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Aug 17, 2022
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Nanobattles will bring confusion to the global microchip market

Nanobattles will bring confusion to the global microchip market

Photo: Lino Mirgeler/dpa/TASS

As U.S.-China tensions escalate over provocative visit Nancy Pelosi to Taiwan intensifies, the technological war between them is also taking a new turn. Both houses of the US Congress approved a $280 billion plan, The Chips and Science Act, to boost chip production in the US.

Currently, 75 percent of the world’s chip production is in East Asia, concentrated in Taiwan, South Korea and China. The Americans are looking to bring the semiconductor industry back to the US. They also hope to revive the fortunes of their chipmakers like Intel. The company, once a leader in chip manufacturing, is now struggling to avoid becoming another “former” like IBM.

While this plan offers a variety of “carrots” to the US semiconductor industry, what some have called corporate handouts, it also contains some significant benefits. Any company that takes advantage of the $52.7 billion in subsidy to locate computer chip manufacturing in the US is prohibited from expanding or upgrading its advanced chip manufacturing facility in China. As a result, companies like Samsung and SK Hynix, two major chip makers that have invested heavily in China, will now have to choose between pulling out of those investments or cutting back on US subsidies.

Meanwhile, China is also not sitting idly by, waiting for the US to step up its sanctions on its high-tech ambitions in this area. Recognizing that the semiconductor industry, especially the production of advanced chips, is a key area of ​​struggle, Beijing has made significant progress in their production. SMIC, a Shanghai-based chip manufacturer, has released its 7nm chips, which have been on the market for the past 12 months.

At present, only Taiwan’s TSMC and South Korea’s Samsung have succeeded in producing 7nm chips. Dylan Patela leading technical analyst, wrote: “China’s SMIC supplies the foundry process with commercially available open market chips that are more advanced than any American or European company. The most advanced chips produced by American or European foundries are based on GlobalFoundries 12nm technology.” SMIC is the fifth largest chip manufacturer in the world.

The astounding progress in computing power of today’s gadgets is due to the ability to pack more and more components into a silicon chip. This is known as Moore’s Law, and has continued for the past five decades. An indicator of the increased density of components in microcircuits is the size of the transistors created inside the silicon chip. Therefore, 14nm, 7nm, and 5nm are an indication of the size of the components in a chip and an indication of its processing power.

Lithography is a critical process in chip manufacturing and is used to create patterns on silicon wafers using the ultraviolet (UV) spectrum of light. The thinner the line that a lithographic machine creates on a silicon wafer, the more devices can be packed into a chip. Each measures 14nm, 7nm, 5nm etc.is a measure of the density of devices on a chip. The more devices we pack into a chip, the greater its processing power and power consumption.

I have previously written about chip manufacturing and the importance of tools, in particular ASML’s Extreme Ultraviolet Light (EUV) lithography machines, to go beyond 14nm chips. It’s not that older deep ultraviolet (DUV) lithography machines can’t produce higher densities. But the productivity of DUV machines for the production of 10nm or 7nm chips is lower than when using EUV technology. And going to 5nm or 3nm is impossible without EUV lithography.

The Dutch company ASML is the only manufacturer of EUV machines in the world. Since ASML’s machine-made EUV light source that creates patterns on the chips is made by a US company, it is technically subject to US regulations. Although ASML was quite unhappy with the loss of part of its Chinese market, it resigned itself to not supplying EUV vehicles to China. For now, the company may still continue to supply DUV machines to China, but this may also change in the future.

The US felt that without EUV lithography machines, Chinese manufacturers would not be able to produce chips smaller than 14 nm. Thus, the 7nm SMIC chip made a big hole in this assumption.

While DUV lithography tools can create a high degree of device-on-a-chip packaging, many more runs and a more complex set of operations are required to achieve such results. This is how lithographic machines for making 28nm chips could produce 14nm chips. This is the same process that Intel and other companies have been trying to use for some time: they used UV technology to make 10nm or 7nm chips. SMIC is the first company to successfully use DUV machines to create 7nm chips.

This still doesn’t put SMIC on par with Taiwan’s TSMC or South Korea’s Samsung, which already use EUV technology. But it still puts SMIC ahead of the rest of the pack. It also allows China to compete with products in the market using 7nm chips, as hundreds of its top companies have come under US sanctions, including Huawei and SMIC.

The American interpretation of its powers is that if any company uses American technology, then, under the US Foreign Direct Investment Rule, it must be subject to the US sanctions regime. That is why ASML machines are under the US sanctions regime, as is any product made using such machines. Therefore, TSMC or Samsung that use ASML’s EUV machines are also prevented from exporting any of their advanced chips to organizations in China under the US sanctions regime.

There has been criticism that the 7nm chip from SMIC is only a copy of the TSMC chip and therefore does not show any major advances. Although this is a really simple chip designed for cryptocurrency mining, according to TechInsights, its importance lies in the fact that it is a stepping stone to achieve a “true 7nm process”.

On the other hand, China cannot move to 5nm or 3nm technology without EUV lithography machines. Currently it can import DUV vehicles from ASML. In addition to ASML, two Japanese companies, Canon and Nikon, also made UV machines. So where is China in the production of lithographic machines?

China has been building up its own capacity in chip manufacturing machines for some time now, with Shanghai Micro Electronics Equipment, or SMEE, being the leading manufacturer. SMEE has announced that it will release its first 28nm DUV machine in 2022, which can be used to produce 14nm chips. As shown by SMIC, then it can be used for the production of 7-nm chips. SMEE DUV machine has yet to announce a delivery date, which would be critical to China’s ability to establish large-scale chip production at home.

The global semiconductor industry is clearly at a crossroads with the risk of splitting the global supply chain into two competing blocs, one led by the US and the other by China. The US semiconductor industry argued that if such a split occurred, then the US, which today leads in a number of technological areas, will lose this leadership in 5-10 years, since a huge part of their profits, and therefore investment in R&D, is financed by their Chinese sales.

The loss of this market would mean that China would face a temporary setback, but the US would lose its lead forever. That’s why ASML CEO Peter Wennink stated that the export restrictions regime that the United States imposes on the industry will not work.

The bulk of the chip market does not consist of more advanced chips. According to a report published by the Boston Consulting Group/Semiconductor Industry Association (BCG/SIA) at the end of 2020, chips with a density of less than 10 nm make up only 2% of the market, although they are the most attractive ones and appear in the latest laptops and mobile phones. The bulk of the market is in chips for which China already has the technology or can catch up with its investment in research and building the entire supply chain, including chip production and even DUV machines.

According to the BCG/SIA report, the sensible way for the West to fight China would be to limit sanctions to only military technology, and use the profits from the rest to fund US companies’ R&D spending. Without these profits, American companies will not be able to finance their future development.

But with politics in the US and bipartisan war hysteria brewing, the US seems to prefer a carrot and stick approach: a carrot for US chip investment and a stick for any company that sets up production in China. If the Covid-19 pandemic has damaged the semiconductor supply chain, leading to chip shortages in 2021, then the future supply chain shock will be caused by the US sanctions regime.

The belief that the US can only limit the trade war to sectors where it has a technical advantage is another weakness of the US strategy. As a result, the possibility of an asymmetric response from China remains open. “I wish you live in interesting times” is supposedly a traditional Chinese curse. The world appears to be entering such a phase, starting with the US-China chip war.

Author: Prabir Purkayastha — prabir Purkayastha – news editor of Newsclick.in. He is an engineer and science activist in the fields of energy, telecommunications and software. One of the founders of the Delhi Science Forum.

Translation Sergei Dukhanov

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