Achilles’ heel of China’s semiconductor industry? – Diplomat

The strength of China | Economy | East Asia

Dependence on foreign lithographic equipment is becoming a growing liability for Chinese chip makers amid tighter US-led export controls.

To hedge against rising geopolitical and supply chain risks, Washington and Beijing have used industrial policy in recent years. support domestic semiconductor production. Although initial production (or “fabrication”) is an integral part of chip manufacturing and receives most of the coverage in the industry media, it should be emphasized that the global semiconductor value chain consists of about 300 different materials supplied by dozens of countries. A less visible but very important element of the supply chain is the lithographic equipment used to manufacture chips.

Lithography, the process of printing integrated circuit patterns on silicon wafers, is also a notable weakness in the Chinese chip industry, which remains largely uncompetitive in the semiconductor manufacturing equipment (SME) and electronic design automation (EDA) sectors. To slow Beijing’s semiconductor advance, Washington is now tightening extraterritorial restrictions on all resources containing important US-origin technologies, such as lithography equipment, under the Foreign Direct Manufacturing Rule.

At a Bureau of Industry and Security (BIS) conference in late June, U.S. Secretary of Commerce Gina Raimondo announced that Washington can “shut down” any Chinese semiconductor company caught selling to Russia, since “almost every chip in the world and in China is made using American hardware and software.” Many Washington-based analysts also cited SME and EDA as weaknesses in the Chinese chip industry. In January 2021, the Center for Security and Emerging Technologies (CSET) published a report. argue that China’s weaknesses in semiconductor manufacturing equipment (SME), EDA software, chip design intellectual property, and advanced materials represent a “political opportunity” for Washington to exploit through export and investment controls.

Since 2020, Washington has targeted China’s weakness in lithography by banning the sale of advanced extreme ultraviolet (EUV) machines, and is currently considering a more comprehensive “plant by planta hardware ban that would specifically target Chinese factories producing 14nm or lower process nodes. This new export control strategy aims to curb the technological progress of China’s semiconductor industry while not slowing down the supply of old commodity chips that are essential to auto and consumer electronics manufacturing.

Washington’s multilateral export control strategy, or what the Chinese Foreign Ministry terms “Coercive diplomacy” and “technological terrorism” pose a serious threat to the Chinese chip industry, which has no viable domestic alternatives to SMEs and EDA. Shanghai Micro Electronics Equipment Co., a leading manufacturer of lithography in China. (SMEE), currently mass production on a 90nm processing unit and developed 14nm machines with sub-optimal performance.

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While these results are remarkable for an industry latecomer, SMEE is still several generations behind the Netherlands-based world leader in lithography, Advanced Semiconductor Materials Lithography (ASML), which makes machines capable of etching circuitry for cutting-edge microcircuits as small as 7 nanometers. . Given the vast technical expertise and capital cost barriers to competition in the lithography industry, Beijing’s best bet is to continue purchasing from ASML.

During his visit to the Netherlands in late May, U.S. Deputy Secretary of Commerce Don Graves lobby Dutch officials have banned ASML from selling immersion lithography machines, which are an advanced type of deep ultraviolet (DUV) technology, to China. DUV is an older technology than EUV, but is still critical to the 28nm production line, which is now a mainstay for Chinese chip leaders such as Semiconductor Manufacturing International Corp. (SMIK). In addition to lithography giant ASML, Washington is also pressuring Japanese companies Nikon and Canon to limit DUV exports to China.

Even with restrictions on EUV sales, Chinese chip makers have been able to make significant progress by repurposing old DUV hardware with a multi-pattern that is also used by global manufacturing leaders Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung. For example, SMIC succeeds produce some specialty chips at the 7nm level, albeit with limited commercial output, using older DUV hardware purchased from ASML. However, the ability of the Chinese semiconductor industry to continue climbing the ladder of advanced manufacturing will be seriously undermined if Washington successfully expands export and investment controls to cover mature technologies such as DUV immersion lithography equipment.

Washington’s proposed new restrictions targeting the Chinese chip industry have faced strong opposition from hardware vendors, including ASML, who argue that mature systems such as DUV hardware should not be banned for the same national security reasons as EUV and other advanced technologies. technology. ASML and other equipment suppliers also have strong economic incentives to maintain access to the Chinese market. In 2021, Chinese chip factories bought 81 DUV, or ArFi, ASML immersion lithography machines, and accounted for 14.7 percent ($2.7 billion in sales) of the company’s total revenue. If DUV sales to Chinese consumers are blocked, ASML will support free According to semiconductor consultant ICWise, the revenue is about $2 billion.

In the future, these economic realities will increasingly complicate various national security challenges related to chips, such as expanding export controls and promoting self-sufficiency.