Microelectronics and Rare Earth Elements Sectors

Saithan

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It’s very important to have domestic production and your own ecosystem. We should do what we can to help Vestel establish domestic production and offer an alternative that is reliable. Because you’ll never know when we’ll be the target.
 

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China urges South Korea to act together against US chip export control attempt


According to a statement from the Ministry of Foreign Affairs, Minister Wang, in an online meeting with his South Korean counterpart Park Jin, emphasized that Beijing is ready to work together to ensure the security of industry and supply chains and to maintain international free trade.

Defending that Washington's recent Chip and Science Act, export controls and regulations for its own interests harm the legitimate rights and interests of China and South Korea in the chip industry, Vang said, "All countries have come out against this outdated anti-globalization mentality and unilateral bullying. must resist and maintain true multilateralism.” said.

The USA announced that with the Chip and Science Act, which was approved in August, it would improve the production of semiconductors in the country and provide financial support and tax reductions to companies that will establish production facilities in the country.

It was commented that the law's requirement for companies that want to benefit from the incentives not to develop the technological capacity of their manufacturing facilities in China, pointing to Beijing's goal of limiting its influence in this area.

On the other hand, the US Department of Commerce announced at the beginning of October the restrictions that envisaged the inclusion of Chinese chip manufacturers on the export control list and the licensing of American companies for the export of materials, machinery and equipment required for chip production to China.

South Korea, the country that may be most affected by the restrictions on China South Korea is one of the countries that will be most affected by the restrictions on China in the US chip industry.

South Korea, one of the most important players in the market with a share of 21 percent in global chip sales and 17 percent in chip manufacturing, sold about 60 percent of the memory chips it produced in 2021 to China and Hong Kong.

In addition, South Korea's largest manufacturers Samsung and SK Hynix make most of their production in China. Samsung has a factory producing memory chips in Xi'an, China, while SK Hynix has foundries in Wushi, Chongqing and Dalian.

If South Korean companies, which also have investments in the USA, choose to benefit from the incentives under the "Chip and Science Act", they will not be able to develop their production facilities in China, as per the restrictive condition stipulated by the law.
 

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New Japanese chipmaker Rapidus joins development and investment race​


New Japanese chip production company Rapidus is facing daunting challenges as it tries to catch up with Asian rivals in the technology development and investment race, leaving a shaky outlook for the country as it attempts to revive its once-thriving industry.

Created by Toyota Motor, Sony Group and six other major Japanese companies with a total investment of ¥7.3 billion ($52 million), the next-generation semiconductor venture plans to mass-produce chips with state-of-the-art 2-nanometer technology in Japan in 2027. Such advanced chips can be used for 5G communications, quantum computing, data centers, self-driving vehicles and digital smart cities.

SoftBank and NTT are also among the participants in the project, along with Kioxia, Denso, NEC and MUFG Bank.

The Ministry of Economy, Trade and Industry will provide ¥70 billion in subsidies as part of its semiconductor strategy compiled last year.

The government sees domestic chip production as critical to its economic security, as dependence on major supplier Taiwan poses geopolitical risks amid rising tensions between the United States and China over the self-ruled island. A potential crisis in the region could lead to Japan losing access to semiconductor supplies.

Rapidus focuses on foundry operations representing a group of private-sector entities, while the government-backed Leading-edge Semiconductor Technology Center will serve as a research and development hub in cooperation with the United States.

This latest effort follows the country's failure to keep up in the investment race over the miniaturization of semiconductors that resulted in a yearslong development hiatus in the 2010s.

Taiwan Semiconductor Manufacturing, a world leader in chipmaking, plans to mass-produce 2-nanometer chips in 2025, while Samsung Electronics succeeded in mass production of 3-nanometer semiconductors in June. In contrast, the latest technology in Japan can only produce 40-nanometer chips.

Analysts are skeptical about the immediate success of the new company amid stiff global competition. The state financial support of ¥70 billion, compared with the much larger assistance of $52.7 billion set out by the U.S. government, raises questions about how committed the Japanese government is to reviving the chip industry. The European Union and the private sector will also offer assistance of €43 billion ($45 billion).

Hideki Yasuda, a senior analyst at Toyo Securities, said the ¥70 billion is "not enough at all" for the new company to be competitive in the global market.

"Around ¥1 trillion of annual investment is necessary for the chip industry," Yasuda said. "It's hard to force private companies to bear such a cost. So the question is whether the Japanese government is prepared to do that."

Rapidus Chairman Tetsuro Higashi said at a news conference last Friday he believes the industry ministry is aware that long-term financial support is necessary and hopes more support will be provided to help his company build a chip plant.

The government's financial aid should at least match the amounts offered by other countries for Japanese companies to stay competitive, Mitsuhiro Osawa, senior analyst at Ichiyoshi Research Institute, said.

Japanese chip manufacturers were once dominant players, taking half the global share in the late 1980s. But they came under pressure when frictions over trade with the United States led to export restrictions that allowed South Korean and Taiwanese chipmakers to make deeper inroads.

Spending by Asian rivals outpaced that of flagging Japanese companies in an industry where the development and mass production of cutting-edge products determines competitive advantage.

Japan has striven to rejuvenate its semiconductor sector through government initiatives over the past decades. In 2006, Toshiba, Hitachi and Renesas Technology set up a planning company for a government-backed joint foundry, but the project fell apart six months later.

Elpida Memory, established through the merger of chip operations at Hitachi, NEC and Mitsubishi Electric, filed for bankruptcy protection in 2012 despite government aid of ¥30 billion.

Rapidus President Atsuyoshi Koike, a former engineer in Hitachi's chip division and former president at the Japan unit of Western Digital, says he has learned lessons from the past.

"In the past, Japan tried to seek solutions only in a closed world," Koike told reporters last Friday. "We will collaborate with people and companies worldwide, including raw material companies and chipmaking equipment makers."

Rapidus is looking for more partners, including from overseas. The company, for example, is in talks with IBM over technology cooperation on 2-nanometer chips.

The technological vacuum of the past decade has allowed talented personnel to be recruited by rivals out of the country. Rapidus may find it difficult to look for skilled engineers and plant workers anytime soon in Japan, Masahiko Ishino, chief analyst at Tokai Tokyo Research Institute, said.

Japanese companies trying to catch up with global competitors are "like a high school student, who did not study at all in school, trying to get into the University of Tokyo," Ichiyoshi Research's Osawa said, referring to the most prestigious institution of higher education in Japan.

"The bar is extremely high" for Rapidus, which has no prior experience in mass-producing state-of-the-art semiconductors, to make 2-nanometer chips, Toyo Securities' Yasuda said.
 

Zafer

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40 nm is what Japan can make today. If we can pull off 65 nm it won't be too bad for a start.
 

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Why Europe Struggles With US Export Controls on China​


In October 2022, the United States imposed the most sweeping export controls on China to date. The rules seek to curtail China’s access to advanced semiconductor technology, including chips and the tools and expertise to make chips or to produce China’s own semiconductor manufacturing equipment (SME). The aim is to swiftly use U.S. leverage to blunt China’s supercomputing and artificial intelligence (AI) capabilities, based on the rationale that these enable China to develop advanced weapon systems like hypersonic missiles and surveillance infrastructure linked to human rights abuses.

The new controls significantly escalate China-U.S. tech competition. U.S. National Security Advisor Jake Sullivan has said his government wants to “maintain as large of a lead as possible” in AI and other “force-multiplying technologies.” Washington now treats China’s strategy of civil-military fusion and draconian surveillance programs, as well as advanced computing and semiconductor fabrication, as a threat to national security. Its protective measures are also inevitably hitting commercial technologies and industries in the United States and elsewhere.

But there is a risk. Some of these controls won’t be effective unless the other major semiconductor-producing nations get on board – which they have been reluctant to do so far.

Technology firms outside the United States want to continue doing business with China, and they could easily fill the void. Although the U.S. controls key chokepoints of semiconductor supply chains, it does not have the upper hand across all types of SME, which China has trouble producing domestically. Companies like Japan’s Tokyo Electron and the Netherlands’ Advanced Semiconductor Manufacturing International (ASMI) could start making the machines China needs within months.

