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China’s top chipmaker will ‘struggle’ to make cutting-edge chips competitively


China’s largest chipmaker SMIC won’t be able to produce cutting-edge chips competitively if it continues to be cut off from advanced equipment, analysts told CNBC.

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“It’s just not commercially profitable for SMIC to make those chips with less advanced equipment,” said Phelix Lee, equity analyst for Morningstar Asia.

Following the 2020 sanctions, the U.S. last year introduced sweeping export restrictions aimed at cutting China off from advanced chip tech and equipment. Washington is concerned that China could use these advanced semiconductors in artificial intelligence and military applications.

The U.S. has sought support from other key chipmaking nations including South Korea, Japan and the Netherlands. The Netherlands as well as Japan have reportedly followed the U.S. in imposing rules aimed at restricting China from accessing advanced chip tech.

According to Dutch regulations, ASML will need to apply for a license to export its EUV machines. ASML has not exported the highly complex machines to China so far.

“Can SMIC produce in a commercially viable way scaled by the hundreds of thousands or tens of millions in some cases? That’s what the most advanced tools let you do,” Chris Miller, author of “Chip War” told CNBC.

SMIC did not respond to CNBC’s request for comment.

Competitive landscape

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“Nanometer” in chips refers to the size of individual transistors on a chip. The smaller the size of the transistor, the more of them can be packed onto a single semiconductor. As such, smaller nanometer sizes typically yield more powerful and efficient chips.

Both companies have a roadmap to produce 2-nanometer chips in 2025. Samsung will begin making 1.4-nanometer chips in 2027. Both companies started mass production of 3-nanometer chips last year.

Still lagging behind

At least for the next couple of years, SMIC is going to struggle to produce chips that are as effective and as high quality as those that are produced abroad.

Chris Miller

Author of ‘Chip War’

While some Chinese firms are trying to build equivalent tools domestically, they remain fairly far behind, said Miller.

In February, ASML said that a former employee in China had stolen data about its proprietary technology.

“It will likely take some time before China begins to replicate the capabilities that these important tools have,” said Miller, who is also an international history professor at Tufts University.

“At least for the next couple of years, SMIC is going to struggle to produce chips that are as effective and as high quality as those that are produced abroad,” the professor said.

SMIC has a long way to go in catching up with TSMC, says analyst

Lee said it is “quite unlikely, at least in the next five years” for SMIC to be able to produce the latest generation of chips such as 5 or 3-nanometer chips. “If we want to close the gap [between SMIC and TSMC], we should be looking at a 10-year horizon,” said Lee.

China wants tech progress

But with SMIC being the key to China’s chip ambitions, analysts expect the government to step up support for the chipmaker. SMIC already benefits from government subsidies and state-backed research projects.

“I see a lot of financing to happen for SMIC. These can come from bank loans, issuing new shares, or setting up operating companies with the help of government funding,” said Lee.

The Chinese government has made it clear they want to get as close as possible to the cutting edge…

Chris Miller

Author of “Chip War”

Source: CNBC