The U.S. wants to ban more exports of equipment used to produce integrated circuits to prevent China from catching up with the world's most advanced ICs. Meanwhile, a fund to help China develop its semiconductor industry is marred by corruption. U.S. semiconductor equipment suppliers Lam Research and KLA Corp confirmed that the U.S. government has been pushing for stricter export regulations to China by covering equipment needed for manufacturing chips of 14 nanometer and below. If that is confirmed officially, it would mark an escalation from the previous ban covering 10 nm and below – the most advanced end of chip-making technology. Washington is also pressing the Dutch government to block ASML from exporting less advanced deep ultraviolet (DUV) lithography systems to China, which ASML CEO Peter Wennink described on a recent earnings call as a “a political position which we have to wait for politicians to come up with”. Analysts said reports of a wider equipment ban could make it harder for China to reduce its reliance on imported chips as such equipment, which the country is unlikely to be able to make in the near term, is essential for producing chips. “It could be a big problem for China-based foundries but it remains to be seen how broadly these restrictions are applied,” said Sravan Kundojjala, Senior Analyst at Strategy Analytics. “Foundries need equipment from multiple vendors, and even without the support of one vendor, things can fall apart.”
Wang Xiaolong, research head at Shanghai-based semiconductor consultancy ICWise, said the U.S. move heralds more difficulties ahead for local foundries as they seek to import key equipment. Meanwhile, both Lam Research and KLA value the Chinese market as an important driver of growth after the country became the world’s largest integrated circuit (IC) consumer market. Revenue from mainland China accounted for 35% of Lam Research’s total revenue of USD14.6 billion in financial year 2021, up from 31% in 2020 and 22% in 2019 respectively. Lam Research is one of the top three U.S. semiconductor manufacturing equipment suppliers and leads the field in deposition and etch products. KLA made 26% of its financial year 2021 total revenue of USD6.92 billion from customers based in mainland China, the highest share across its geographic segments and ahead of the shares of Taiwan, South Korea and Japan with 25%, 19%, and 9% respectively.
Sanctions-hit SMIC, China’s largest foundry, has already shifted its focus away from developing advanced technology at 10 nm and below to mature technology of 28 nm and above, after its inclusion in the U.S. trade blacklist in December 2020. SMIC’s most advanced technology, officially, is 14 nm FinFet, which entered mass production in the second half of 2019. SMIC is also working on 12 nm, dubbed FinFet N+1, but details on progress remain unclear. SMIC’s Chinese rival, Hua Hong Semiconductor, is also developing 14 nm tech for logic chips, but the company’s top revenue-generating processes are 350 nm and 90 nm, which combined, accounted for 60% of its first-quarter revenue.
The U.S. Chips and Science Bill, which was passed by the U.S. Congress and which is expected to become law soon, is expected to revive U.S. domestic semiconductor manufacturing with USD52.7 billion in subsidies.
China’s state-run chip industry investment fund has become engulfed in anti-corruption probes, with at least three of its executives under investigation. China’s Central Commission for Discipline Inspection (CCDI) confirmed that Ding Wenwu, the former President of the China Integrated Circuit Industry Investment Fund, was being investigated for suspected “serious violations of discipline and laws”, a term that usually refers to corruption. The announcement came two weeks after Lu Jun, the fund’s former Chief Executive, became the target of a similar probe. Yang Zhengfan, another Executive at the fund, was also being investigated. The Big Fund – as it is known in China – was set up in 2014 by the Ministry of Finance and China Development Bank Capital, as part of a plan to “leapfrog” developments in the semiconductor industry.
In 2019, local companies accounted for only 15.7% of the country’s USD125 billion integrated circuit market, up only slightly from 15.1% five years earlier when the Big Fund was set up, according to US research firm IC Insights. The corruption probes into the Big Fund executives come after a separate investigation into former Tsinghua Unigroup Chairman Zhao Weiguo, who led the company’s aggressive and highly leveraged mergers and acquisitions until the group defaulted on its debts in 2020. Tsinghua Unigroup has since gone through bankruptcy restructuring and is now under the management of a new owner, the South China Morning Post reports.