In late October, after White House and Commerce Department officials visited The Hague and Tokyo to patch up differences, Bloomberg reported a trilateral deal may be in the works. But it has not been as easy for the United States to gain buy-in as some in Washington expected.

Allies perceived the unilateral export controls – after earlier, unfruitful conversations – as strong-arm tactics. The Biden administration’s underlying message was that Europe and Japan should get in line. One Japanese official reportedly called this a disregard for Japan’s sovereignty. The Dutch economy and trade ministers stressed their government’s intention to make its own deliberations. Still, these reactions were by no means a dismissal of the national security implications of China’s semiconductor advances.

Dutch lithography firm Advanced Semiconductor Materials Lithography (ASML) is at the center of the public debate over export controls in Europe. Best known for its extreme ultraviolet (EUV) lithography tools, which are subject to EU export controls in line with existing multilateral commitments under the Wassenaar Arrangement, ASML also produces most of the deep ultraviolet (DUV) lithography machines needed to make bigger chips.

Since summer 2022, U.S. officials have lobbied Dutch counterparts to also bar DUV exports, not currently subject to controls. China’s Semiconductor Manufacturing International Co. (SMIC) showed that they did not need EUV to produce chips below 10 nm. Instead, they used multi-patterning DUV, which is more resource-intensive. While this process is very difficult to scale, U.S. fears of DUV being used for such small chips by China were confirmed.

The Long Arm of U.S. Regulators

The new export controls initially triggered much confusion regarding the scope of an existing rule – the Foreign Direct Product (FDP) rule, which applies export controls to some products made abroad. Because U.S. technology is virtually everywhere across semiconductor supply chains, the United States has the power to authorize or block sales extraterritorially. In fact, these do not cover SME, thus initially sparing ASML’s machines from US long-arm jurisdiction. Going down that path could hurt U.S. interests, as it would severely erode trust among allies. The point is that Washington could use its leverage if it wished.

The trust problem is not new. Although economic considerations do not have a place in U.S. export control statutes, Washington’s growing intervention in global technology trade has raised concerns about protectionism. U.S. producers of wafer fabrication equipment (WFE) have until now made huge profits in China’s market, as others have pointed out. Meanwhile, some European firms felt the Commerce Department’s Bureau of Industry and Security (BIS) granted their licenses less readily than U.S. competitors’ licenses in the past.

ASML CEO Peter Wennink has complained that Washington favors U.S. SME players – with the proof being its heavy lobbying of the Dutch government in recent years that led it to reject licenses for EUV exports to China. U.S. companies have indeed expanded their China business significantly in recent years. Arguably, the de facto export ban on EUV was not all bad news for ASML. Many of the blocked EUV sales were probably replaced by additional DUV systems, since multi-patterning processes mean companies need more DUV machines to produce the same number of chips. Nevertheless, the complaints show an erosion of trust and the perception of U.S. protectionism.

Export controls especially burden companies when they apply extraterritorially. And European firms have been deeply unsettled about how the new U.S. rules would apply to them. ASML first clarified that the rules did not cover DUV, but still had to pull all its U.S. staff from China-related projects to comply. ASMI has said in investor presentations that it expects 40 percent of its China sales to be affected, though recent data suggests this is closer to 15-20 percent. Industry representatives also say that ascertaining the end-user and end-use of equipment and chip sales creates a large regulatory compliance burden.

Governments are in a tough spot, as they must ensure such export controls don’t kill their domestic industries. For example, unilateral European or Dutch controls without Japanese buy-in would give Japanese competitors an advantage. There are already signs that Chinese firms may be switching to Japanese SME makers, because these use less U.S. technology and are thus less likely to succumb to a future FDP rule covering SME.

Unlike SME, new U.S. export restrictions do apply the FDP rule to graphics processing units (GPUs). Due to this, British start-up Graphcore will likely not export its GPUs to China. And Britain-based, Japanese-owned ARM, which holds the chip design architecture used in most smartphones, announced it won’t pursue licensing of its most powerful designs to Alibaba or other Chinese companies because it expects the licenses to be denied. Chinese tech companies are highly dependent on ARM.

In response, China set up a new consortium of companies and research institutes that includes big tech companies Alibaba and Tencent and is tasked with creating Risc-V-based chip designs. Because it is open source, Risc-V doesn’t fall under Western export restrictions.

Revenues from China are key for many semiconductor companies. China accounted for 34 percent of ASML’s equipment sales in the first quarter of 2022. Even before the new controls, ASML had warned about possible disruptions to the supply chain. The company has a waiting list of buyers outside China, so alternative sources of demand could make up for the losses. However, European companies argue that without revenues from China, funding research and development will be a challenge.

South Korea, which is not strong in equipment but is home to leading chip producers, is also caught in the middle. In 2020, 43 percent of South Korea’s chip exports went to China. Like Taiwan Semiconductor Manufacturing Company (TSMC), South Korea’s Samsung and SK Hynix got a one-year grace period from the BIS to use U.S. technology at their facilities in China.

Contain China or Choke Business?

While Europe is uneasy about China’s technological ambitions – due to Beijing’s economic mercantilism and the strategic vulnerabilities posed by its central role in critical supply chains like semiconductors – there is little consensus between governments and companies on what should be done. In recent years, China has become one of the main growth markets for chip and downstream industries like EVs. Many European companies are doubling down on China, onshoring their supply chains there, while others are diversifying, but not reducing, their China footprint.

Although the United States is nudging partners to reduce their reliance on China – in chip and other areas like EV batteries – European companies worry about the cost of deglobalization. The chip supply chain is efficient because it is global and integrated. If supply chains splinter and more and more countries pursue policies aimed at self-reliance, the cost of chips will rise. European industry needs more and more chips, not only in high-tech sectors but also in low-tech areas like automotive that are being transformed by automation and digitalization. The 2020-21 chip shortage is estimated to have cost carmakers 100 billion euros ($100 billion). Like the United States, the European Union is now betting on industrial policy, primarily through its proposed European Chips Act, to revitalize its semiconductor industry and to manufacture 20 percent of the world’s chips by 2030.

However, the pursuit of a completely self-sufficient supply chain is not realistic. This assumes that efforts to boost resilience and diversification will make Europe more willing to accept restrictions on semiconductor business with China. And this only works if like-minded democracies coordinate to offset the costs of partial decoupling from China – through “friend-shoring” among allies. Despite pledges for transatlantic cooperation by the Trade and Technology Council, this concept still has a long way to go.

In fact, it is industry that is taking the initiative in securing and strengthening supply chains. With its planned investment in Taiwan, in fact, ASML may even help strengthen the island’s so-called “silicon shield” against a potential Chinese invasion, something the European Parliament is lobbying EU governments to do.

In the short term, European companies are concerned about China’s response to export controls. China has identified the need to produce equipment and chips domestically and is moving toward self-sufficiency in many areas, with mixed success. The U.S. restrictions have inspired a massive subsidy scheme of 1 trillion yuan ($143 billion), aimed at incentivizing the purchase of domestic chip-making equipment. This could hurt Europe’s industrial competitiveness.

Cutting China off from producing cutting-edge chips has pushed Chinese companies to stockpile older node technologies. U.S. export restrictions only target high-end chips and equipment, but the most common semiconductor process today is an older one, in which European companies lead the market. Their market shares could decrease if Chinese players flood the market with subsidized chips.

European corporates and policymakers also likely worry about Chinese government retaliation. Beijing has so far not taken any additional retaliatory measures in response to the U.S. export controls, but it did launch a lawsuit at the World Trade Organization (WTO). The suit is not expected to succeed, as U.S. officials claim WTO regulations don’t apply when national security is at stake. The United States has also thwarted any appeal by blocking the appointment of additional judges to the WTO Appellate Body.

