China on track to evade US bans on chipmaking equipment
Chinese tech giant Huawei’s attempt to manufacture semiconductors without American equipment has grabbed global headlines as the tech war between the United States and China takes another twist.
This is one more indication – if it were needed – that the American government is creating a competitor that it cannot control while forcing American companies to abandon a massive market that has until now supported their sales, profits, economies of scale and stock prices.
Geopolitics has taken precedence over America’s past commitment to open markets and this is unlikely to change anytime soon as long as current political structures and mindsets prevail.
The United States intends to rebuild its own semiconductor industry and refuse Chinese technology with advanced military applications or other national security applications – the first and main example being telecommunications equipment from Huawei. So what can China do in the face of US sanctions and bans?
It has been widely reported that China cannot manufacture advanced semiconductor devices without EUV lithography equipment from ASML in the Netherlands and Electronic Design Automation (EDA) tools from Synopsis and Cadence from America or Siemens (Mentor Graphics) from Germany.
It has also been reported that China could not manufacture semiconductors at all without production equipment from US companies Applied Materials and Lam Research or inspection equipment from California-based KLA.
On the one hand, that’s true – but only to a certain extent. On the other hand, China is potentially in an even weaker position than announced, at least in the short term.
There is only one country that, if forced to, could manufacture semiconductors independently: Japan. The rest, including the United States, are missing large parts of the semiconductor supply chain.
How is it that South Korea and Taiwan, both of which have built the most competitive integrated circuit (IC) and memory IC foundry companies in the world, produce virtually no semiconductor fabrication equipment? drivers on site?
It is not because their scientists, engineers and technologists are lacking in talent or that the two countries lack the manufacturing capacity. The main reason is rather that it would not be economically efficient because the barriers to entry are still very high.
Why do the Japanese rely on Taiwan Semiconductor Manufacturing Company (TSMC) and American-made EDA tools and use heaps of equipment from Applied Material, Lam Research and KLA?
Answer: Because it’s more efficient and cost-effective, and they have long-standing, trusted relationships with these and other companies in America, Europe, Taiwan, and South Korea that have proven to be profitable over the years.
This, of course, is how the theory of comparative advantage is supposed to work in a free-market-driven global economy.
China has taken advantage of this global market system while implementing an aggressive mix of commercialism and intellectual property (IP) theft. From now on, it is gradually and systematically excluded from the key sectors of the system.
It’s not entirely accurate to say that Japan and South Korea did the same thing on their way to the tech summit. Both were and are US allies with US forces stationed in their territories. China has been a rival ever since the United States sided with the nationalists in the Chinese Civil War.
It is interesting but irrelevant to recall that Alexander Hamilton and other early American leaders advocated and rewarded intellectual property theft in Britain and Europe. If anything, the lesson of history is this: pay attention to number 1.
For China, this means stepping up its industrial policy efforts to develop cutting-edge technologies. Semiconductors are China’s technological weakness and it is where Beijing will focus until it can solve the problem of US interference and sanctions. As in the United States, economic efficiency will take precedence over military and national security issues.
As noted by Rakesh Kumar, a professor in the Department of Electrical and Computer Engineering at the University of Illinois, recently told Fortune magazine:
“Higher costs would threaten chip competitiveness for consumer devices, as evidenced by how US sanctions nearly bankrupted ZTE and hobbled Huawei. But the cost will not deter the use of these more expensive chips for military and strategic purposes. The growing use of artificial intelligence – where China already has world-class strengths – in chip manufacturing and accumulated experience could also reduce the cost of alternatives, making export control measures less effective over time. time.
Technological workarounds are already bridging the gap between China’s current capabilities and the industry’s leading edge. These include smart packaging and maximum use of DUV ArF immersion lithography.
Chinese chipmaker SMIC, which recently shocked the United States by announcing that it had produced 7nm chips despite being denied access to EUV equipment, is now reportedly moving to more advanced 5nm technology. SMIC has also started construction of a new 300mm wafer fabrication plant.
In the areas of artificial intelligence and high-performance computing, Xiangdixian Computing Technology and Moffett AI have announced new devices that they say can replace GPUs that Nvidia and AMD are no longer allowed to sell in China. The design rules aren’t as advanced (12nm versus Nvidia’s 4nm) but they work.
The most successful Chinese semiconductor equipment maker to date appears to be AMEC, which reportedly sold etching tools to TSMC and shipped tools to Samsung, Intel and Micron for testing. According to CS Insight and other sources, AMEC has demonstrated dielectric etching capability at 5nm.
Meanwhile, Chinese lithography equipment maker SMEE is reportedly working on a new ArF immersion lithography tool that could, with multiple patterns, be used to fabricate 7nm chips.
Nikon’s NSR-S635E ArF Immersion Scanner “Delivers world-class modeling and productivity for 5nm node applications and beyond,” the company said, revealing new horizons for EUV-free chip fabrication.
If successful, US efforts to stop ASML from shipping DUV lithography tools to China could be the best thing that ever happened to SMEE.
The SEMI industry association lists about 80 Chinese companies involved in the research and manufacture of semiconductor equipment – and it can be assumed that all of them receive government support.
Following in Japan’s footsteps, but driven by fears of escalating sanctions, China is now aiming to develop a complete, self-sustaining semiconductor supply chain.
According to IC Insights, China consumed $186.5 billion worth of semiconductors in 2021, representing 36.5% of the global market. Only 17% of Chinese demand for semiconductors was met by production in China and only 7% by Chinese companies.
These figures show the market opportunities for Chinese semiconductor design, manufacturing and production equipment companies, and the corresponding opportunity cost for foreign companies crippled by US government export restrictions. Import substitution alone can allow Chinese companies to achieve economies of scale.
Several Chinese companies manufacture EDA tools, but none of them are yet capable of replacing the more advanced imported products that the US government recently put under sanction, as reported by Asia Times. But industry sources note that China has imported “boats” of EDA tools that can be used for the next three to five years.
This seems to be China’s window of opportunity. In the second half of the decade, we will know whether the US government’s attempt to stifle the Chinese semiconductor industry succeeded or failed.
Failure seems likely, except at the cutting edge, and the cost to America and its semiconductor companies will likely be very high.
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