened.
Capacity concentrates in a few placesStep 4 · only rebuilding remains
The structure has changed. Even if prices recover, the fabs that left do not return, because re-entry means facing the same price war against a larger incumbent. This is where concentration differs from a shortage: shortages end, concentration does not.
Dependence forms and becomes usable leverageStep 5 · nothing more is required
No further action is needed at this point. The mere possibility of tightening supply changes buyers’ behaviour. The sanctions explainer describes the same logic for secondary sanctions: what works is not the measure itself but the expectation of it.

Still time — demand-side instruments work hereTurning irreversible — exits happen one at a time, never as an eventOnly rebuilding remains — it takes years

The whole path requires no unlawful act, only capacity and patience; it works the same way as the price war in the critical minerals explainer. What makes it hard to respond to is that step three happens one firm at a time: no single exit is an event, so none triggers a response.

The tags on the right mark whether intervention is still possible. It is for the first two steps; after the third, only rebuilding remains, and rebuilding takes years. That also settles the choice of instrument. What works at step two is demand-side: offtake agreements and price floors rather than construction subsidies. Subsidies cover capital costs, while the price war is fought over a decade of operating revenue.

Source: Impactful Creative, compiled from the concentration process described on this page and the glossary entries on overcapacity and mature nodes

What does this mean for Taiwan and for ordinary companies?

For Taiwan, the issue is quite unlike the advanced-node one. Advanced nodes are about staying ahead; mature nodes are about how many suppliers remain. There, the competitor is not technology but capital willing to absorb losses, and the question is for how long. That changes which instruments work. Export controls bite on advanced nodes but do little for mature ones, because the problem is price, not technology leaking out. For Chinese mature-node chips, Washington has turned to tariffs instead, opening a Section 301 investigation in December 2024.

For companies, the practical move is to split part numbers in two: those that are expensive and specialised, and those that are cheap and look available everywhere. The second group is the one to investigate. Cheap parts rarely get traced to their source, and tracing them often reveals only two or three firms worldwide making that exact part.

This explainer also supplements the one on the chip supply chain: that one maps the vertical division of labour at the advanced end, while this one covers the overlooked segment of the same chain. The risks differ in kind, and so do the responses.

Sources

Yole Group, The next automotive semiconductor cycle: stability, AI, and a change in architecture, 12 Dec 2025
U.S. Department of Commerce, Results from Semiconductor Supply Chain Request for Information, 25 Jan 2022
IC Insights (via Design & Reuse), Microcontrollers Get a Lift from Automotive After 2021 Rebound, 30 Mar 2022
Office of the United States Trade Representative (USTR), Initiation of Section 301 Investigation; Hearing; and Request for Public Comments: China's Acts, Policies, and Practices Related to Targeting of the Semiconductor Industry for Dominance, 30 Dec 2024
Semiconductor Industry Association (SIA) and Boston Consulting Group (BCG), Strengthening the Global Semiconductor Supply Chain in an Uncertain Era, Apr 2021

Terms used here

Mature Node — Older, standardized process generations with low technical barriers, used throughout automotive electronics, industrial control, and appliances. Mature nodes stayed off the control agenda until governments realized how much civilian and defense equipment depends on them, and that production was concentrating in a few places. They are hard to control precisely because they are everywhere, which makes tracking end use item by item impractical.
Advanced Node — The current leading-edge generation of chip manufacturing, which depends on equipment that only a very small number of suppliers can provide, extreme ultraviolet (EUV) lithography above all. Advanced nodes are the main target of export controls because they combine high technical barriers, extreme geographic concentration, and clear military relevance. Which node the control line falls on often shapes the industry more than whether controls exist at all.
Overcapacity — Production capacity that persistently exceeds what the market can absorb, usually the product of subsidy-driven investment rather than market signals. The spillover is prices held below replacement cost, which makes it hard for unsubsidized competitors to fund their own investment cycles. It has recently moved from a trade-remedy question to an economic security one, because what remains after competitors exit is a new single-source dependency.
Foundry — The business model in which a manufacturer fabricates chips designed by others and sells no products of its own. Separating fabrication from design lowered entry barriers for chip designers but concentrated the industry’s manufacturing risk in a handful of sites. In resilience terms, diversity in design does not offset concentration in fabrication; the two are risks at different layers.