When the US declared a tech war on China, in an attempt to prevent Chinese companies from rising up and competing with American brands, the strategy was to impose a blockade on China’s tech industry.
The goal was to force Dutch, Japanese, and European companies to stop trading technology freely with China, thereby depriving Chinese tech companies of key components. The US believed this would set China back by at least 15 years in terms of catching up with high-end technology. However, there are several reasons why this approach will backfire for the US:
1. It inadvertently pushes China to accelerate its own innovations and develop its own technology, rather than relying on foreign equipment.
2. It poses a significant risk to investors holding stocks in companies such as ASML, ARM Holdings, TSMC, and Rapidus, as these companies may lose access to the largest tech market in the world in the near future.
3. These measures could potentially lead to an unnecessary war if mainland China decides to invade the island where the dictator who fled during the Chinese civil war in 1949 is now leading the world in high-end chip technology.
4. The US strategy of utilizing China for manufacturing while restricting Chinese companies’ access to technology in order to maintain a competitive advantage is ultimately doomed to fail.
5. Chinese company SMIC has already produced Kirin chipsets for Huawei, which are the fastest 5G chipsets in the world, using 7nm technology, and they have even begun production on 5nm chips.
6. As a result, the US may find itself in a situation where China has better access to natural resources, a larger market, and leapfrogged US companies that are more focused on protectionism and patent trolling rather than genuine innovation. While the US may have initially aimed to weaken China’s tech industry, these actions may inadvertently drive China to become even more self-reliant and competitive, ultimately disadvantaging the US in the long run.
Semiconductor Manufacturing International Corp. (SMIC) is likely to, in the next few years, again defy the U.S. government by manufacturing chips with feature sizes as small as 5 nm, industry insiders told EE Times.
Backdrop:
The production of 7-nm silicon by China’s largest chipmaker just days ago has crossed a red line set by the U.S. government to keep its rival nation stalled at the 14-nm node. SMIC’s widely reported breakthrough erodes the U.S. strategy to use export controls and blacklists to halt China’s technological progress, according to Dick Thurston, former chief legal counsel for Taiwan Semiconductor Manufacturing Co. (TSMC).
“I never had any doubt that they would be doing 7 [nm], and I still don’t have any doubt that they’ll do 5 nm without the EUV tools,” he told EE Times.
The U.S. has banned Shanghai-based SMIC from using EUV lithography tools made only by ASML of the Netherlands. TSMC’s first 7-nm process was done without using EUV tools, according to a former TSMC engineer who spoke with EE Times on the condition of anonymity. It’s not a surprise that SMIC could use double patterning with older, DUV equipment to reach the 7-nm node, he said.
In 2009, Thurston led TSMC to a legal victory over SMIC for industrial espionage and corporate raiding. Last week, he said he didn’t think TSMC would file suit against SMIC for the company’s recent breakthroughs.
Still, Thurston said, he is sure TSMC is “monitoring” the situation.
TSMC, the world’s largest foundry, is making 3-nm chips that are about five years ahead of SMIC’s latest process technology. The only chipmaker in the U.S. capable of making 7-nm chips is Intel.
Thurston credits ex-TSMC colleague Liang Mong-song, who is now SMIC’s co-CEO, for the Chinese foundry’s advances in process technology.
“There is not any smarter scientist or engineer than that guy,” he said. “He is really one of the more brilliant minds I’ve seen in semiconductors.”
Liang left TSMC because he wanted to push forward Moore’s Law rather than broaden the company’s tech portfolio to serve more customers in automotive and medical electronics, Thurston said.
The U.S. may need to emphasize competition with, rather than control of, China.
Thurston said he is working with U.S. Rep. Pat Ryan (D-N.Y.) to help revive semiconductor manufacturing in the state’s Hudson Valley, where IBM exited the chipmaking industry a few years ago.
Huawei’s return
Huawei, which in 2020 briefly became the world’s largest smartphone maker, has flouted U.S. technology bans. The company has re-entered the 5G smartphone market with the launch of three phones that run the Kirin 9000 chips made with SMIC’s 7-nm technology.