But China does have several options for retaliatory measures. This includes using its dominance in key rare earth elements essential to the microelectronics industry. Beijing may also choose to frustrate mergers in the semiconductor industry, as it did in the past, or to use its new arsenal of long-arm legislation. Boycotting U.S. and EU companies would be another possibility, although the experience of Taiwan shows semiconductors are an unlikely target in the short term.

The Future of Multilateral Export Controls

The approach outlined by Sullivan, the U.S. national security advisor, raises questions about the future of export controls, which have traditionally focused on military or dual-use technologies. The swift allied response to Russia’s invasion of Ukraine has created momentum for a new arrangement to deal with emerging technologies like AI and China’s policies, as some analysts have advocated. The European Commission has included “strategic export controls” in its 2023 work program and has been discussing the implications of emerging dual-use technologies for export controls in fields such as advanced computing and semiconductors with a group of member states.

Yet, this will require time and political will. And political will can vary greatly across European capitals, as seen with Germany’s approvals of dual-use exports to Russia after Moscow’s annexation of Crimea in 2014. Capability-based controls, as leading U.S. export control expert Kevin Wolf calls the new U.S. approach, implemented to prevent China from obtaining a broad swathe of commercially available items, requires a mindset shift in The Hague and other capitals. While sharing some of the U.S. assessment of China’s threat, many European allies do not see Beijing as a strategic rival and are not on board with technological containment, despite the Biden administration’s reluctance to call it such. Enforcement is also a challenge for many EU member states as export controls gain complexity.

These challenges should not stop Europe from taking Beijing’s growing use of civilian AI innovation for military and surveillance purposes seriously. As the Biden administration mulls an expansion of China-focused export controls to areas such as quantum technology and biotech, expect the clash between Europe’s lack of resolve and Washington’s impatience to intensify. On the Chinese side, a more intense drive for self-reliance and the reorientation of all science and technology to national interests will further fuel this tech conflict.

 

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A fake baby bump shows the limits of US chip sanctions on China​



Guards on the Zhuhai border between Macau and mainland China recently intercepted a woman wearing a fake baby bump. In many parts of the world authorities would expect to find drugs in such an appendage. But this one contained 202 processors and nine smartphones.

Chip smuggling into China is booming, creating a lucrative black market that could threaten the effectiveness of US export curbs introduced this year. The main objective of the US measures is to prevent China from accessing high-end chips for military purposes.

The latest controls are comprehensive enough to significantly slow the progress of China’s military and technological development. Yet just 1 per cent of global chip demand is from governments, including for military use.

The overwhelming majority are destined for consumer products. Even accounting for the chips designed for communication or machinery purposes that may be diverted for military use, a tiny proportion of imported chips are critical for military purposes. Most chips needed for military use are based on older technology.

Radars, for example, only need so-called 65nm process technology, which was developed two decades ago. Older automotive chips can be repurposed for most of those that go into aircraft, drones, and missiles, and they can be made at home by China’s local chipmakers.

A fraction of the chips needed for military devices are the high-end variety that China needs to bring in from overseas. The country imported $350bn worth of chips a year before the US export controls were implemented, amounting to 50bn units each month. The sheer amount of chips traded and the comprehensive scope of the US ban mean there are not many options for China to find a workaround.

But historically, countries under sanctions have always adapted, for example by importing goods through foreign affiliates of local companies or setting up shell companies to acquire products, then smuggling them into the country. Russia and North Korea have for decades evaded sanctions on devices much bigger than chips, such as thermal imaging devices.

Smugglers hide them among shipments of non-controlled products, using fake companies, addresses and shipping labels to cover their tracks. China has a vast black market, initially established to help people evade high import taxes on foreign goods, that can facilitate this. Its scale and efficiency has been proved in industries as varied as Swiss luxury watches, Korean cosmetics and refined oil.

The global chip shortage since 2020 had already fuelled a black market for chips, along with significant mark-ups. After the US move, with chips fetching prices up to 500 times their original level, there is even more incentive to smuggle them.

China has no hope of entirely circumventing the ban through clandestine trade. But nor should the US fool itself that it can completely cut off Chinese access to its technology.

Relatively few chips are needed to keep China’s military advancement on track. The illicit trade raises the possibility that US sanctions will cost more than they achieve.

An analogy can be drawn between chips and drugs that extends beyond small size, high value and the scope for transporting them in a fake baby bump.

In both cases, prohibition reduces supply, increases prices and fosters criminality. Contraband US technology will still dribble into China in the same way that South American cocaine trickles into the US.

 

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Hua Hong gives China new hope with old chip technology​



Contract chipmaker Hua Hong Semiconductor has long played second fiddle to China’s national champion Semiconductor Manufacturing International Corp in their home base of Shanghai, but US restrictions on advanced technology and Beijing’s yearning for chip self-sufficiency have thrust it into the spotlight.

Already listed in Hong Kong, China’s second-largest chip foundry received regulatory approval last month for a $2.5bn secondary listing in Shanghai on the tech-centric Star Market. Most of the funds to be raised are intended for upgrading and expanding its production facilities.

Hua Hong’s lack of cutting-edge technology has proved a boon rather than a handicap of late. During its third-quarter earnings call in November, the company said it had been barely affected by the actions of the US, as the chips it produces are several generations older than the latest microprocessors.

Industry experts said China had to re-evaluate its domestic semiconductor supply chain after Washington imposed curbs on the development of high-performance chips. Hua Hong’s focus on older chips could make it Beijing’s new favourite, with the benefits of policy support and funding to follow. “Our years of pushing for localising advanced chip production had almost reached a dead end,” said a Shanghai-based government official who did not wish to be named.

“The vulnerability of the localised semiconductor supply chain has been exposed by the latest restrictions on us accessing crucial US equipment.” Washington introduced a series of sweeping restrictions in October, which have barred US companies from exporting technology for producing chips with features smaller than 14 nanometres, or 16nm in some cases.

This made it much harder for leading producer SMIC to catch up with the advanced factories, or “fabs”, of competitors such as Taiwan Semiconductor Manufacturing Co. Hua Hong told the Financial Times it had “always been in full compliance on rules and regulations with respect to export control” and would continue to try to attract investors domestically and globally because of the large capital expenditure required for capacity expansion.

Compared with SMIC, Hua Hong has adopted a different strategy of optimising its manufacturing techniques for the mature “nodes”, or generations, of its less-miniaturised chips in order to maximise the performance and reliability of its products. They have found wide use in the Internet of Things, 5G telecoms equipment and electric vehicle markets. “Just try to squeeze the most juice out of the mature nodes,” said Douglas Fuller, an expert in China’s semiconductor industry at Copenhagen Business School.

“That’s a sustainable path now when we count all the subsidies and the rate of return to society.” Hua Hong’s older processes also provide an opportunity for less advanced Chinese chip equipment makers to test and improve their products by supplying its production lines and replacing foreign tools that may become restricted. “For Chinese equipment manufacturers, replacing imported equipment on Hua Hong’s mature process lines is more easily achieved,” said William Li, a Taiwan-based analyst at research firm Counterpoint.

Hua Hong has also acted to localise its suppliers in areas such as equipment and materials, according to three people familiar with the matter. In addition, it is giving domestic customers higher priority. Earlier this year, the chipmaker cut orders several times from foreign customers in order to prioritise domestic companies as its production capacity became overstretched, according to four Hua Hong employees who did not wish to be named.

Hua Hong’s products for original equipment manufacturers are increasingly competing with Germany’s Infineon and Texas Instruments of the US. “Many Chinese customers have replaced imported modules with homegrown ones since geopolitical tensions escalated,” said an executive from a power module company in the southern hub of Shenzhen. “So we are partnering with Hua Hong to pick up as many orders as possible.”

The executive, who preferred to remain anonymous, said Chinese manufacturers such as Hua Hong and SMIC were more co-operative and “more willing to come down in price” for the struggling chip market. According to the Shanghai government official, one way to encourage core industry players to concentrate on basic chips was to accelerate the process for Hua Hong’s secondary listing.

