Nikkei Asian Review September 9, 2020 13:12 JST “China chipmakers speed up effort to cut reliance on U.S. Supplies. SMIC to conduct production line trial while Yangtze Memory raises localization target [from 30%-70%]” by Chen Ting-Fang and Lauly Li
SMIC, Semiconductor Manufacturing International Corporation-the largest Chinese chipmaker, Yangtze Memory Technologies-China’s first and only 3D NAND flash memory maker, and others are setting out on a Plan B to U.S. sourcing. They are set to test “homegrown and non-U.S. equipment in their production lines” for 40nm chips-by years-end and more advanced 28nm semiconductor chips-within a few years. Already many have “stockpiled several years of inventory from…Applied Materials” and others.
All technology companies, the military, and leaders like Samsung Electronics and Taiwan Semiconductor Manufacturing Company (TSMC) need semiconductors to fulfill customer demand including services companies like WeChat and Tik Tok. Without Plan B a further U.S. reduction would lead to higher costs and lower performance.
40 nm chips are used in current smartphones, laptops, server processors, TV, surveillance cameras and image sensors. “The performance of smartphone processor chips built with 28 nm…is around seven years behind that of the mobile processors that will go into Apple’s 5G iPhone being released this fall.”
To boost this long-term plan, Beijing is adding tax incentives and urging companies to list on trading markets like Shanghai’s “tech-heavy” STARboard and Shenzen’s ChiNext. Huawei account for 20% of SMIC sales and is another driver of less American reliance. Regardless, today China still requires Japanese, South Korean and European tool vendors “to build a non-U.S. production line.” The American companies dominating the fabrication space are Applied Materials, Lam Research and KLA.
In the plan B effort, China will fall behind in quality in the short-term but expect improvement in the long run. Rudy Abrams (Credit Suisse) notes “China certainly hopes to gain self-sufficiency. However, the global tech supply chain is so interconnected, so it’s very difficult for any country to be 100% self-reliant.