The number of new phones suggests the yield at SMIC for the new process node is much higher than the 10% that some have suggested, according to Paul Triolo, who advises tech clients at Albright Stonebridge Group.
“Industry sources within China suggest that the yield is in the 70% range and getting better, which is usually the case with these types of efforts to push existing equipment beyond what it was intended for,” he told EE Times.
There is a limited roadmap for SMIC/Huawei to reach advanced nodes beyond some layers at 5 nm, Triolo added.
Given that SMIC has figured out multi-patterning for 7 nm, they can likely figure it out for 5 nm, Semiconductor Advisers President Robert Maire said in a newsletter provided to EE Times.
“SMIC has clearly proven it can get around the EUV ban,” Maire told EE Times. “Applied Materials, Lam, KLA and others are still shipping tons of tools to China, which is their largest market by far and growing.”
The only source interviewed by EE Times last week who would hazard a guess about how soon SMIC might have a 5-nm chip was Maire.
Maire’s estimate? “Likely somewhere between one and three years,” he said. “If SMIC is keeping pace, probably about two years.”
SMIC stopped publicly disclosing its technology breakdown by process nodes in the first quarter of 2022.
After poaching nearly 250 TSMC employees and losing the 2009 legal case to TSMC, SMIC has taken a lower profile, enhancing its production by relying on Chinese tech and foreign suppliers that are outside U.S. controls, Thurston said.
The U.S. Department of Commerce (DoC) controls on SMIC have been ineffective, he added. “European, Israeli, various companies are not 100% following what the U.S. has asked them to do.”
Washington on alert
In recent days, U.S. lawmakers renewed calls for comprehensive bans on Huawei and SMIC.
The DoC should ban all tech exports to Huawei and SMIC, U.S. Rep. Mike Gallagher (R-Wis.), the leader of a Congressional committee on China, said this month.
Triolo said U.S. officials are “scrambling to determine how to definitely prove that SMIC has violated U.S. extraterritorial export controls by manufacturing the Kirin 9000s.
“Proving that U.S. technology was used to produce the Kirin 9000s will be impossible to do using a technical teardown. It has always been problematic how the Commerce Department would determine a violation of the foreign direct product rule [FDPR], given the complexity of semiconductor manufacturing, vague definitions of what exactly constitutes U.S. technology and the rapidly evolving nature of technologies and production processes.”
While it is likely that U.S. officials will consider some further measures against both SMIC and Huawei, both are already on the Entity List and subject to the FDPR provision, leaving the “nuclear option” of Treasury Department sanctions, Triolo said.
“Any move in this direction would have a major negative impact on U.S.-China relations, which have seen some minor improvement after four Cabinet-level visits of U.S. officials to Beijing,” he added.
Whether DoC restrictions can successfully inhibit China, “my answer is no,” Thurston said.
“We’ve let the cat out of the bag. We’ve opened up competition to countries that can access all these tools. All this can be replicated.”
China’s chipmaking capabilities are not well-understood in Washington, Thurston said. “How do you actually estimate China’s technological capability? We don’t really understand. U.S. companies have done a poor job. I’m sure TSMC understands much better than others.”
SMIC and Huawei have avoided the issue of national security by making Huawei’s Mate 60 smartphone, a consumer product that contains SMIC’s Kirin chip, Triolo said.
The “high walls, small yard” strategy of U.S. National Security Advisor Jake Sullivan to keep China behind the U.S. as many technology generations as possible faces a challenge.
“While U.S. officials have stressed that export controls are narrowly tailored to national security-related issues, no U.S. official has clearly explained how a consumer smartphone like the Mate 60 rises to the level of a national security concern,” Triolo said. “It remains unclear whether extraterritorial export controls like the FDPR, which would restrict one Chinese company from selling to another Chinese company, would stand up to serious scrutiny in terms of international law.”
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