Almost 70 per cent of funds raised will be invested in its only 12-inch (300mm) wafer fab, in the eastern city of Wuxi, according to its prospectus. A government adviser working with fabs across China who did not wish to be named said Hua Hong had been underrated in the past by industrial policymakers. It was seen as taking a less proactive role in research and development.


When the state-backed China Integrated Circuit Industry Investment Fund restructured its investment portfolio last year, it chose to divest Hua Hong shares. However, it returned in June with a $232mn investment. Strong demand in its home market meant Hua Hong’s third-quarter results stood out among its foundry peers.

Quarterly revenues grew 40 per cent year on year to $630mn, while net profits doubled to $104mn compared with the same period a year earlier. Analysts at Jefferies investment bank said the growth in capacity at the Wuxi fab would increase Hua Hong’s momentum, earning it more orders from local chip design houses. “Hua Hong will be a strong force driving the domestic chip supply chain’s growth,” said the government adviser.

 

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Tech war: China to revamp chip strategy under US pressure, but US$143 billion support package is not on the cards​

  • An official at the China Semiconductor Industry Association says Beijing is likely to shift its focus away from filling in technological gaps
  • He says he has not heard of any plans by China to provide 1 trillion yuan (US$144 million) to subsidise its semiconductor industry


China is set to overhaul its semiconductor strategy under US pressure, focusing on enhancing strengths instead of fixing weaknesses, in an admission that Beijing’s current plan is not working, according to a Chinese chip industry veteran.
Wei Shaojun, an official at the China Semiconductor Industry Association, said in a live-streamed speech on Thursday that the country’s current efforts to shore up the domestic chip industry by focusing on shortcomings is a strategic error.
He expects Beijing to revamp its approach in overcoming US restrictions by putting more resources in areas where China has an advantage, such as mature process technologies.

“It’s a strategic mistake to only fill in the gaps,” Wei, a professor at Beijing’s Tsinghua University, said at the Chinese IC Summit in Shenzhen. “In the past few years, the more we tried to make up for our deficiencies, the more passive we have become.”


“We should focus not on overcoming weaknesses, but on enhancing our strengths,” Wei said.
Regarding a recent news report by Reuters that said China would provide 1 trillion yuan (US$144 million) over the next five years to subsidise its semiconductor industry, Wei said he had checked with his contacts but “no one has spoken about such a plan”.

Instead, Wei said China will carry out a complete redesign of its strategy to better leverage resources and use a variety of ways to boost the industry. The new gameplan will be robust enough to last until 2035 at least, he said.

Wei said the industry should shift its focus to mature process nodes and other areas that are less sensitive to export curbs by Washington, which currently encompass advanced chips and electronic design automation. He expects the US to further tighten its efforts in restraining China’s chip development.

“Will there be a turnaround [in the US strategy]? I personally don’t have high hopes,” he said.

Wei’s remarks came after China’s ambitions to achieve technological self-reliance took another hit earlier this month. The US added top Chinese flash memory chip maker Yangtze Memory Technologies Co and three dozen other Chinese entities to an export blacklist, citing concerns that Beijing was using commercial technologies to modernise its military.

The US government’s latest actions this year to block China’s access to core American technologies mark a significant escalation from previous targeted sanctions against individual mainland firms, such as Huawei Technologies Co and Semiconductor Manufacturing International Corp.

The series of US moves has put semiconductors at the centre of a full-fledged tech war between the world’s two biggest economies.
China has long taken a top-down approach to support domestic chip companies with hefty subsidies and other forms of assistance. In 2014, it set up the China Integrated Circuit Industry Investment Fund, known locally as the Big Fund, as the primary financing vehicle to support the semiconductor industry. The first round of investments reached over 138 billion yuan.

By 2019, total government-backed chip investment funding in China reached almost 500 billion yuan, according to an estimate by the China Semiconductor Industry Association.
 

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Japan, Netherlands to Join US in Chip Controls on China


  • Tokyo, The Hague restrict sales of advanced machinery to China
  • Negotiations to be concluded as soon as Friday in Washington


Japan and the Netherlands are poised to join the US in limiting China’s access to advanced semiconductor machinery, forging a powerful alliance that will undercut Beijing’s ambitions to build its own domestic chip capabilities, according to people familiar with the negotiations.

US, Dutch and Japanese officials are set to conclude talks as soon as Friday US time on a new set of limits to what can be supplied to Chinese companies, the people said, asking not to be named because the talks are private. Negotiations were ongoing as of late Thursday in Washington. There is no plan for a public announcement of restrictions that will likely be just implemented, the people said.

The Netherlands will expand restrictions on ASML Holding NV, which will prevent it from selling at least some of its so-called deep ultraviolet lithography machines, crucial to making some types of advanced chips and without which attempts to set up production lines may be impossible. Japan will set similar limits on Nikon Corp.

A spokeswoman for the National Security Council declined to comment.


The joint effort expands on restrictions the Biden administration unveiled in October that were aimed at curtailing China’s ability to manufacture its own advanced semiconductors or buy cutting-edge chips from abroad that would aid military and artificial-intelligence capabilities. The three countries are home to the most important companies that produce equipment for manufacturing chips, including ASML, Japan’s Tokyo Electron Ltd. and the US’s Applied Materials Inc.

US equipment makers have complained that the unilateral action by the Biden administration allowed overseas competitors to continue to operate in one of the biggest markets for their products and undermined the aim of restricting China’s military advancements.

Tokyo Electron, which has sold chip-making equipment to China, reversed gains and fell about 1% after Bloomberg’s report.


China’s chipmakers dropped too. Shanghai’s Semiconductor Manufacturing International Corp. extended declines to as much as 2.1%, while Hua Hong Semiconductor Ltd. slid as much as 1.5%.


In addition, China’s offshore yuan reversed earlier gains against the dollar, weakening 0.1% to 6.7448 after the report. The currency had rallied to the strongest level in two weeks on signs of revived tourism and consumption during the Lunar New Year holidays. Thinner trading has also amplified moves in the foreign exchange market with mainland markets shut.

“This sets the next escalating move in the US-China tech war a bit more meaningfully and could weaken yuan sentiment a tad in the near-term,” says Fiona Lim, a foreign-exchange strategist at Malayan Banking Berhard in Singapore.

China has fought back against the US effort. Beijing filed a dispute with the World Trade Organization in December aimed at overturning the US-imposed export controls.

Even ASML’s chief executive officer has warned that the US campaign could have unintended consequences. On Jan. 25, CEO Peter Wennink said the US-led export control measures against China could eventually push Beijing to successfully develop its own technology in advanced chipmaking gear.

“If they cannot get those machines, they will develop them themselves,” he said in an interview with Bloomberg News. “That will take time, but ultimately they will get there.”
 

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Japan, Netherlands to Join US in Chip Controls on China


  • Tokyo, The Hague restrict sales of advanced machinery to China
  • Negotiations to be concluded as soon as Friday in Washington


Japan and the Netherlands are poised to join the US in limiting China’s access to advanced semiconductor machinery, forging a powerful alliance that will undercut Beijing’s ambitions to build its own domestic chip capabilities, according to people familiar with the negotiations.

US, Dutch and Japanese officials are set to conclude talks as soon as Friday US time on a new set of limits to what can be supplied to Chinese companies, the people said, asking not to be named because the talks are private. Negotiations were ongoing as of late Thursday in Washington. There is no plan for a public announcement of restrictions that will likely be just implemented, the people said.

The Netherlands will expand restrictions on ASML Holding NV, which will prevent it from selling at least some of its so-called deep ultraviolet lithography machines, crucial to making some types of advanced chips and without which attempts to set up production lines may be impossible. Japan will set similar limits on Nikon Corp.

A spokeswoman for the National Security Council declined to comment.


The joint effort expands on restrictions the Biden administration unveiled in October that were aimed at curtailing China’s ability to manufacture its own advanced semiconductors or buy cutting-edge chips from abroad that would aid military and artificial-intelligence capabilities. The three countries are home to the most important companies that produce equipment for manufacturing chips, including ASML, Japan’s Tokyo Electron Ltd. and the US’s Applied Materials Inc.

