On October 7th ,2022 the United States announced a series of targeted updates to its export regulations concerning semiconductors and associated technologies with respect 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. IDTechEx assesses the impact of these changes.
The two rules, the effects, and IDTechEx’s remarks are discussed below:
(1) Restricts the ability of US persons (including citizens, green card holders, and foreign nationals who live in the US) to support the development, or production, of ICs at China-based advanced semiconductor manufacturing fabs without a license.
Since the rule’s implementation on October 12, 2022, it has caused a wave of mass withdrawals of American workers, including the resignations of high-level management personnel, from Chinese semiconductor companies.
American workers at Chinese semiconductor firms like Yangtze Memory Technologies Co. Ltd (YMTC), ChangXin Memory Technologies (CXMT), Shanghai Semiconductor R&D Center Jiading Factory, and Hangzhou HFC Semiconductor Corp. reportedly resigned one after another last week. The US-born suppliers of chip equipment, including Applied Materials, KLA Corporation, and Lam Research, have stopped their corresponding services and support in China and withdrawn their US workers from China.
Beyond this, there is a deeper issue: many CEOs, senior managers in R&D departments, and engineers at top Chinese semiconductor companies are Chinese and either possess American green cards or, in some circumstances, are already citizens of the United States. A few examples include the US citizenship of the founder of Advanced Micro-Fabrication Equipment Inc. (AMEC), one of China’s major suppliers of semiconductor equipment. Along with the founder, at least six other members of senior management and other important R&D engineers are all Chinese Americans. It is not just AMEC: the CEO of KINGSEMI Co. Ltd., a key supplier of TSMC, possesses an American green card, as well as the deputy director of Giga Device, a FLASH memory integrated circuit (IC) design company. An estimated 43 American CEO level executives are employed by 16 semiconductor companies listed on the Chinese stock exchange. According to the Financial Times, 200 people with US passports are employed by Chinese semiconductor organizations.
Since the limitation is now in place, the US has forced individuals to make a choice: they must choose 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.
We are all aware that the semiconductor business, particularly in the advanced fab, depends heavily on talent. China has made numerous attempts to lure foreign semiconductor talent to help it establish its position in the industry, particularly in the field of advanced logic IC, which is essential to all future enabling technologies like artificial intelligence (AI), machine learning, autonomous driving, supercomputers, and more. Without a doubt, this ban is a major blow to China’s advanced semiconductor sector, which is already struggling to be at the leading edge of the semiconductor industry.
(2) Restricts the supply of equipment and tools to any fab in China that manufactures/develops the following:
a. Logic chips with non-planar transistor architectures (i.e., FinFET or GAAFET) of 16nm or 14nm, or below;
b. DRAM memory chips of 18nm half-pitch or less;
c. NAND flash memory chips with 128 layers or more.
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).
The embargo will certainly make China’s advanced Si development much more difficult. Three companies, Semiconductor Manufacturing International Corporation (SMIC), YMTC, and CXMT, are anticipated to be most affected.
SMIC’s 14nm has entered mass-production, and 10nm and 7nm are in the research and development 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.
The ban on supplying advanced fab equipment, as well as the ban on Americans working for Chinese advanced fabs, has left companies like SMIC, YMTC, and CMXT unable to obtain any equipment/service/support from their previous US suppliers (or US-allied suppliers), such as Applied Materials, KLA, Lam Research, and ASML. The consequences will be enormous. Manufacturing advanced Si logic IC is unachievable without advanced manufacturing equipment, software, and services/support from the supplier’s experienced engineers.
According to some equipment manufacturers, 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 three categories listed above, it will not be allowed to operate in China.
It is not only the hardware that is affected. The borders of certain software applications are not well defined; for example, a lot of manufacturing equipment utilizes the same set of software for 14/28nm production, resulting in the supply or servicing of such devices being halted, affecting several 28nm fabs.
To summarize, China will have an even more difficult time establishing the advanced Si manufacturing capability on the ground on its own. Even if no limits are imposed, it may take at least seven years for SMIC (China’s only manufacturer of 14nm logic IC) to catch up to industry leaders like TSMC and Samsung. With the restriction, the barrier is immense; the Chinese would have to design everything from software to equipment along every manufacturing process on their own, which is an almost impossible undertaking. To overcome this massive challenge, IDTechEx noticed that China’s semiconductor industry also intends to ‘take a detour’ through the development of advanced semiconductor packaging. Advanced semiconductor packaging is the key to the development of chiplet technology, which is regarded by the semiconductor industry as a key technology beyond the physical limit of Moore’s Law. To learn more about advanced semiconductor packaging and its impact on the industry, please see the newly released IDTechEx study, “Advanced Semiconductor Packaging 2023-2033“.
Of course, the disruption is not felt exclusively in one direction; all these US-born/US-allied players involved in the advanced semiconductor business will be somehow disrupted. For example, Apple recently abandoned its intention to use YMTC’s 3D NAND flash memory, which the two firms had been developing together since 2018. According to sources, Apple wanted to adopt YMTC’s products since the price is 20% lower than competitors due to the Chinese government’s subsidy to YMTC. Regardless, geopolitics moves quickly, and retaliatory measures from the Chinese government may be put in place; many will be watching the follow-up to China’s party conference very closely.
IDTechEx has been studying the semiconductor industry and have recently released a new market research study titled “Advanced Semiconductor Packaging 2023-2033“. This study examines the market prospects, key player analysis, and most recent developments in advanced semiconductor packaging technologies. This report also conducts a comprehensive examination of the semiconductor market as a whole. Additionally, IDTechEx leverages its expertise and years of research in data centers, autonomous vehicles, 5G, and consumer electronics to provide the reader with a thorough understanding of how advanced semiconductor packaging is influencing various industries and what the future may hold.