Because the integrated circuit industry chain is extremely complex, there are many misconceptions about it. This article addresses five of the most common misconceptions about domestically produced chips:
1. Can you manufacture chips just by having a lithography machine?
In fact, photolithography is only one of the seven major processes in the semiconductor front-end (photolithography, etching, deposition, ion implantation, cleaning, oxidation, and inspection). Although it is one of the most important processes, it cannot function without any of the other six.
The manufacturing process of integrated circuits is divided into "three major" + "four minor" processes:
The three main processes (75%) are: photolithography, etching, and deposition.
Four small steps (25%): cleaning, oxidation, detection, and ion implantation.
Generally speaking, lithography accounts for 30% of the total equipment investment in the entire production line. It is one of the three most important front-end equipment, along with etching machine (25%) and PVD/CVD/ALD (25%). Therefore, having a lithography machine does not mean you can manufacture chips. Lithography is only one part of the chip manufacturing process. It also requires the support of the other six front-end process equipment, which are as important as the lithography machine.
Second, what is China's most urgent task? To manufacture lithography machines.
In fact, China does not lack lithography machines at present, but it lacks other six major categories of process equipment (deposition, etching, ion implantation, cleaning, oxidation, and inspection) that are controlled by American manufacturers.
Photolithography machines can be broadly classified into two categories:
1. DUV (Deep Ultraviolet) lithography machine: capable of fabricating chips from 0.13µm to 7nm;
2. EUV extreme ultraviolet lithography machine: suitable for chips from 7nm to below 3nm.
Currently, DUV lithography machines are not restricted to China and are still being supplied normally because the main suppliers are ASML in the Netherlands and Nikon and Canon in Japan, and are not directly subject to the US ban. However, EUV lithography machines have not yet been purchased.
As mentioned in the previous report, we believe that China's semiconductor industry will shift from a completely external-oriented model to a dual-circulation structure of external and internal circulation. Given the reality of deep global specialization in semiconductors, the external circulation strategy, which involves uniting with non-US equipment manufacturers, remains a key and realistic choice. The current front-end equipment landscape is as follows:
1. Lithography machines: Monopolized by ASML in Europe and Nikon and Canon in Japan;
2. Etching, deposition, ion implantation, cleaning, oxidation, and testing equipment: These are monopolized by the United States and Japan, with the testing equipment being monopolized by the American company KLA Deep.
Therefore, under the current backdrop of China's semiconductor capacity expansion, the most urgent task in the dual circulation strategy is to rely on domestic production and cooperation with Europe and Japan to replace the non-lithography equipment controlled by the United States. Thus, contrary to the understanding of most people, China's semiconductor manufacturing does not lack lithography machines.
3. Can "self-developed" chips solve the chip shortage?
In fact, most of the current "self-developed" chips not only fail to solve the current chip shortage, but will also exacerbate it.
The so-called "self-developed" chips of major internet companies, car manufacturers, and mobile phone manufacturers are actually just part of the chip design process, a step in the chip manufacturing process. They lack the crucial chip manufacturing step that we need. The current global chip shortage isn't about chip design, but about the most critical and essential chip manufacturing.
The current trend of everyone developing their own chips will increase wafer foundry orders and further widen the supply-demand gap in chip foundry capacity. Therefore, in the future, the only way to solve the chip shortage is through fab manufacturing plants (SMIC, Huahong) and IDM plants (CR Microelectronics, CMMI, CMMI), rather than through "self-developed" (chip design).
Comparatively speaking, chip design has a relatively low barrier to entry, is quick to start and yields results, and its business model is similar to that of software development. China has already become a global leader in many chip design fabless fields. Taking Huawei HiSilicon as an example, before being restricted from chip manufacturing, HiSilicon's chip design capabilities were already among the top two in the world.
Therefore, what needs more support now is the chip manufacturing sector, rather than chip design (self-developed). Without the support of a stable fab foundry, fabless is nothing but a castle in the air and a mirage.
IV. Is China currently only lacking in high-end chips?
Currently, what China lacks more is mature process technology. 8-inch wafers are in short supply compared to 12-inch wafers, and 90/55nm wafers for 12-inch wafers are in short supply compared to 7/5nm wafers.
Both mature and advanced manufacturing processes are important and indispensable. In a mobile phone, apart from the application processor (AP) and DRAM, the vast majority of other chips use mature processes. The chips needed for electric vehicles, especially power semiconductor chips/MCU chips, are mature 12-inch or 8-inch chips.
For China, the gap with TSMC is not only huge in advanced 7/5/3nm processes, but even greater in the production capacity of mature processes. Based on equivalent 8-inch capacity, SMIC's capacity is only 10% to 15% of TSMC's, a still enormous gap that cannot meet domestic demand.
In particular, the vast majority of domestic listed chip design companies are at mature process nodes, but they lack the mature domestic foundry capacity to support them.
Will Semiconductor's CIS/PMIC/Driver chips, GigaDevice's NOR and MCU chips, Goodix Technology's fingerprint recognition chips, SG Micro's analog IC chips, and Maxscend Microelectronics' RF chips are all manufactured using mature 12-inch processes (90-45nm), not the so-called advanced 14/10/7/5nm processes. More importantly, the electric vehicle and photovoltaic inverter/MCU/power chips, which currently have the highest demand, are manufactured using mature 8-inch production capacity. This is also the most scarce segment, even more so than the so-called "advanced" chips.
Therefore, the most urgent task now is not 7/5/3nm, but to first develop a mature process.
V. Should China independently build its own semiconductor industry system?
In fact, the semiconductor industry is a highly globalized industry, and no single country can achieve complete "domestic production".
The current global semiconductor footprint is as follows:
Semiconductor equipment: Mainly from the United States, with Europe and Japan as secondary suppliers;
Semiconductor materials: Japan is the main supplier, with the United States and Europe as secondary suppliers;
Chip manufacturing: Mainly Taiwan, with South Korea as a secondary player;
Memory chips: South Korea is the main supplier, with the United States and Japan as secondary suppliers;
Chip design: primarily by the US, with mainland China as a secondary player;
Chip packaging and testing: Primarily Taiwan, with mainland China as a secondary focus;
EDA/IP: The US is the primary provider, with Europe playing a secondary role.
Therefore, we can see that no single country in the world can cover the entire semiconductor industry chain, so global cooperation remains the mainstream in the industry.
However, due to the technological friction between China and the United States, China must adopt a dual circulation strategy. This means shifting from a strategy primarily based on external circulation and secondarily on internal circulation to one where external circulation is secondary and internal circulation is primary.
Therefore, in the face of the constraints imposed by the United States on China, the most urgent task is to replace the United States in areas of strength and to make every effort to continue external circulation to countries outside the United States (such as Europe and Japan).
Currently, the core technologies controlled by the United States are concentrated in semiconductor equipment (PVD, inspection, CVD, etching machines, cleaning machines, ion implantation, oxidation, epitaxy, annealing) other than lithography machines, as well as EDA development software.
Risk warnings: Risks of escalating trade frictions and geopolitical tensions between China and the US; risks of domestic substitution falling short of expectations; risks of downstream semiconductor demand falling short of expectations.
Previous reports: "Where is China's Semiconductor Industry Heading?", "Three Stages of Understanding Huawei", "The Landscape of Domestic Equipment", and "The Semiconductor Industry Transformation from an Analyst's Perspective".