US equipment makers have complained that the unilateral action by the Biden administration allowed overseas competitors to continue to operate in one of the biggest markets for their products and undermined the aim of restricting China’s military advancements.

Tokyo Electron, which has sold chip-making equipment to China, reversed gains and fell about 1% after Bloomberg’s report.


China’s chipmakers dropped too. Shanghai’s Semiconductor Manufacturing International Corp. extended declines to as much as 2.1%, while Hua Hong Semiconductor Ltd. slid as much as 1.5%.


In addition, China’s offshore yuan reversed earlier gains against the dollar, weakening 0.1% to 6.7448 after the report. The currency had rallied to the strongest level in two weeks on signs of revived tourism and consumption during the Lunar New Year holidays. Thinner trading has also amplified moves in the foreign exchange market with mainland markets shut.

“This sets the next escalating move in the US-China tech war a bit more meaningfully and could weaken yuan sentiment a tad in the near-term,” says Fiona Lim, a foreign-exchange strategist at Malayan Banking Berhard in Singapore.

China has fought back against the US effort. Beijing filed a dispute with the World Trade Organization in December aimed at overturning the US-imposed export controls.

Even ASML’s chief executive officer has warned that the US campaign could have unintended consequences. On Jan. 25, CEO Peter Wennink said the US-led export control measures against China could eventually push Beijing to successfully develop its own technology in advanced chipmaking gear.

“If they cannot get those machines, they will develop them themselves,” he said in an interview with Bloomberg News. “That will take time, but ultimately they will get there.”

I hear that China can make 90nm process end to end in house.

And newer processes at varying degrees of local input.
 

Bogeyman 

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The Gaps In The New China Lithography Restrictions – ASML, SMEE, Nikon, Canon, EUV, DUV, ArFi, ArF Dry, KrF, and Photoresist​


The economic cold war rages on. Decades of state-sponsored corporate espionage, hacking, dumping, and draconian restrictions including forced tech transfers for market access from China have led to retaliatory sanctions on China’s access to the 21st century’s most important industry, semiconductors. In October, the US imposed restrictions on AI chips and semiconductor manufacturing equipment, but it did not fully address all concerns.

Over the last few months, a few of these were partially addressed, but they haven’t closed the biggest gaps. The US is the leader in wafer fabrication equipment with a majority share in deposition, etch, process control, CMP, and ion implantation, but many US equipment makers, such as Applied Materials, Lam Research, and KLA, have complained that US restrictions would allow overseas competitors such as the Dutch ASM International and Japanese Tokyo Electron to gain market share and blunt the impact of the technology restrictions.

Furthermore, the world’s largest equipment maker, ASML, has been dogmatic about not following US technology restrictions.

As a European-based company with limited US technology in our systems, ASML can continue to ship all non-EUV lithography systems to China out of the Netherlands.
Peter Wennink, ASML CEO
This is despite ASML’s source engineering being done in San Diego by a US company they acquired, Cymer.

de949071-ea42-4cc4-becc-47fe415089f5_3435x1902.jpg


Furthermore, mask-related and OPC software required to operate lithography tools is also engineered in the US. While the US certainly has options to make ASML comply with technology restrictions due to its high US-based technology content, the US has chosen the diplomatic route.

The US, Japan, and the Netherlands have been hosting discussions to restrict China’s access to lithography equipment over the last few months. On Friday, news broke that the three countries agreed to certain restrictions on lithography equipment. The question remains, how far do these restrictions go, and what do they contain? Our understanding is that these restrictions are extremely limited and only regard ArFi tools. This agreement is still verbal in nature, but we believe the 3 countries have agree to move forward on this basis. Some other non-lithography tools are also supposedly included. Today we are going to discuss the many gaping holes in the newly agreed lithography restrictions regarding equipment, chemicals, and component supply chains.

Equipment Supply Chain

The primary avenue to restrict China’s access to semiconductors is with equipment. While there is a tri-lateral agreement for blocking access to DUV lithography, there is no mention of how far back this goes. DUV is a very broad technology that includes Krypton fluoride (KrF), Argon Fluoride (ArF), and Argon Fluoride Immersion (ArFi) lithography.

9e9b6aad-c10d-47a6-abdb-f8aef3356e03_685x368.jpg


Nikon released the first DUV tool called NSR-1505EX in 1988 using KrF lithography. It initially had a resolution of 500nm, but over time it was upgraded to be capable of 250nm with an overlay of 100nm. The newly agreed restrictions by the US, Netherlands, and Japan does not cover technology this old. On the other hand, ASML’s NXT 2100i, released in 2022, has an overlay of 1.5nm and can pattern the minimum features required for advanced nodes.

If the goal is to prevent China from acquiring 14nm, 7nm, or 5nm process technologies, then the ban must reach a differing level of tooling capable of processing the features for these nodes. For example, TSMC’s 16nm and 12nm process technologies have a minimum metal pitch of 64nm. TSMC’s 7nm process technology has a minimum metal pitch of 40nm. TSMC’s 5nm process technology has a minimum metal pitch of 28nm.

Any ban on lithography equipment must consider these minimum metal pitches as the specifications for banning equipment.

In the Rayleigh criterion equation (CD = k1 • λ / NA), the CD is the critical dimension, the smallest possible feature size. λ is the wavelength of light used. NA is the numerical aperture of the optics, defining how much light they can collect. Finally, k1 (or the k1 factor) is a coefficient that depends on many factors related to the chip manufacturing process. The physical limit lithography is k1 = 0.25.

Self-aligned quad patterning (SAQP) is generally considered the furthest economic way to stretch a DUV lithography generation. While there are more complex schemes for lithography, we will stick to what is economically feasible today. TSMC and China’s SMIC have achieved 7nm process technology, without EUV, using SAQP with argon fluoride immersion (ArFi) lithography, but that isn’t the limit of what’s economically achievable.

The 28nm minimum metal pitch used on TSMC’s N5 could be manufactured without EUV. SAQP using ArFi lithography (NA=1.35, λ=193nm) can produce this feature size at a k1 of 0.391. If the goal is to stop China from achieving 5nm process technology, then ArFi shipments must be blocked. ASML and Nikon can manufacture ArFi lithography tools capable of 28nm minimum metal pitch. While this wouldn’t be as cost-effective as EUV, the delta would not be unachievable for a nation-state like China.

If the goal is to prevent China from achieving high volume 7nm process technology, then all tools that can achieve a 40nm minimum metal pitch used on TSMC 7nm class process technologies must be blocked. The new restrictions would include ArFi lithography, but they would also need to extend further. SAQP using dry argon fluoride ArF lithography (NA=0.93, λ=193nm) can produce this feature size with a k1 of 0.385. Again, this isn’t going to be as economical as Intel, TSMC, and SMIC’s ArFi DUV “7nm,” but it is achievable, especially given the importance of national security. The cost delta would be significantly less than that of the subsidies for a nuclear power plant in the US.

971e19ab-b0eb-454d-af31-224e6af0f77c_2048x932.jpg


If the goal is to prevent China from expanding their high volume 14nm process technology, then all tools that can achieve a minimum metal pitch of 64nm used on nodes, such as TSMC’s 16nm and 12nm and Samsung’s 14nm, must be blocked. Not only should these restrictions, if adequately enforced, include ArF lithography tools, but they would also need to extend further to some types of Krypton fluoride (KrF) tools. Krypton fluoride has a λ=248nm, but there were multiple generations of the lens stack. In each generation, NA improved from 0.6 to 0.8 to 0.93.

SAQP using the most advanced KrF lithography (NA=0.93, λ=248nm), can produce this feature size with a k1 of 0.48. SAQP using the mid-range KrF lithography (NA=0.8, λ=248nm), can create this feature size with a k1 of 0.413. These are very achievable with tools from ASML, Nikon, or Canon. Again, the economics here would not be optimal, but even doubling lithography costs on a 14nm class node would only lead to a ~19% increase in cost for each wafer. This is already economically viable with the level of state subsidies China gives their domestic firms.

