China vs. USA – Yield Debate

Yield is everything.

• Relative newcomer to the semiconductor game SiCarrier made a splash at Semicon China 2025 by launching a lot of new equipment and claiming that non-optical methods may enable China to start producing 5nm chips on homemade equipment.
• This has underpinned a lot of chatter with some of the commentariat now confidently predicting that China will produce 5nm chips as soon as 2026 (see here) but I remain highly sceptical.
• Mr Du Lijun, President of SiCarrier (founded in 2021) stated that homemade tools could be employed to make 5nm chips where its non-optical machines could help deal with the lithography issues.
• Mr Du is referring to a technique called quadruple patterning which uses multiple passes with a laser to create the very narrow lines needed to make a 5nm chip.
• The problem is simple in that China is trying to draw lines that are 5nm wide with a laser with a wavelength of 193nm which is very difficult to do.
• This is where the multi-patterning technique comes in and TSMC had some success with this at 7nm but soon switched to EUV because the yields were not high enough.
• The EUV machines operate at a wavelength of 13.5nm making it much easier to draw the narrow lines required at 7nm and below once one has overcome the massive technical issues of creating a reliable light source at that wavelength.
• ASML is the only company in the world to have cracked this problem and given that it cannot sell its EUV products to China, it has had to resort to taking what TSMC developed and advancing it.
• While China has had some success at producing chips at 7nm (like TSMC did), I don’t think that it has ever been able to produce these chips economically because the yield has been too low.
• Typically yields above 90% are needed to make a decent return and after several years SMIC and Huawei are still way behind that with their 7nm process.
• This means that these chips have negative gross margins making them economically unsustainable.
• This is something that China really cannot afford right now given the precarious state of its economy which will only get worse when China tries to take this technique to 5nm.
• Multi-pattening at 5nm is something that nobody has tried to the best of my knowledge and will require at least 20% more steps than 7nm.
• Hence, I suspect that it will take China far longer than the commentariat claims to get this to work at 5nm and it is unlikely to ever be economically viable.
• China has demonstrated that it is adept at making do with limited resources (as it did with DeepSeek) and so I think it may find a way to make a 5nm chip.
• However, I do not think that it will ever get the yields up to a point where it can make these chips economically viable.
• If this were possible, I think we would have seen TSMC stick with multi-pattening at 7nm and migrate it to 5nm.
• Consequently, I think China will remain limited in terms of what it can produce below 20nm as it can no longer buy or service new equipment although I think the home-grown industry may be able to fill this gap in time.
• However, at the leading edge, I think China will not go beyond 14nm economically and think that even making a chip at 5nm is a stretch.
• Hence, I continue to think that for the foreseeable future, China will struggle to make advanced semiconductors at high yield and low cost.
• This means that the US restrictions will continue to be quite effective with very little impact coming from the availability of these new machines.
• This continued rivalry means that the days of global standards are numbered and, going forward, we are likely to see one standard outside of China and another, competing, and non-compatible standard inside China.
• This is bad news for everyone as two incompatible networks will generate much less value than one global network.
• Consequently, long-term growth for the entire technology sector over the next 10 to 20 years will be lower than it otherwise would have been