US trade sanctions prompt innovation
In 2021, the Chinese semiconductor industry has embarked on a fundamental recalibration of its business goals. Central to this rethink is a focus on established and mature silicon process nodes, which aren’t subject to the US trade sanctions, rather than the previous goal of catching up with the global market. The industry is also looking to develop a self-sufficient set of material and equipment providers that will help shield against further big market disruptions. Many of these themes have been discussed in our previous blogs on Chinese semiconductor industry transformation, which you can read here and here.
In this piece, we explore the innovations and creative market approaches that the industry is using to stay relevant, and even thrive, in the new reality of trade tensions between the US and China.
The Chinese semiconductor industry has often been described as a “fast follower” with domestic players exploiting the scale and low cost of manufacturing in China to be competitive on the global market. But with the developments over the past year, there are examples surfacing that instead highlight the creative thinking and technical innovation in domestic semiconductor technology and market competition. The prime example of this development is Yangtze Memory Technologies (YMTC).
YMTC is a memory chip manufacturer specializing in dynamic random-access memory (DRAM) and non-volatile NAND memory technology. In the context of the global semiconductor industry, memory chips are considered commodity parts. Leading edge components are usually provided by major South Korean chipmakers Samsung and SK hynix, and US-based Micron Technology. These providers capture most of the profits in this notoriously competitive market.
Therefore, it’s no surprise that the global market for memory chips is concentrated in this handful of Korean and US suppliers, which also lead in process node advances for memory chips. The typical process for NAND memory today is in the realm of 14 nm; Chinese market leaders trail in nodes with 20 nm and 18 nm processes. For the non-volatile NAND memory market, competition is in geometric growth in memory cell stacking, increasing memory density for every square millimetre of silicon.
The heavy layer count for NAND production indicates the sophistication needed to be a market leader; the latest benchmark for memory layers is currently at 176, established by Micron Technology. So, it came as a surprise when YMTC announced in 2020 that it would be mass-producing a 144-layer vertical NAND design. Using a unique architecture which it markets as Xtacking, it manufactures the memory cell separate from the logic cells, then brings them together through wafer-level interconnects which stack the latter on top of the former. This design is a truly innovative method of NAND manufacturing that offers potential for YMTC to move right up next to the Korean and US leaders.
This spirit of innovation and unconventional thinking can be found in other corners of the Chinese semiconductor industry. SMIC, China’s largest semiconductor foundry, is altering its manufacturing capability to become one of the most cost-effective producers of 14 nm and 12 nm silicon processes. This is because of US trade sanctions preventing it from pursuing more-advanced processes by limiting its access to leading-edge extreme ultraviolet lithography tools.
In a reflection of these market opportunities and the nurturing of the domestic industry by China’s government, the number of newly registered semiconductor companies increased significantly in 2021. Large Chinese companies downstream from the industry have also indicated that they’re actively looking to build their own custom chipsets, in stark contrast to the convention of purchasing existing designs from US chip giants.
Firms including Baidu, Alibaba, Oppo and Xiaomi have already designed or expressed commitment to create custom chips to better differentiate their products. This insourcing trend continues outside of mainstream tech firms to other industries, with appliance brands such as Cree, TCL, Konka and Midea expressing similar ambitions of designing custom chips.
Crises and challenges often spark creative solutions. The Chinese semiconductor industry is rising to the challenge, and displaying several examples of efforts to reposition itself to be domestically resilient and globally competitive. The future for the industry is not as cloudy as some observers may think — these slivers of silver linings are showing the ingenuity that is borne out of necessity against a backdrop of global trade tensions.
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