We should note that regulators should also look to the overlay specification when determining which tools to restrict. In lithography, overlay refers to the alignment accuracy between different layers during manufacturing. It is the positional accuracy with which one layer is aligned to another layer. Each of our examples utilized self-aligned quad patterning (SAQP), meaning 4-layers of lithography need to be aligned. As such, overlay control is critical.

ASML’s most advanced EUV steppers have an overlay accuracy of 1.1nm. The prior version, 3400C, which was the primary EUV tool they shipped in 2021, has an overlay accuracy of 1.5nm. This is worse than ASML’s most advanced DUV tool, 2100i. For today, we won’t dive too much into where we believe the line for overlay accuracy on 14nm, 7nm, and 5nm sits for export controls, as that would be far too much into the weeds for most readers.

Chemical Supply Chain

The next gap in the new export controls is the chemical supply chain, namely photoresist. We did a deep dive into photoresist here, but the summary is that lithography tools require photoresists to pattern features on a wafer. The vast majority of the world’s photoresist is manufactured by a handful of Japanese companies, with the US-based Dupont as the distant 4th place competitor. Photoresist chemical compositions involved a lot of fine-tuning with end customers for the type of lithography, process nodes, types of features, and feature sizes in many cases. Furthermore, the equipment used to deposit, develop, and bake photoresist is also entirely Japanese.

Any country in the world could be blocked from all lithography and, therefore, semiconductor manufacturing if Japan restricted photoresist shipments. The complete lack of restrictions around photoresists represents a significant hole that governmental regulations have not contemplated.

There are over a hundred DUV tools already at SMIC alone. These could be reorganized and shifted to fabricate for different process nodes. SMIC could achieve a capacity of well over 100,000 wafers a month of 7nm foundry capacity with their existing DUV tools alone. This is higher than Samsung and Intel’s advanced node (<=7nm) foundry capacity, combined. If all DUV tools at various Chinese nationals such as HuaHong, Shanghai Huali, YMTC, CXMT, GTA Semi, Nexchip, Yandong, Nexperia, CR Micro, Sien, Fulsemi, SEMC, NSEMI were reappropriated by SMIC, the 7nm capacity they could build would far exceed that of even TSMC’s 7nm.

It is not enough to only block the shipment of new tools to China if the goal is to limit their manufacture of advanced semiconductors. Shipment of photoresists must also be stopped as Western governments do not know what process node existing DUV tools are being used.

Component Supply Chain

This leads to the final gap, the component supply chain. DUV tools must be regularly serviced with replacement parts by ASML, Nikon, and Canon. The service of these tools must also be blocked if the goal is to contain China’s capacity on leading-edge nodes.

While China’s lithography champion, SMEE, is on the sanctions list, SMEE has already shipped working I-Line lithography tools. Their argon fluoride DUV lithography is still not production ready for front-end wafer fabrication. This doesn’t mean they cannot catch up. Many firms in ASML’s lithography supply chain, such as Zeiss, continue to expand in China with joint ventures and technology transfers. Given the civil-military fusion of China, it would be straightforward for these technologies to slip through the cracks into SMEE’s control.

Lastly, mask related tools also have zero restrictions, which is also a hole.

The lack of upstream component supply chain restrictions is a significant hole in the trilateral agreement between the US, Japan, and Netherlands. If the goal is to restrict 5nm, 7nm, and 14nm process technologies, KrF and ArF lithograph equipment, photoresist, and subcomponents must all be limited, or else China will be able to reconfigure existing equipment and accelerate domestic development of lithography tools.
 

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The Gaps In The New China Lithography Restrictions – ASML, SMEE, Nikon, Canon, EUV, DUV, ArFi, ArF Dry, KrF, and Photoresist​


The economic cold war rages on. Decades of state-sponsored corporate espionage, hacking, dumping, and draconian restrictions including forced tech transfers for market access from China have led to retaliatory sanctions on China’s access to the 21st century’s most important industry, semiconductors. In October, the US imposed restrictions on AI chips and semiconductor manufacturing equipment, but it did not fully address all concerns.

Over the last few months, a few of these were partially addressed, but they haven’t closed the biggest gaps. The US is the leader in wafer fabrication equipment with a majority share in deposition, etch, process control, CMP, and ion implantation, but many US equipment makers, such as Applied Materials, Lam Research, and KLA, have complained that US restrictions would allow overseas competitors such as the Dutch ASM International and Japanese Tokyo Electron to gain market share and blunt the impact of the technology restrictions.

Furthermore, the world’s largest equipment maker, ASML, has been dogmatic about not following US technology restrictions.


This is despite ASML’s source engineering being done in San Diego by a US company they acquired, Cymer.

View attachment 53316

Furthermore, mask-related and OPC software required to operate lithography tools is also engineered in the US. While the US certainly has options to make ASML comply with technology restrictions due to its high US-based technology content, the US has chosen the diplomatic route.

The US, Japan, and the Netherlands have been hosting discussions to restrict China’s access to lithography equipment over the last few months. On Friday, news broke that the three countries agreed to certain restrictions on lithography equipment. The question remains, how far do these restrictions go, and what do they contain? Our understanding is that these restrictions are extremely limited and only regard ArFi tools. This agreement is still verbal in nature, but we believe the 3 countries have agree to move forward on this basis. Some other non-lithography tools are also supposedly included. Today we are going to discuss the many gaping holes in the newly agreed lithography restrictions regarding equipment, chemicals, and component supply chains.

Equipment Supply Chain

The primary avenue to restrict China’s access to semiconductors is with equipment. While there is a tri-lateral agreement for blocking access to DUV lithography, there is no mention of how far back this goes. DUV is a very broad technology that includes Krypton fluoride (KrF), Argon Fluoride (ArF), and Argon Fluoride Immersion (ArFi) lithography.

View attachment 53317

Nikon released the first DUV tool called NSR-1505EX in 1988 using KrF lithography. It initially had a resolution of 500nm, but over time it was upgraded to be capable of 250nm with an overlay of 100nm. The newly agreed restrictions by the US, Netherlands, and Japan does not cover technology this old. On the other hand, ASML’s NXT 2100i, released in 2022, has an overlay of 1.5nm and can pattern the minimum features required for advanced nodes.

If the goal is to prevent China from acquiring 14nm, 7nm, or 5nm process technologies, then the ban must reach a differing level of tooling capable of processing the features for these nodes. For example, TSMC’s 16nm and 12nm process technologies have a minimum metal pitch of 64nm. TSMC’s 7nm process technology has a minimum metal pitch of 40nm. TSMC’s 5nm process technology has a minimum metal pitch of 28nm.

Any ban on lithography equipment must consider these minimum metal pitches as the specifications for banning equipment.

In the Rayleigh criterion equation (CD = k1 • λ / NA), the CD is the critical dimension, the smallest possible feature size. λ is the wavelength of light used. NA is the numerical aperture of the optics, defining how much light they can collect. Finally, k1 (or the k1 factor) is a coefficient that depends on many factors related to the chip manufacturing process. The physical limit lithography is k1 = 0.25.

Self-aligned quad patterning (SAQP) is generally considered the furthest economic way to stretch a DUV lithography generation. While there are more complex schemes for lithography, we will stick to what is economically feasible today. TSMC and China’s SMIC have achieved 7nm process technology, without EUV, using SAQP with argon fluoride immersion (ArFi) lithography, but that isn’t the limit of what’s economically achievable.

The 28nm minimum metal pitch used on TSMC’s N5 could be manufactured without EUV. SAQP using ArFi lithography (NA=1.35, λ=193nm) can produce this feature size at a k1 of 0.391. If the goal is to stop China from achieving 5nm process technology, then ArFi shipments must be blocked. ASML and Nikon can manufacture ArFi lithography tools capable of 28nm minimum metal pitch. While this wouldn’t be as cost-effective as EUV, the delta would not be unachievable for a nation-state like China.

