International. A series of specific updates to its export regulations related to semiconductors and associated technologies with respect to China were announced by the United States on October 7.
Market analyst, IDTechEx, explains that two of the nine new rules stand out, given the scale of the short- and long-term impact they will cause. Here is an analysis of the impact of these changes:
(1) Restricts the ability of U.S. persons (including citizens, green card holders, and foreign nationals living in the U.S.) to support the development or production of integrated circuits in advanced semiconductor manufacturing plants based in China without a license.
Since the rule's implementation on Oct. 12, 2022, it has sparked a wave of mass retirements of U.S. workers, including resignations of senior management personnel, from Chinese semiconductor companies.
U.S. workers at Chinese semiconductor companies such as Yangtze Memory Technologies Co. Ltd (YMTC), ChangXin Memory Technologies (CXMT), Shanghai Semiconductor R&D Center Jiading Factory and Hangzhou HFC Semiconductor Corp. reportedly resigned one after another last week. U.S.-born chip equipment suppliers, including Applied Materials, KLA Corporation and Lam Research, have halted their corresponding services and support in China and pulled their U.S. workers out of China.
Beyond this, there is a deeper problem: many CEOs, senior managers in R+D departments, and engineers at major Chinese semiconductor companies are Chinese and hold U.S. green cards or, in some circumstances, are already U.S. citizens.
Some examples include the U.S. citizenship of the founder of Advanced Micro-Fabrication Equipment Inc. (AMEC), one of China's leading semiconductor equipment suppliers. Along with the founder, at least six other senior management members and other important R+D engineers are all Chinese Americans. It's not just AMEC: the CEO of KINGSEMI Co. Ltd., a key supplier to TSMC, owns an American green card, as well as the deputy director of Giga Device, a FLASH memory integrated circuit (IC) design company. An estimated 43 U.S. CEO-level executives are employed by 16 semiconductor companies listed on the Chinese stock exchange. According to the Financial Times, 200 people with US passports are employed by Chinese semiconductor organizations.
Since the limitation is now in place, the US has forced people to choose: they must choose between their nationality and their profession. It is very likely that the Chinese government will use its influence to persuade these high-level Chinese Americans employed in the semiconductor business to stay. However, short-term talent drain and disruption are inevitable.
There is an awareness that the semiconductor business, particularly in advanced manufacturing, relies heavily on talent. China has made numerous attempts to attract foreign talent in semiconductors to help it establish its position in the industry, particularly in the field of advanced logic IC, which is essential for all future enabling technologies such as artificial intelligence (AI), machine learning, autonomous driving, supercomputers and more. Undoubtedly, this ban is a major blow to China's advanced semiconductor sector, which is already struggling to be at the forefront of the semiconductor industry.
(2) Restricts the supply of equipment and tools to any factory in China that manufactures or develops the following:
to. Logic chips with non-planar transistor architectures (i.e. FinFET or GAAFET) of 16nm or 14nm or less;
b. 18nm half-pass DRAM memory chips or less;
C. NAND flash memory chips with 128 layers or more.
Any U.S. company wishing to do so must obtain a license from the Department of Commerce's Bureau of Industry and Security (BIS).
The embargo will certainly make China's advanced silicon development much more difficult. Three companies, Semiconductor Manufacturing International Corporation (SMIC), YMTC and CXMT, are expected to be hit the hardest.
SMIC's 14nm have entered mass production, and 10nm and 7nm are in the research and development phase. In the field of DRAM, CXMT is the largest manufacturer in China and its main products use the 19nm process and advance towards 17nm. In the NAND field, YMTC already mass-produced 128-layer products in 2021, and 232-layer products have been announced, although they are not yet mass-produced.
The ban on supplying advanced manufacturing equipment, as well as the ban on Americans working for advanced Chinese factories, has left companies like SMIC, YMTC, and CMXT unable to obtain any equipment/service/support from their previous U.S. suppliers (or allied U.S. suppliers), such as Applied Materials, KLA, Lam Research, and ASML. The consequences will be enormous. Advanced Si logic integrated circuit manufacturing is unattainable without advanced manufacturing equipment, software, and services/support from the supplier's experienced engineers.
According to some equipment manufacturers, even if the maintenance and installation personnel of foreign equipment factories are Chinese citizens, as long as the equipment technology belongs to the United States and falls into one of the three categories listed above, you will not be allowed to operate in China.
It's not just the hardware that's affected
The limits of certain software applications are not well defined; For example, many manufacturing teams use the same set of software for 14/28nm production, causing disruption of the supply or service of such devices, affecting multiple 28nm factories.
To summarize, China will have an even harder time establishing advanced silicon manufacturing capability on the ground on its own. Even if no limits are imposed, it may be at least seven years before SMIC (China's only manufacturer of 14nm logic integrated circuits) catches up with industry leaders like TSMC and Samsung. With restriction, the barrier is immense; The Chinese would have to design everything from software to equipment throughout each manufacturing process on their own, which is a nearly impossible task.
To overcome this massive challenge, IDTechEx noted that China's semiconductor industry also intends to "take a detour" through the development of advanced semiconductor packaging. Advanced semiconductor packaging is the key to the development of chiplet technology, which the semiconductor industry considers a key technology beyond the physical limit of Moore's Law.
Of course, the disturbance is not felt exclusively in one direction; all of these U.S.-born/U.S. allies involved in the advanced semiconductor business will be affected in some way.
For example, Apple recently abandoned its intention to use YMTC's 3D NAND flash memory, which the two companies had been developing together since 2018. According to sources, Apple wanted to adopt YMTC products because the price is 20% lower than the competition due to the Chinese government's subsidy to YMTC.
Regardless, geopolitics moves rapidly and retaliatory measures by the Chinese government are possible; many will watch very closely the follow-up of the party conference in China.
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