China’s Semiconductor Breakthrough

Semiconductor Manufacturing International Corporation (SMIC), China’s largest chipmaker, has made a breakthrough. TechInsight, a Canadian technology media outlet, revealed that SMIC had advanced its technology to a quasi-7 nanometer (nm), which could be a stepping stone to a true 7nm process. According to TechInsight, SMIC products made using the quasi-7nm process were shipped for a year. Some media argued that the progress of the SMIC showed that the US blockade. too little, too late and outdated.

SMIC’s most advanced chip process node successfully manufactured in the past was 14nm, although it has always made great attempts to move to an advanced (below 10nm) process node. However, due to the inclusion of SMIC in the entity list by the US Bureau of Industry and Security in December 2020, which was designed to limit SMIC’s ability to reach advanced technology nodes 10 nanometers or smaller, it was prevented from obtaining the extreme ultraviolet lithography (EUV) machines ) required by ASML from the Netherlands.

The use of an EUV machine is not necessary, in theory, to perform the advanced process nodes. Taiwan Semiconductor Manufacturing Company (TSMC), a world leader in semiconductor manufacturing, used deep ultraviolet lithography (DUV) machines in the early stage of its 7nm volume production. But using DUV machines requires more layers of masks, which means longer exposure times and more complexity. This will lead to a lower rate of return and higher cost for each chip, making this process commercially unfeasible today.

But the semiconductor industry is of strategic importance to China. Having the ability to manufacture advanced chips is more important than the prices of these chips. It seems that SMIC is really moving forward to use this older technology to make technological advances. In October 2020, it was reported that SMIC had successfully developed “quasi-7nm” chips with the FinFET N+1 process using DUV machines.

TSMC President Dr. Mark Liu said the 7nm process was a full node step and a milestone in semiconductor manufacturing. The biggest difference between the 7nm and 14nm processes is that the number of transistors per unit area of ​​the 7nm process is greatly increased and their power consumption is substantially reduced. This makes 7nm chips much more powerful than 14nm chips, but also cheaper. For example, in 2020, the cost of a 7nm chip was $233, which was not only less than the $331 cost of a 16nm chip, but also less than the $238 cost of a 5nm chip. In addition, the performance of the NVIDIA A100 Tensor Core data center processor, which uses TSMC’s 7nm process, increased 20 times, so that the data center, which originally required 25 racks, can be reduced to a single rack. .

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In other words, 7nm chips not only lower the cost of ownership, but also deliver high computing performance, making AI, cloud computing, and 5G economically viable in both commercial and military applications.

China’s semiconductor industry speeds up to improve self-sufficiency

There is a large gap between chip consumption and chip manufacturing in China, which means that its chip self-sufficiency rate is low. In 2021, the size of China’s semiconductor market it was about $186.5 billion, of which only $31.2 billion worth of chips was made in China, by both domestic and foreign companies, a self-sufficiency rate of 16.7 percent. Furthermore, China-based companies made just $12.3 billion worth of chips, accounting for just 6.6 percent of domestic consumption.

To reach the goal outlined by the “Made in China 2025” initiative, a self-sufficiency rate of 75 percent must be achieved by 2030. Under such pressure, it’s not hard to understand why China has subsidized semiconductor companies to build factories. through various political incentives. While there are notorious cases of “unfinished manufacturers” in the development of the semiconductor industry, the failure has not caused China to withdraw from its policy of fully supporting semiconductor factories.

The experience of the development of the electronics industry in the past has made Chinese policymakers understand that although China’s semiconductor industry lags behind foreign manufacturers in terms of its production scale and technology, there are two effects. which will prompt China to support a large number of semiconductor companies through policies. First, a large number of Chinese manufacturers can “eat up” the market and compress the space for second-tier and third-tier wafer foundries. According to a reportBy the end of 2024, China will lead the world in building 31 new chip factories, surpassing the 19 in Taiwan and the 12 in the United States. Since most of the 31 new factories in China will create mature process nodes, there is little impact on major manufacturers such as TSMC, Intel and Samsung, all of which use advanced processes. However, China’s “fabulous sea” tactic may put enormous pressure on other mature process manufacturers.

Given that excess inventory has emerged in some areas of the electronics industry, and the market expects there to be excess production capacity in chip manufacturing after 2023, price competition is inevitable. Foundries using mature processes will not be able to compete with Chinese semiconductor factories that enjoy significant policy subsidies. Some second-tier and third-tier foundries may have to withdraw from the market, allowing Chinese foundries to dominate the mature process market.

Second, if one or two Chinese companies can stand out from the plethora of policy-backed foundries, there is hope that this “national champion” can compete or even dominate the advanced process market. Lenovo in the PC/laptop sector and Huawei and ZTE in communications were developed using this model. And SMIC may be the leading Chinese company that can compete in the international field of advanced semiconductors and break the technological domains established by the United States. The 7nm breakthrough discovered by TechInsight is the best proof.

In the past, Chinese chip design companies were sanctioned by the United States and were unable to use TSMC’s advanced process to launch new products. If SMIC can extend the 7nm process for use in other Chinese manufacturers’ products, it will enable China to accelerate its advancement in AI, high-speed computing, and 5G, etc. The acceleration will allow China to achieve its goal of going from a “manufacturing giant” to a “world manufacturing power.”

The effectiveness of the entity list needs to be reassessed

We currently know very little about SMIC’s 7nm shipments, throughput rates and pricing; it is not even clear if there are other applications. However, the advancement of the 7nm process is expected to enable China to achieve breakthroughs in artificial intelligence and high-speed computing. In turn, that will also increase China’s economic and military threats not only to Taiwan, but to all of East Asia.

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China has set goals to achieve “comprehensive modernization” based on “computerization,” “intelligence,” and “mechanization” by the centenary of the People’s Liberation Army in 2027. Advances in AI, quantum computing, and hypersonics require the advanced chip support. . Merely blocking China from acquiring EUV machines will not prevent China from advancing advanced process chips, which will eventually help its military development. More efforts are needed.

The United States is now trying to put diplomatic pressure on Japan and the Netherlands to extend the current EUV embargo to include DUV machines. Some may argue that isolating China will only hasten its march toward self-sufficiency. From the past history of China’s industrialization, China’s ambition will not stop until the country dominates the entire market. Therefore, limiting China from obtaining EUV machines will not serve the original purpose of preventing China from manufacturing high-tech nodes of 10nm or less.

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