If the goal is to prevent China from achieving high volume 7nm process technology, then all tools that can achieve a 40nm minimum metal pitch used on TSMC 7nm class process technologies must be blocked. The new restrictions would include ArFi lithography, but they would also need to extend further. SAQP using dry argon fluoride ArF lithography (NA=0.93, λ=193nm) can produce this feature size with a k1 of 0.385. Again, this isn’t going to be as economical as Intel, TSMC, and SMIC’s ArFi DUV “7nm,” but it is achievable, especially given the importance of national security. The cost delta would be significantly less than that of the subsidies for a nuclear power plant in the US.

View attachment 53318

If the goal is to prevent China from expanding their high volume 14nm process technology, then all tools that can achieve a minimum metal pitch of 64nm used on nodes, such as TSMC’s 16nm and 12nm and Samsung’s 14nm, must be blocked. Not only should these restrictions, if adequately enforced, include ArF lithography tools, but they would also need to extend further to some types of Krypton fluoride (KrF) tools. Krypton fluoride has a λ=248nm, but there were multiple generations of the lens stack. In each generation, NA improved from 0.6 to 0.8 to 0.93.

SAQP using the most advanced KrF lithography (NA=0.93, λ=248nm), can produce this feature size with a k1 of 0.48. SAQP using the mid-range KrF lithography (NA=0.8, λ=248nm), can create this feature size with a k1 of 0.413. These are very achievable with tools from ASML, Nikon, or Canon. Again, the economics here would not be optimal, but even doubling lithography costs on a 14nm class node would only lead to a ~19% increase in cost for each wafer. This is already economically viable with the level of state subsidies China gives their domestic firms.

We should note that regulators should also look to the overlay specification when determining which tools to restrict. In lithography, overlay refers to the alignment accuracy between different layers during manufacturing. It is the positional accuracy with which one layer is aligned to another layer. Each of our examples utilized self-aligned quad patterning (SAQP), meaning 4-layers of lithography need to be aligned. As such, overlay control is critical.

ASML’s most advanced EUV steppers have an overlay accuracy of 1.1nm. The prior version, 3400C, which was the primary EUV tool they shipped in 2021, has an overlay accuracy of 1.5nm. This is worse than ASML’s most advanced DUV tool, 2100i. For today, we won’t dive too much into where we believe the line for overlay accuracy on 14nm, 7nm, and 5nm sits for export controls, as that would be far too much into the weeds for most readers.

Chemical Supply Chain

The next gap in the new export controls is the chemical supply chain, namely photoresist. We did a deep dive into photoresist here, but the summary is that lithography tools require photoresists to pattern features on a wafer. The vast majority of the world’s photoresist is manufactured by a handful of Japanese companies, with the US-based Dupont as the distant 4th place competitor. Photoresist chemical compositions involved a lot of fine-tuning with end customers for the type of lithography, process nodes, types of features, and feature sizes in many cases. Furthermore, the equipment used to deposit, develop, and bake photoresist is also entirely Japanese.

Any country in the world could be blocked from all lithography and, therefore, semiconductor manufacturing if Japan restricted photoresist shipments. The complete lack of restrictions around photoresists represents a significant hole that governmental regulations have not contemplated.

There are over a hundred DUV tools already at SMIC alone. These could be reorganized and shifted to fabricate for different process nodes. SMIC could achieve a capacity of well over 100,000 wafers a month of 7nm foundry capacity with their existing DUV tools alone. This is higher than Samsung and Intel’s advanced node (<=7nm) foundry capacity, combined. If all DUV tools at various Chinese nationals such as HuaHong, Shanghai Huali, YMTC, CXMT, GTA Semi, Nexchip, Yandong, Nexperia, CR Micro, Sien, Fulsemi, SEMC, NSEMI were reappropriated by SMIC, the 7nm capacity they could build would far exceed that of even TSMC’s 7nm.

It is not enough to only block the shipment of new tools to China if the goal is to limit their manufacture of advanced semiconductors. Shipment of photoresists must also be stopped as Western governments do not know what process node existing DUV tools are being used.

Component Supply Chain

This leads to the final gap, the component supply chain. DUV tools must be regularly serviced with replacement parts by ASML, Nikon, and Canon. The service of these tools must also be blocked if the goal is to contain China’s capacity on leading-edge nodes.

While China’s lithography champion, SMEE, is on the sanctions list, SMEE has already shipped working I-Line lithography tools. Their argon fluoride DUV lithography is still not production ready for front-end wafer fabrication. This doesn’t mean they cannot catch up. Many firms in ASML’s lithography supply chain, such as Zeiss, continue to expand in China with joint ventures and technology transfers. Given the civil-military fusion of China, it would be straightforward for these technologies to slip through the cracks into SMEE’s control.

Lastly, mask related tools also have zero restrictions, which is also a hole.

The lack of upstream component supply chain restrictions is a significant hole in the trilateral agreement between the US, Japan, and Netherlands. If the goal is to restrict 5nm, 7nm, and 14nm process technologies, KrF and ArF lithograph equipment, photoresist, and subcomponents must all be limited, or else China will be able to reconfigure existing equipment and accelerate domestic development of lithography tools.
the US policymakers have gone mad.
 

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For Chip Makers, a Choice Between the U.S. and China Looms​


Semiconductor companies seeking federal grants under the Chips Act could face a tough decision: take Washington’s help to expand in the U.S., or preserve their ability to expand in China.

The Biden administration last week proposed new rules detailing restrictions chip companies would face on operations in China and other countries of concern if the companies accept taxpayer funding.


Some of the proposed restrictions, known as the China guardrails, were tougher than industry executives, lawyers and national-security analysts say they had expected—both for leading-edge semiconductor plants needed for advanced military weapons systems as well as factories making so-called legacy chips used in consumer electronics.

“It’s going to make a good number of companies question whether they want to accept the Chips funding,” said Angela Styles, an Akin Gump lawyer who advises semiconductor-industry companies.

The restrictions would be particularly onerous for East Asian companies with significant operations in China, where they have already invested billions of dollars. These include Samsung Electronics Co. and SK Hynix Inc. of South Korea, the world’s top two memory-chip makers, and Taiwan Semiconductor Manufacturing

U.S. restrictions placed on exports of advanced chips and chip-making equipment to China would make it more difficult for South Korean companies to continue investing in China, Trade Minister Ahn Duk-geun said in Seoul recently, before the U.S. Commerce Department’s detailed proposals on the Chips Act’s guardrails.

It would be up to the companies to make those decisions, he said.


Commerce Secretary Gina Raimondo said the Biden administration isn’t seeking to decouple economically from China.

“We want American businesses to continue to do business in and with China. And vice versa,” she said in an interview with The Wall Street Journal. “But we do have to be eyes wide open about the risks presented to the United States.”

She added that China has made it clear it wants access to the most advanced U.S. technology to incorporate it into its military capability. “We just can’t allow that to happen,” she said.

Ms. Raimondo said she might visit China this fall to keep communication open with Beijing and to make sure U.S. businesses can operate on a level playing field.

Big companies viewed as candidates for Chips Act funding are largely withholding public comment for now.

Samsung said it has been in “close discussions with the relevant government agencies of the U.S. and Korea” and plans to determine its next steps after reviewing the funding details.

Samsung is building a $17 billion advanced chip-making plant in Taylor, Texas, and last year floated plans of potentially investing as much as $200 billion in chip-making plants in Texas.

TSMC, with a $40 billion plan to build a complex for advanced chips in Arizona, declined to comment.

SK Hynix has disclosed plans for a new U.S. advanced-chip packaging plant, where the final steps of the semiconductor-fabrication process would occur. It said uncertainties around the operations of its Chinese facilities had been cleared through talks between the South Korean and U.S. governments, and that it would closely review Washington’s announcements.

The Chips Act, signed into law by President Biden in August, was aimed at renewing America’s leadership in advanced semiconductor technology and fending off competition from China. The act prohibits “significant transactions involving the material expansion” of manufacturing capacity for leading-edge and advanced semiconductors in foreign countries of concern.

The proposed rules define “significant transactions” as those costing at least $100,000 and “material expansion” as increasing a facility’s capacity by 5%. The rules cover a 10-year period, which would allow companies to make adjustments in their long-term China strategy.


