Why is it important: The US is taking steps to prevent China’s semiconductor industry from using advanced chip manufacturing tools, which could also affect US, South Korean and Taiwanese companies operating in the region. Whether this will have the desired impact on China’s semiconductor ambitions remains to be seen.

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Most analysts expect top Chinese tech companies to post their worst quarterly results soon after they faced regulatory crackdowns and lockdown-related factories. withdrawal problems. While this will make it harder for the country to weather the economic storm, the Chinese government’s plan for technological self-sufficiency has a bigger hurdle that it has yet to overcome.

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Bloomberg notes that the US is imposing additional restrictions on chip manufacturing equipment sold to Chinese foundries. This change is in response to the incredible success of Chinese companies in areas such as NAND and DRAM manufacturing, as well as advanced logic such as CPUs and GPUs.

For example, Yangtze Memory Technologies Co (YMTC) has already mass production 128-layer 3D NAND memory with performance similar to comparable offerings from Samsung, SK Hynix and Micron. And while these companies may be making faster, denser NANDs, Apple Considering using YMTC NAND for iPhone 14 base model.

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Zooming out, you can see that China is leading the world in building new chip factories, gradually reducing the number of chips it needs to import each year. In the first five months of 2022, China imported more than 232 billion chips worth about $174 billion. In response, the Chinese government is considering abolishing taxes on imports of materials and equipment for high-tech production until 2030, and local foundries receiving significant subsidies for the rapid expansion of capacity.

The cost of owning chip factories in China over a 10-year period is almost 40% lower than in the US. Analysts expect 12 new manufacturing plants to come online in the US by 2025, while China wants build as many as 31. However, Chinese chip manufacturers are having difficulty providing the necessary lithography tools for advanced technology nodes, so they mainly purchase old used cars from Japan to populate new factories.

The difficulty in acquiring China comes as the US is pressuring ASML, which makes 95 percent of all DUV and EUV lithography tools, to stop selling equipment to Chinese chipmakers. The Department of Commerce is now pushing for vendors such as Lam Research, Applied Materials and KLA Corp. to take the same approach to ensure that Chinese companies are limited to using 14nm and older process technologies.

Interestingly, the new restrictions will affect all factories operating in China, which means that companies such as Samsung, SK Hynix, UMC and TSMC will also be affected. Over the past two weeks, the Biden administration has sent letters to all U.S. vendors asking them not to supply equipment for 14nm and newer process nodes due to national security concerns. This mandate lends credibility to the report, which White House officials also instructed Intel abandons plans to build a wafer factory in Chengdu, China.

Last week the US Senate passed $52 billion Chip Act to stimulate U.S. semiconductor manufacturing. Companies such as Intel, TSMC, Samsung and Micron are interested in taking advantage of this. Not surprising, access these funds will be next to impossible for firms currently operating in China and other hostile countries, and for those planning to do so in the future.

Despite mounting restrictions, China appears determined to make progress at any cost. country repeatedly poaching engineering talent from Taiwan, which creates another source of tension in the region. Not only that, the Chinese company SMIC has apparently figured out how to make 7nm chips. close copy TSMC’s first-generation 7nm process technology.

Of course, these 7nm chips have been found inside a bitcoin miner by the folks at Tech Insights, who believe that SMIC is not yet able to produce more advanced logic on a 7nm process. However, China is willing to spend up to 10 trillion yuan ($1.47 trillion) to achieve technological self-sufficiency, and it has already made progress in terms of its share of semiconductor sales in the global market.

According to the Semiconductor Industry Association, China’s global market share exceeds that of Taiwan and slightly lags behind that of Japan. Assuming that the growth rate observed over the past two years remains the same, it could reach 17 percent by 2024.

Head credit: LAM Research