China vs. USA – Admission of Reality

Huawei says the quiet part out loud.  

• Huawei has admitted that true leading-edge semiconductor manufacturing is unlikely to be achieved in China, meaning that homegrown technologies that rely on leading-edge semiconductors are going to be more difficult and more expensive to develop.
• At the 2024 China Mobile Computing Power Network event, Huawei Executive Zhang Pingan gave a keynote where he addressed the company’s efforts to develop semiconductors.
• In this keynote (see here), he stated that Huawei would not get to either 3nm or 5nm and that the company should focus its efforts on solving 7nm.
• Mr Zhang also admitted that it was the result of US sanctions that were preventing China from developing these nodes as other companies who are not under these restrictions are already in production.
• These statements support RFM’s and Alavan Independent’s long-held views in two ways.
  • First, advanced nodes where RFM and Alavan Independent have long concluded that going beyond 5nm using older equipment would prove to be impossible.
  • The technique that Huawei and SMIC have been using is called multi-patterning and involves using older, deep ultraviolet (DUV) lithography equipment to draw the lines on the chip.
  • At 7nm both Intel and TSMC tried to use DUV to make chips but while they were able to do it, they were unable to do so at yields that were high enough to ensure economic production.
  • This is why both switched to extreme ultraviolet (EUV) lithography for this step which allowed them to bring yields up to acceptable levels.
  • Given that both found it very difficult to get this to work at 7nm, 5nm and beyond has always appeared to be an overly optimistic goal.
  • Huawei’s commentary implies that it has concluded the same and that going beyond 7nm using DUV is impossible.
  • Second, semiconductor yield: which is the most important indicator of performance in semiconductor manufacturing.
  • Here, RFM and Alavan Independent have been of the view that while Huawei and SMIC can make 7nm chips that work, they are unable to make them economically.
  • Yields need to be 90% or better in most processes to earn a positive return on the capital invested to build and operate the fab.
  • By all accounts, SMIC and Huawei’s yields are way below this figure which is why the current situation for making 7nm chips in China is unsustainable.
  • Mr Zhang effectively admits this when he says that Huawei needs to focus its efforts on solving 7nm rather than trying to develop 5nm or 3nm.
  • This was a problem that neither TSMC nor Intel were able to solve although they had the option of switching to EUV which Huawei and SMIC do not.
  • Hence, it is not impossible for Huawei and SMIC to eventually solve the yield of 7nm on DUV, but I suspect that it is going to take a long time and cost a lot of money.
• The net result is that it looks like the USA’s strategy to slow China’s rise as a technological and economic power is working.
• It looks very much like China will not be able to go beyond 7nm and that it will be a long time before it can make 7nm at economic yields.
• This means that Chinese technology will be slower to develop and devices that it creates will be larger, more expensive and consume more power.
• This will serve to make competing US technology built on more advanced nodes much more competitive on price as well as offering as good, if not better functionality.
• The outlook is that China is likely to focus on the lagging nodes of 20nm and above where there is still plenty of business to be done but where competition is much more fierce.
• While this will help the Chinese semiconductor industry to grow, it will not help very much in the development of advanced technology which China is going to need to become fully self-sufficient when it comes to technology.
• In the long run, multiple and incompatible standards are bad news for everyone because the total opportunity for value creation will be orders of magnitude less.
• This means lower long-term growth for the entirety of the technology sector unless there is a rapprochement of some sort.
• At the moment, this is a very distant and dim hope.