“This is essentially the U.S. utilizing industrial policy to steer supply chains for semiconductors in the direction that it wants, and that direction is clearly away from China,” said Reva Goujon, director of China corporate advisory at Rhodium Group, a research firm.

The policy, she said, sends to such companies a “clear signal that it’s not going to be sustainable to produce semiconductors at the leading edge in China.”

The Commerce Department was blunt in explaining why such limits were necessary.


“These thresholds are intended to capture even modest transactions attempting to expand manufacturing capacity,” it said in the text of the proposed rule, which now goes through a 60-day public-comment period before being completed this summer.

The program also places limits on the fund recipients’ engagements in joint research and technological licensing with foreign entities of concern.

For chip makers, the China-based facilities represent years of investment and are responsible for a sizable portion of the world’s chip-production capacity.

Samsung operates a NAND flash memory-chip plant in the central Chinese city of Xi’an and a chip-packaging facility in the eastern city of Suzhou. SK Hynix operates DRAM memory-chip production facilities in the city of Wuxi, and owns Intel Corp.’s NAND flash-memory-chip factories in Dalian through a deal struck in 2020.

TSMC operates chip-making facilities in the Chinese cities of Nanjing and Shanghai.

As of last year, Samsung’s Xi’an facility accounted for roughly 16% of global NAND flash-memory production, while SK Hynix’s Wuxi facility accounted for about 12% of global DRAM memory production and its Dalian facility about 6% of NAND flash-memory production, according to TrendForce, a tech-market researcher.

TSMC’s Shanghai and Nanjing plants together contribute about 6% of the company’s total contract chip-making capacity, according to TrendForce.

 

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China presses Japan to change course on chip export curbs​




China has attempted to dissuade Japan from imposing big curbs on exports of semiconductor manufacturing equipment, as part of a fast-evolving geopolitical battle over access to the world’s most advanced chips. The move by Chinese foreign minister Qin Gang came during a visit to Beijing by his Japanese counterpart Yoshimasa Hayashi — the first such trip to China’s capital by a top Japanese diplomat in more than three years.

Qin told Hayashi that the US had in the past tried to “brutally suppress” Japan’s semiconductor industry and was now “repeating its old tricks” against China. “Don’t do to others what you don’t want others to do to you,” Qin said according to a statement published on China’s foreign ministry website on Sunday. The “blockade” would “only stimulate China’s determination to become self-sufficient”, he added.

The comments signal Beijing is taking a more active role in the face of a US sanctions regime that since late last year has sought to restrict global semiconductor-related exports to the Chinese mainland, as relations between the two powers deteriorate sharply. Hayashi’s visit came after Japan on Friday unveiled restrictions on exporting 23 different kinds of technology, as part of a deal reached with the US and the Netherlands.

The export controls will affect a larger number of Japanese companies than previously expected and require producers of high-end equipment to obtain licences for all regions. That would give the Japanese authorities oversight of sales of machinery to countries that could potentially produce high-end chips for military use in China and elsewhere.

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Japan has been careful not to refer publicly to the agreement between itself, the US and the Netherlands. A significant number of Japanese companies depend on China for a large part of their growth, and a growing number of chief executives have expressed concern in private that a spiralling chip war will make it harder for them to straddle the gulf between the US and China. China has sought to discourage the Netherlands from participating in the deal, with Tan Jian, the Chinese ambassador to the country, warning last month of “consequences” if it went ahead with restrictions.

In another indication of pressure from Beijing over the restrictions, the Cyberspace Administration of China, the sector’s regulator, late on Friday launched a review into imports from Idaho-based chipmaker Micron Technologies on grounds of “national security”. Micron warned recently about the risk of losing access to key materials produced in China.

American and other foreign businesses in China have explored options for how they would maintain supply chains in the event of a severe decoupling or conflict between the powers. Officials in China have also sought to shift their tone towards the private sector as the country reopens after the lifting of its zero-Covid restrictions. During meetings with both Qin and Chinese premier Li Qiang, Hayashi also lodged a protest over the recent detention in China of a Japanese employee of pharmaceutical group Astellas, according to Japanese officials.
 

Bogeyman 

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China says US chipmaker Micron failed national security review​


US semiconductor giant Micron has failed a national security review, China's cybersecurity watchdog said Sunday, telling operators of "critical information infrastructure" to stop buying its products.

It marked the latest escalation in the bitter chip war between the United States and China, with Washington looking to cut off Beijing's access to cutting-edge semiconductors.

Chinese authorities launched a review in March of products sold in the country by Micron, one of the world's major chip manufacturers.

Micron's products "have relatively serious potential network security issues, which pose a major security risk to China's critical information infrastructure supply chain and affect China's national security", the cybersecurity administration (CAC) said in a statement.

"Operators of critical information infrastructure in China should stop purchasing Micron products."

China's broad definition of critical information infrastructure includes sectors ranging from transport to healthcare.

"We have received the CAC's notice of conclusion of its review of Micron products sold in China," Micron said in a statement.

"We are evaluating the conclusion and assessing our next steps."

When asked if the company will appeal the decision, a spokeswoman for Micron said: "We look forward to continuing to engage in discussions with Chinese authorities."

About 10 percent of Micron's $30.8 billion annual revenue last year came from China, according to company data.

But a large portion of Micron products sold in the country were bought by foreign manufacturers, analysts had said earlier, and it was not clear if the cybersecurity watchdog's decision affects sales to foreign buyers.

China in 2021 announced rules to protect critical information infrastructure with stricter data security requirements.

It has recently also strengthened the enforcement of its data security and anti-espionage laws.

- 'Bullying tactics' -

The chip war between Beijing and Washington escalated last year when the United States imposed restrictions on China's access to high-end chips, chipmaking equipment and software used to design semiconductors.

Washington also blacklisted Chinese firms, including Micron rival Yangtze Memory Technologies Co Ltd.

Washington cited national security concerns, and said it wanted to prevent tech that could help develop advanced military equipment from being acquired by China's armed forces and intelligence services.

The United States imposed targeted controls on the ability of domestic industry leaders to sell their products overseas.

It has also sought to persuade key allies to follow suit.

The Netherlands and Japan -- both leading manufacturers of specialised semiconductor technology equipment -- have recently announced new restrictions on exporting certain products, but without naming China.

Beijing has slammed the moves as "US bullying tactics" and accused Washington of "technological terrorism", vowing that such controls will only strengthen its resolve to achieve self-reliance in the sector.

The development of a robust domestic semiconductor industry has been a longstanding goal of the Chinese government, which has invested billions of dollars in domestic chip firms.

Chips are the lifeblood of the modern global economy, powering everything from cars to smartphones, and they are forecast to become a $1 trillion industry globally by 2030.

Nowhere is their essential nature more visible than in China, the world's second-largest economy, which relies on a steady supply of foreign chips for its huge electronics manufacturing base.

In 2021, China imported semiconductors worth $430 billion, more than it spent on oil.
 

F-6 enthusiast

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The materials from which these semiconductor chips are made are extremely expensive to extract and purify


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We dont think much about it but Rare Earth elements are a huge part of our everyday life, powering our phones, laptops, satellites and cars. The thing we all overlook though is where those Rare Earths are coming from, and right now China controls 98%+ of the market, meaning that every single high technology item we use at some point relies on China.
That issue compounds as well when you realise that this problem extends to the defence industry, with state of the art US fighters such as the F-35 being unbuildable if the Chinese refuse to do their part of the process.
The situation is far more complicated than many people realise, and we may be a decade from any real solution.
This weeks guests - Guillaume Pitron (Le Monde Diplomatique) - Julie Klinger (University of Delaware) - Teague Egan (EnergyX) - Sophia Kalantzakos (New York University) For more information please visit - www.theredlinepodcast.com Follow the show on - @TheRedLinePod Follow Michael on - @MikeHilliardAus
 

F-6 enthusiast

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China runs these mining operations at significant loss but they are a Top down structure where the Chinese government is happy to lose millions (or billions) to maintain a strategic advantage
 

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