China makes more advanced chips – but Beijing still faces challenges

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A Chinese flag next to a printed circuit board with semiconductor chips.

Florence Lo | Reuters

China’s largest chip maker SMIC appears to have been manufacturing advanced chips in recent months – defying US sanctions designed to curb Beijing’s progress to reduce

But there are still some big challenges to China’s drive to become more self-sufficient in the semiconductor industry, with questions surrounding the long-term viability of its latest advances.

What’s the latest?

SMIC is the largest contract semiconductor manufacturer in China. The nanometer figure refers to the size of each individual transistor on a chip. The smaller the transistor, the more of them can be packed on one semiconductor. In general, a reduction in nanometer size can produce more powerful and efficient chips.

The 7 nanometer process is seen as very advanced in the world of semiconductors, even if it is not the latest technology.

It was a big deal at the time. But last week, the Financial Times reported that SMIC is setting up new production lines to make 5 nanometer chips for Huawei. That would mark further progress for China’s largest chip maker.

The chips in Apple’s The latest high-end iPhones will be made on a 3 nanometer process.

Why is this a big deal?

How does SMIC do this?

Without EUV tools, experts believed, it would be difficult for SMIC to make 7 nanometer and smaller chips, or at least it would be expensive to do so.

So when the Huawei Mate 60 came out last year with a 7 nanometer chip, that raised a lot of eyebrows.

One expert told CNBC at the time that SMIC is likely using old chip-making equipment to make more advanced chips.

The chip industry is between the need for globalization and the need to protect national security: Expert

The FT reported something similar last week. The newspaper, citing two people familiar with the plans, said SMIC aims to use its existing stock of US- and Dutch-made semiconductor equipment to make 5-nanometer chips, an advance on the 7 nanometers.

“SMIC is now working closely with both domestic device makers, benefiting from its existing base of advanced lithography equipment, and drawing on other external expertise, such as from Huawei, to constantly improve the product of advanced style processes,” said Paul Triolo, an associate partner at consulting firm Albright Stonebridge, to CNBC via email.

“So for now SMIC is able to continue to develop capabilities and output at 7 and soon 5 nm, for a small number of customers, mainly Huawei.”

China’s Challenges

There are two main challenges in using old equipment to make more advanced chips.

The first is that it is more expensive to produce the semiconductors than if more advanced machines and tools were used. The second is a matter of yield – the number of usable chips that can be produced and sold to customers. With older equipment, the output is also lower.

The FT also said, citing three people close to Chinese chip companies, that SMIC would have to charge 40% to 50% more for products from the 5 nanometer and 7 nanometer production processes than TSMC does at the same nodes.

TSMC, or Taiwan Semiconductor Manufacturing Company, is the largest and most advanced contract chip manufacturer in the world. TSMC makes semiconductors for companies from Apple to Nvidia.

Pranay Kotasthane, chair of the high-tech geopolitics program at the Takshashila Institute, told CNBC that SMIC and China could continue to throw money at the process, but ultimately, costs will continue to rise with each a more advanced generation of chips – unless the company gets. his hands on an ASML EUV machine.

“SMIC could overcome current production issues by investing more money. This investment could even come from governments as this has become a matter of national reputation,” Kotasthane said via email.

“But the subscription level of higher costs will only increase with each subsequent generation of chips. The costs will continue to worsen unless China finds a major alternative for EUVs.”

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