SMIC’s Advanced Chip Production Likely Kneecapped By U.S. Sanctions

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The United States Department of Commerce (DoC) officially added China's Semiconductor Manufacturing International Corporation (SMIC) to its Entity List today. This decision further expands the use of American sanctions against Chinese entities that the U.S. government believes are acting against American national security interests by having direct ties to the Chinese military. As the rationale behind its decision, the Commerce department cites Chinese laws that aim towards closely-knit civil-military cooperation, stating that if SMIC is allowed to operate unhindered,  then American technology will have furthered Chinese interest at the detriment of the United States.

American Sanctions Hit SMIC Precisely At The Process Nodes It's Struggling To Develop

The key bit of information from today's announcement, apart from the usual concerns that quarters in Washington have exhibited about American technology making its way to the Chinese military, is the Commerce Department explicitly mentioning the process nodes that it aims to prevent SMIC from developing.

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To quote the Department:

The Entity List designation limits SMIC’s ability to acquire certain U.S. technology by requiring U.S. exporters to apply for a license to sell to the company.  Items uniquely required to produce semiconductors at advanced technology nodes—10 nanometers or below[EMPHASIS ADDED]—will be subject to a presumption of denial to prevent such key enabling technology from supporting China’s military-civil fusion efforts.

This little tidbit is particularly important since it comes just a day after SMIC's co-CEO Mr. Mong-song Liang announced his surprise resignation from the company. While this stemmed from SMIC making a key executive hire without informing Mr. Liang, the contents of his letter were particularly revealing when it comes to evaluating how far ahead SMIC is when it comes to catching up with global foundry leader, the Taiwan Semiconductor Manufacturing Company (TSMC).

A new Chinese Air-to-Surface missile being fired from the Z-10A attack helicopter. This missile is similar in appearance to the Blue Arrow 21 (BA-21) missile which is suspected to use a millimeter-wave radar. The mmWave frequency is also used by smartphones for connecting to next-generation 5G cellular networks. Image: CCTV/Weibo

In the letter, the estranged executive stated that SMIC was on course for risk producing its 7nm semiconductor manufacturing process by April next year. Additionally, and crucially, Mr. Liang also highlighted how China's premier foundry had managed to overcome eight key stages of developing the currently leading-edge 5nm semiconductor node.

In his own words (courtesy of STCN, and quoted by other publications including SCMP):

At present, 28nm, 14nm, 12nm, and n+1 technologies have all entered mass production, and the development of 7nm technology has also been completed. Risk mass production will be available in April next year. The 8 most critical and most difficult technologies of 5nm and 3nm have also been carried out in an orderly manner [EMPHASIS ADDED]. Only when the EUV lithography machine arrives, we can enter the full development stage.

Judging by this progress, it's clear that policymakers in Washington seem to aware of the current state of China's chipmaking sector. While lithography machines are perhaps the most well-known component of semiconductor fabrication, they're just one part of an industry that needs up-to-date advances in chemistry and material sciences for reducing the size of the billions of circuits printed on a tiny piece of silicon.

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The new sanctions' effect on the current state of the Chinese chip industry becomes even more clear as a key development from the Asian country that was reported today is analyzed in tandem with them.

This came as China's Jiangsu Nata Opto-electronic Material announced that its customers had successfully validated a photoresist material that will work with Argon Flouride (ArF) Excimer lasers used for chip fabrication. These lasers have been used by TSMC to manufacture its chips for the 10nm process node and can theoretically be used for making 7nm chips as well - if other materials such as photomasks are also suitable for the purpose. American ally Japan is also capable of exporting some of these materials, with it having imposed sanctions of its own for such materials against South Korea.

The author has no position in any of the stocks mentioned. NewAgeAds LLC has a disclosure and ethics policy.
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