China consumes about 70% of global semiconductor production. But the country’s plans to mass produce 14 nm chips next year within the country is likely to make China the biggest semiconductor supplier globally.
A sudden surge in demand for electronics during the COVID-19 pandemic led to an unprecedented shortage of semiconductor chips worldwide. Right from gaming consoles, laptops and desktop to even digital thermometers have been faced with an acute chip shortage due to a sudden increase in demand, bringing to fore the importance of self-sufficiency in semiconductor manufacturing. China is taking a lead in addressing the global shortage of chips by accelerating the development and manufacturing of 14 nm chips, which are expected to go into mass production in the country in 2022.
While China is the world’s biggest consumer of semiconductors, a large part of that demand has been met through imports so far. However, the country is making rapid strides in becoming self-reliant and developing a strong ecosystem of semiconductor design and manufacturing.
“China has a lot of work to do, but the plan appears to address main areas of weaknesses—Electronic Design Automation (EDA) software and semiconductor equipment for lithography. China needs not just to fabricate the chips, but they also need to design software and equipment without having to rely on other countries for those. China has to approximately double its production of semiconductors for its own consumption from 15% of its needs to 30% to lessen the effect of supply disruptions and production of electronics,” says Christopher Taylor, Director, RF and Wireless at Strategy Analytics said while talking about the areas that need to be addressed by China in semiconductor production.
Developing New Competencies
In lithography, China’s Shanghai Microelectronics Equipment Company already offers the 600/20 flagship lithography machine, which uses an argon fluoride excimer laser generating 193 nanometers deep UV light and immersion lithography for 90 nm chips. By Q4 of this year, the company will offer machines capable of 28 nm, the equivalent of ASML’s 1980Di machine.
“With this capability, Chinese semiconductor companies will not have to rely on buying machines from ASML and having them to be maintained and serviced,” Taylor said. He pointed out that with multiple patterning, it should be possible to make a more advanced version of the Shanghai Microelectronics machine capable of 7 nm chips, which is equivalent to more advanced ASML machines. “We think China will have its own 14 nm capable machines in 2022. In EDA, China has a world-class EDA company with worldwide customers. It also has some promising EDA startups,” he added.
The development of 28 nm and 14 nm chips within the country is one of the most significant milestones that China has been able to achieve so far in its journey towards self-sufficiency. For example, China’s biggest semiconductor foundry, SMIC, is already producing 28 nm and 14 nm chips for high volume applications such as smartphone applications processors. There is a significant volume for 14 nm chips, especially in low-end smartphones.
“China has a big role to play in 28 nm and 14 nm chip production. We also see that automotive and industrial applications can benefit from 28 nm chips. We think China is well-positioned to address these applications, including low-end smartphones, automotive, and industrial,” said Saravan Kundojjala, Senior Analyst at Strategy Analytics.
Today, Taiwan and South Korea account for the majority of 14 nm production. But the success of China in 14 nm and 28 nm is critical for the country to claim its stake in the global semiconductor industry, Kundojjala pointed out.
The 28 nm chips are the most popular process known globally. Production of chips of 28 nm and above, therefore, is expected to have an overall impact on self-sufficiency and shortages. Taylor pointed out that chips with 14 nm should be adequate for many processors for phones and other devices, although it is not quite the cutting edge. “Today, 5nm is considered leading-edge. However, leading-edge chips at 7 nm and below made up only 6.4% of the $440 billion of chips sold last year, according to the World Semiconductor Trade Statistics organization. It is, therefore, a relatively small proportion right now. Today, more than 95% of the market is at 14 nm and above,” Taylor said.
Addressing global shortages
Any production of more chips will help in addressing the global chip shortage. According to China’s general administration of customs, China imported about $310 billion of chips in 2020 out of the $440 billion semiconductor market, which is about 70% of the market. Most of the imported chips went into electronics production, more than half of which China exported to the rest of the world.
The semiconductor shortage is expected to persist even through 2022. Multiple factors, including the COVID-19 pandemic-driven demand, earlier than anticipated recovery in the market in sectors such as automotive, stockpiling, double ordering etc., led to this shortage.
“The industry is looking at more capacity. China adds geographic diversity. Companies outside China can also benefit from China’s semiconductor investments and progress,” Kundojjala said. “If you look broadly, shortages point to strong underlying demand. Many companies expect these shortages to persist through 2022. If you look at the total available market for semiconductors, Covid-19 helped the industry permanently increase the TAM of the global semiconductor market size in multiple areas. Thanks to the acceleration of digital transformation, we think China’s contributions and investments will definitely help the world.”
China’s investments in 28 nm and above nodes will help alleviate shortages in power management chips, display driver ICs etc. Semiconductor shortages have highlighted the importance of self-sufficiency, and China is progressing well in that regard. The mass production of 28 nm chips is expected to be realized by the end of this year.
Placing a tough bet?
While highlighting the importance of gambling on self-reliance, Taylor pointed out a similar situation that the US faced three decades ago. “In the 1990s, US semiconductor companies took a gamble on ASML’s immersion lithography machines to avoid buying machines from Japan, kind of a similar situation between the US and China today. Even though it was a gamble, ASML machines turned out to be a big advancement for smaller nodes compared to machines from Canon and Nikon at the time. Today China has the scientific and engineering talent to come up with a similar equivalent. I think they will come up with some innovations,” he said.
China is well placed to use innovations to develop advanced chips for artificial intelligence, machine learning and other emerging applications. While it is hard to know what these innovations will be, advancements in EDA and semiconductor machine technologies promise to place China in the front seat.