Domestic semiconductor equipment manufacturers go to a new crossroads

In essence, the epidemic is of course a major disaster sweeping the world. But in actual social performance, the epidemic is more like a catalyst.

Before the outbreak of the epidemic, people’s judgment on 2020 was a key year for the popularization of 5G Internet of Things and a key year for the development of global digitization, networking and intelligence.

Such predictions are still valid at present, but no one expected the outbreak of the epidemic, let alone that the epidemic would play a catalytic and stimulating role in international social problems such as hard decoupling, anti-globalization, and the surge of populist thoughts.

The uncertain trend of the international situation poses a threat to all traditional orders. It will bring a major test to every person, every organization, every country and every region in the world, testing the willpower and coping ability of all individuals and groups.

In the changing situation, the pressure on Chinese technology companies is especially huge.

Core technology is at the heart of all problems

Technology is the primary productive force, and China’s new economic formats represented by the Internet are mainly the product of technological development.

Before the popularity of smartphones, the Internet was the privilege of residents of developed countries in Europe and America.

After the smartphone accelerated the popularization of the Internet in China, the mobile Internet, which is accessible to everyone, has irreversibly transformed everyone’s entertainment methods, lifestyles, consumption habits, and thinking patterns. And huge demand and market potential broke out from this change, becoming an important force to promote China’s economic growth.

For China, despite the development of more than ten years, the current Internet has not covered all aspects of economic activities, but comprehensive coverage has become the general trend.

However, whether it is the Internet, which has accelerated with the popularity of smartphones, or the Internet of Things built by countless devices, terminal devices are assembled from various semiconductor components, and the most important ones are various chips. It is supported by a complete and powerful semiconductor industry chain. Unfortunately, China’s semiconductor industry is currently big but not strong.

On May 15, 2020, the U.S. Department of Commerce released two messages on its official website, one of which stated that Huawei “destroyed” the entity list, thus restricting Huawei from continuing to use products designed and produced by U.S. technology, mainly chips. Once again let us feel the deadly threat of “core technology” being “stuck”.

More basic than chips are semiconductor devices

The birth of a chip needs to go through three major links: design, manufacturing, packaging and testing.

As a leading chip designer in mainland China, Huawei HiSilicon has obtained the permanent authorization of ARM’s V8 architecture. It can design chips by itself by using EDA software, entrust Taiwan Semiconductor Manufacturing Company (TSMC) to manufacture, and then conduct packaging and testing. Produce flagship SOCs such as the Kirin 990.

The new U.S. restrictions have drawn wages from the bottom of the pot, preventing Huawei from directly using U.S.-based EDA software and technology, and preventing TSMC from continuing to manufacture chips for it. As a result, Huawei must complete the self-research of EDA software and technology as soon as possible within 120 days after May 15, and complete the docking with the domestic foundry.

EDA software, if Huawei is prepared in this regard, it may also use self-developed “spare tires” to make up for it; but the problem of chip manufacturing is difficult for Huawei to solve by itself.

On May 18, Guo Ping, Huawei’s rotating chairman, said at the 17th Huawei Global Analyst Conference: “Huawei does not have chip manufacturing capabilities other than chip design, and we are still working hard to find solutions. Survival is what Huawei is now. subject heading.”

In order to further alleviate the impact, Huawei has urgently placed an additional order of US$700 million from TSMC, including 5nm and 7nm chips. The market expects that if the order is delivered smoothly, it can at least meet Huawei’s chip demand for one quarter.

It is pessimistically expected that after a quarter or two, Huawei can only use SMIC’s 14nm process to produce chips.

Under 14 nanometers, SMIC also has N+1 and N+2 processes close to 7 nanometers. At the 2020 Q1 financial report meeting, Liang Mengsong, co-CEO of SMIC, announced the latest progress. Among them, the N+1 process was taped out in the Q4 quarter of last year, and it is currently in the stage of customer product verification. It is expected to be mass-produced in the Q4 quarter.

