China’s progress in advanced semiconductor technology slows

SHANGHAI – China is facing delays in the miniaturization of semiconductors. In a Nikkei poll, most of the top seven Chinese manufacturers of semiconductor devices said their main products were making 14-nm to 28-nm chips, two or three generations behind the world’s most advanced chips. Some said that even older generation machines were their main products.

Many of the respondents said the US sanctions against China had hampered the sourcing of parts and materials from abroad. They also said that using domestic parts and materials instead of overseas items resulted in lower rates of return.

“Our main lithography machines are 90-nanometer models. Our 28-nm and 14-nm models offer room for improvement in yield rates,” said an engineer at Shanghai Micro Electronics Equipment, almost the only Chinese semiconductor device maker to commercialize lithography machines. Although lithography machines are the most difficult to manufacture, ASML, the world’s largest manufacturer of lithography machines based in the Netherlands, is expected to commercialize models that can be used for 3nm and 2nm products.

The interview-based survey was conducted at Semicon China 2021, a semiconductor manufacturing equipment exhibition held in Shanghai in March. Nikkei reached out to more than 20 mainland China manufacturers and only covered those companies that provided specific answers.

Remarkably, the respondents openly admitted that the miniaturization of semiconductors is being delayed. A researcher from Advanced Micro-Fabrication Equipment (AMEC), which has a lead in etching systems, said: “We supply machines for 5 nm, but we mainly sell [those] for 14 nm and 28 nm.

AMEC is one of the first companies to list on STAR Market, a stock market opened in Shanghai. The market was established in line with Beijing’s ambition to be self-sufficient in strategic sectors such as semiconductors. AMEC had sales of 2.2 billion yuan ($ 340 million) for the fiscal year ended December 2020. This makes AMEC a major manufacturer of semiconductor equipment in China and is also ahead of other Chinese companies in miniaturization technology.

Beijing E-Town Semiconductor Technology Co., another manufacturer of etching systems, mainly produced 40 nm systems and around 28 nm systems, a company representative said. Since China’s state policy is to increase the proportion of domestically manufactured semiconductors, “there is also strong demand for near-universal semiconductor devices,” the official said.

In the survey, Nikkei received responses from seven companies, including NAURA and Kingsemi, and the three companies mentioned above. Only AMEC has succeeded in developing a product for the 5 nm cutting edge technology, and all other companies stated that they manufacture products of the generation 14 nm or older. The reason given by many is that they are giving higher priority to replacing Chinese-made microchips with foreign-made microchips.

“Semiconductors are not only used in smartphones. There is also demand for 120nm chips,” said an official from Hangzhou Changchuan Technology.

The world is experiencing an unprecedented shortage of semiconductors. This is not just because the demand for chips used in servers and PCs has grown rapidly as teleworking has spread amid the COVID-19 pandemic. A cold snap in Texas in the USA, water shortages in Taiwan and fires in semiconductor factories have disrupted the supply of microchips. Most forecasters assume that it will take at least a year for supply and demand conditions in the semiconductor market to normalize again. In the current situation, Chinese semiconductor device manufacturers need to increase production quickly.

For China, however, the US-led sanctions against the country are a bigger reason for the semiconductor shortage.

“If we can’t just get a core part, our product development will have a big negative impact,” said the engineer at SMEE. “As it has become clear in recent years that it is difficult to introduce technologies from abroad, we have to find solutions on our own,” said a Kingsemi official.

Semiconductor Manufacturing International Co., China’s largest foundry company, is facing headwinds due to US sanctions. (Photo courtesy of SMIC)

The shortage of semiconductor parts, materials and manufacturing equipment has also affected the performance of foundries or contract semiconductor manufacturers. At Semiconductor Manufacturing International Co., the largest foundry company in China, 14nm and 28nm chips accounted for 5.0% of sales in the period from October to December 2020. The percentage had fallen sharply from 14.6% in July to September. The semiconductor industry appears to be feeling the worst of the US sanctions.

The US research firm IC Insights forecast in January that China’s semiconductor self-sufficiency rate would be only 19.4% in 2025. This was a slight downward revision after the company predicted in 2020 that the quota would rise to 20.7% by 2024. Over half of the quota was accounted for by units in mainland China from overseas manufacturers like Taiwan Semiconductor Manufacturing (TSMC) as well as SK Hynix and Samsung Electronics from South Korea. The self-sufficiency rate, in which only Chinese manufacturers participate, is estimated at around 10%.

China’s Xi government had provided large amounts of subsidies to semiconductor projects nationwide by 2020, but funding results were limited as many projects failed. The government rarely mentions the self-sufficiency target of 70% set in its Made in China 2025 industrial policy. It will not be easy for the country’s semiconductor industry to recover from its Achilles heel.