Domestic foundries seek to benefit from geopolitical power plays
Semiconductor Manufacturing International Corporation (SMIC), China’s largest pure-play foundry, announced in September 2021 its plans to invest $8.9 billion in a new Shanghai-based fab for 12-inch (300 mm) wafers. The expansion plan is part of a joint venture with the Shanghai government’s Lingang Free Trade Zone, which also happens to be the new home of electric vehicle pioneer Tesla’s first Chinese Gigafactory. This move marks a shrugging-off of the impact of the trade dispute between the US and China.
When completed, the new fab is expected to provide more than 100,000 wafer starts per month. This volume would represent a sizable bump in manufacturing capacity; SMIC’s current combined fab capacity for 12-inch wafers is estimated to be about 245,000 per month. SMIC indicated that this new facility will be fitted for the mature 28 nm semiconductor process node, making it ideal for producing chips for the automotive industry, as well as other sectors that don’t need leading-edge semiconductor processes.
This news comes as the global semiconductor industry is wrestling with crippling silicon capacity constraints, expected to drag well into 2022. Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest pure-play foundry, already announced it would invest $100 billion over the next three years to expand overall capacity. Other foundries are accessing their own strategic investments as global demand for semiconductors is set to remain strong.
Beyond the news of the new Shanghai fab, SMIC expects the planned opening of a silicon fab in Shenzhen to start commercial wafers in 2022, delivering an immediate boost to overall manufacturing capacity. The chipmaker has another previously budgeted foundry in the works, in Beijing, and expects it to start running in 2024.
SMIC is also looking to keep top talent within its ranks. Recent adjustments to its employees’ compensation plans call for large payments of bonuses as stock, as a tool to hold onto talent, given China’s notoriously mobile technology workforce. According to company filings, the new compensation scheme covers some 4,000 employees, accounting for more than 20% of the whole company.
In December 2020, SMIC appointed industry veteran Chiang Shangyi as vice chairman and executive director. It lured Mr Chiang out of retirement to take the helm; he had previously been the head of research and development at TSMC. With this high-profile hire, SMIC signalled its commitment to attract and retain the talent it needs to compete effectively as the Chinese semiconductor industry heads into a new era of growth — one bound by the new reality of geopolitical gamesmanship between China and the US.
Other Chinese players are also strongly committed to expansion. Yangtze Memory Technologies Corp (YMTC) announced earlier this year that it aims to double its output of 3D NAND memory chips in 2021. YMTC is a clear success story in its home market; the company has developed a 128-layer 3D NAND process, placing it on a par with global leaders including Samsung and SK Hynix. If it achieves its goal of doubling its memory chip output, YMTC stands to overtake both Korean chipmakers as the world’s largest producer of advanced 3D NAND memory.
It’s important to note the role of the central Chinese government in this latest wave of semiconductor expansion. Becoming fully self-reliant in terms of semiconductors by 2025 has been a leading aim for the administration. Now, with the geopolitical tussle between Beijing and Washington, that strategic objective has become an imperative. Government support for the domestic industry will continue to help welcome new entrants into the industry — companies that design chips as well as the likes of SMIC and YMTC, which develop sophisticated fabrication tools for foundries. China is hoping that by diverting capital and resources, it can forge a new path toward semiconductor self-sufficiency.
All in all, SMIC’s expansion plan is taking shape, allowing it to take the lead in the Chinese semiconductor industry. The key message here is that China’s central government and semiconductor industry will continue to keep their feet on the gas despite US-imposed trade challenges. Success for the Chinese semiconductor industry will come from growing quickly, building capacity and then winning on the global stage. In this latest round of expansion plans, SMIC continues to draw from that playbook.
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