With the state’s investment of nearly 20 billion, SMIC’s target production capacity of 14nm 35,000 wafers per month can be completed as soon as possible, and the mass production progress of N+1 and N+2 processes may also be greatly accelerated.

But all this must meet a premise, that is, including the lithography machine, all kinds of semiconductor equipment needed by SMIC can be put in place as soon as possible.

Without the support of various semiconductor equipment, SMIC’s advanced process wafers cannot be successfully mass-produced, Huawei’s predicament is unsolved, and China can never get rid of the passive situation of being “stuck in the neck” in terms of core technology.

Domestic semiconductor equipment manufacturers need to struggle

As one of the core equipment in the front-end process of integrated circuit manufacturing, all wafer manufacturing lines are inseparable from lithography machines. However, the global high-end lithography machine market below the 28nm process is almost completely monopolized by ASML in the Netherlands.

ASML is also the only manufacturer in the world capable of producing EUV (Extreme Ultraviolet Lithography) equipment, and EUV equipment is the key equipment for advanced processes below 7 nanometers. The mass production of SMIC’s N+2 process also requires the participation of EUV equipment.

In 2018, SMIC ordered an EUV equipment from ASML with a high deposit of 120 million US dollars. However, due to repeated obstructions from the United States, ASML was unable to complete the delivery of the equipment.

On May 14, the day before the US issued a new restriction order on Huawei. ASML signed a cooperation agreement with the government of Wuxi High-tech Zone, Jiangsu Province to set up a lithography machine equipment technical service (Wuxi) base. ASML will build a professional team technology center to engage in technical services such as lithography machine maintenance and upgrade, and build a supply chain service center at the same time , providing efficient material and logistics support.

This indicates that the EUV ordered by SMIC is expected to be delivered, or has already been delivered. ASML’s emphasis on the Chinese market is obvious, but the reality teaches us that it is better to rely on ourselves than others, otherwise we will always be controlled by others.

Huawei is facing difficulties, and SMIC is under heavy pressure. The current situation also poses a huge test for domestic semiconductor manufacturers such as North Huachuang, China Microelectronics and Shanghai Microelectronics.

These semiconductor equipment manufacturers are the foundation. They determine the upper and lower limits of the competitiveness of the domestic semiconductor industry. They are also the real key to the complete independence of my country’s semiconductor industry in the future. They have great responsibilities, so they must work hard.

It’s a test and an opportunity

If the U.S. traces “American technology” indefinitely, not only TSMC, but also manufacturers in mainland China including SMIC cannot help Huawei produce chips, because domestic manufacturers are highly dependent on U.S. and Japanese semiconductor equipment, according to research by Guotai Junan Securities. It is estimated that as of 2019, the comprehensive localization rate will not exceed 25%.

Fortunately, the country is very determined to support the semiconductor industry. On October 22, 2019, the second phase of the National Fund was established. According to the plan, its investment direction will focus on chip manufacturing and upstream equipment such as etching machines, thin film equipment, testing equipment and cleaning equipment.

Under the current situation, the United States has stepped up its blockade, which is both a test and an opportunity for domestic semiconductor equipment manufacturers. After the United States announced the sanctions against Huawei on May 15, the second phase of the National Big Fund announced that it would increase its capital by nearly 20 billion to SMIC. This is a signal that the state may speed up the pace of investment in semiconductors.

If the investment is in place as soon as possible, the financial troubles of domestic equipment manufacturers will be greatly alleviated, and the accelerated catch-up mode will be started one after another. In addition, the uncertainty of the global semiconductor industry chain has increased, more terminal equipment manufacturers have returned, and the production capacity of semiconductor manufacturers has expanded, and the potential of domestic semiconductor equipment manufacturers will also be further released.

The situation of domestic semiconductor equipment manufacturers is mixed, but we must always be optimistic and fight to the end.

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