The impact of US sanctions on the Chinese semiconductor landscape
As previously reported, back in early October, the US launched a series of updates to its export regulations concerning semiconductors and associated technologies to China. Two of the nine new rules stand out, given the scale of both the short-term and long-term impact that they will cause.
One of the new rules restricts the ability for residents in the US (citizens and foreign nationals) to invest in and support the development and production of ICs at China-based semiconductor fabs without a license. The other one limits the supply of equipment and tools to any "advanced fabs" in China – more specifically, this involves technology of NAND chips with 128 layers or more, and DRAM chips 18nm and below, as well as advanced logic chips of 16nm or 14nm.
Market research firm IDTechEx says that the implementation of these rules have caused a wave of mass withdrawals of American workers, including the resignations of high-level management personnel, from Chinese semiconductor companies. And the limitations when it comes to acquiring manufacturing equipment will certainly make China's advanced Si development much more difficult – and SMIC, YMTC, and CXMT are expected to feel the brunt of these restrictions.
The exodus of talent
IDTechEx says that American workers at Chinese semiconductor firms like Yangtze Memory Technologies Co. (YMTC), ChangXin Memory Technologies (CXMT), Shanghai Semiconductor R&D Center Jiading Factory, and Hangzhou HFC Semiconductor reportedly resigned one after another last week.
And as previously reported by Evertiq, US suppliers of chip equipment, including Applied Materials, KLA Corporation, and Lam Research, have all stopped their services and support in China and withdrawn their US workers from China.
IDTechEx brings up the fact that even beyond this, there is a deeper issue. Many of the top Chinese semiconductor companies' CEOs, senior managers in R&D departments, and engineers are Chinese and either have American green cards or, in some cases, are already citizens of the United States. A few instances include the creator of Advanced Micro-Fabrication Equipment Inc. (AMEC), one of China's largest semiconductor equipment providers, having US citizenship. At least six more top management figures and significant R&D engineers, in addition to the founder, are also Chinese Americans.
The CEO of KINGSEMI, a key supplier of TSMC, also possesses an American green card, as well as the deputy director of Giga Device, a FLASH memory IC design company. The list goes on and an estimated 43 American CEO-level executives are employed by 16 semiconductor companies listed on the Chinese stock exchange.
With the new rule in place, these individuals have been forced to make a choice – basically between their nationality and their profession.
“It is extremely probable that the Chinese government will use its influence to persuade these high-level Chinese Americans employed in the semiconductor business to remain. However, the short-term talent drain and disruption is inevitable,” IDTechEx writes in its report.
And herein lies the problem – semiconductor businesses, particularly at the advanced fab, depend heavily on talent. China has previously, many times over, made attempts to woo foreign semiconductor talent in order to establish its position in the market, particularly in the area of advanced logic IC. This prohibition unquestionably deals a discombobulating blow to China's semiconductor industry.
To be the best, you have to have the right equipment at your disposal
The second rule that stands out restricts the supply of equipment and tools to advanced fabs in China. Any US companies who wish to do so will need to get a license from the Department of Commerce's Bureau of Industry and Security (BIS).
As pointed out by IDTechEx, three companies, namely Semiconductor Manufacturing International Corporation (SMIC), YMTC, and CXMT, are expected to be most affected by this update.
SMIC's 14nm has entered mass production, and 10nm and 7nm are in the R&D phase. In the DRAM field, CXMT is the largest manufacturer in China and its main products use the 19nm process and are moving towards 17nm. In the NAND field, YMTC already mass-produced 128-layer products in 2021, and 232-layer products have been announced though are not yet mass-produced.
Companies like SMIC, YMTC, and CMXT are now unable to obtain any equipment, services, or support from their previous US suppliers (or US-allied suppliers), such as Applied Materials, KLA, Lam Research, and ASML. There will be far-reaching consequences. Advanced production equipment, software, and services/support from the supplier's skilled engineers are necessary to manufacture advanced Si logic IC.
IDTechEx says that even if the maintenance and installation personnel of foreign equipment factories are Chinese nationals, as long as the equipment technology belongs to the United States and falls into one of the previously mentioned categories, it will not be allowed to operate in China.
In a nutshell, China will find it considerably more challenging to build up its own sophisticated Si manufacturing capabilities. Even if no restrictions are put in place, it may take SMIC, the only producer of 14nm logic ICs in China, at least seven years to catch up to top competitors like TSMC and Samsung. Due to the constraint, it would be extremely difficult for the Chinese to create everything on their own, including the software and equipment used in every step of the production process.
According to IDTechEx, China's semiconductor sector is likely to "take a detour" by developing advanced semiconductor packaging in order to overcome this mountain of an obstacle. The development of chiplet technology, which is considered by the semiconductor industry as a critical technology beyond the physical limit of Moore's Law, depends on advanced semiconductor packaging.