On October 17, 2023, the U.S. government unveiled an updated set of regulations for semiconductor exports, introducing stricter standards for advanced AI chips. Additionally, these regulations expand control over the export of exposure equipment and include Chinese GPU design startups on an Entity List.

TrendForce’s Insights: 

1. New regulations cover chips, manufacturing equipment, and related companies, signaling an effort to restrain China’s AI development.

In this latest set of regulations, the U.S. has relaxed the I/O bandwidth restrictions for AI chips and introduced three additional conditions beyond a total processing performance (TPP) of ≥ 4800 TOPS:

(1) Total processing performance ≥ 1600 TOPS and performance density (PD) ≥ 5.92

(2) Total processing performance ≥ 2400 TOPS but < 4800 TOPS and performance density ≥ 1.6 but < 5.92

(3) Total processing performance ≥ 1600 TOPS and performance density ≥ 3.2 but < 5.92

As a result of these new conditions, NVIDIA’s A800, H800 GPU, and the recent launched L40S GPU for the Chinese market are now included in the list of controlled exports, similar to the A100 and H100 GPUs that were added in September 2022.

Concerning manufacturing equipment, the control threshold for exposure equipment has shifted from single-machine (specified substrate) coverage precision of ≤ 1.5nm to > 1.5nm but ≤ 2.4nm. This change directly led to the inclusion of ASML’s 1980Di DUV lithography machines.

On the corporate front, Chinese domestic GPU design startups such as Birentech, Moore Threads, and high-speed DSP design company Superfusion Semiconductor, along with their related entities, have been placed on the Entity List by the U.S. Department of Commerce.

In summary, these new regulations encompass chips, manufacturing equipment, and related companies. The U.S. is not only controlling the current mainstream AI product lines and applications of DUV lithography machines for 28-7nm processes but is also making a clear effort to interfere Chinese domestic manufacturers’ development of AI computation chips, indicating a strong determination to restrict China’s growth in the AI sector.

2. Priority for Chinese Enterprises: Securing AI Computing Resources through Cloud Service Providers

In light of the impact of the new U.S. semiconductor control regulations, Chinese domestic companies will be limited to AI chip performance not exceeding that of NVIDIA L40 GPU. As leading companies like NVIDIA, AMD, Intel, and others continuously boost the performance of their AI chips, the gap between the AI computing resources established by Chinese companies and their international counterparts will continue to widen.

Looking at it from an angle of independent research and development, with the inclusion of 1980Di and more advanced DUV lithography machines in the control list and the U.S. Department of Commerce placing Chinese IC design companies on the Entity List, short-term mass production of high-performance server AI chips in China seems unlikely.

Faced with challenges in both outsourcing and in-house production, the primary path for Chinese domestic companies to develop AI technology and applications is to obtain high-performance AI computing resources from international cloud service providers (CSP). It is worth noting that the U.S. government is also exploring limitations on Chinese firms attempting to evade semiconductor control policies through CSP. For Chinese companies, establishing robust customer relationships and building extensive AI computing resources are pressing priorities before related policies are enacted.
(Image: Pixabay)

According to a report by Bloomberg, Yoshihiro Seki, Secretary-General of the ruling Liberal Democratic Party and a member of the Japanese parliament, has announced that the government is planning to allocate an additional ¥900 billion for the construction of TSMC’s Fab 2 in Kumamoto, Japan. Furthermore, an extra ¥590 billion in subsidies will be provided to support the construction of a wafer fab by the Japanese semiconductor startup Rapidus.

Seki emphasized that subsidies usually cover about one-third of the total investment. With measures like training Japanese engineers and collaborative R&D with local companies, this subsidy could increase to potentially cover up to half of the investment. He also noted that the specific amount remains subject to change as the additional budget has not been finalized yet.

The Japanese government initiated the “Strategy for Semiconductors and the Digital Industry” in 2021 to address economic risks and prepare for the wave of digitalization. At that time, they already provided ¥476 billion in subsidies for TSMC’s Kumamoto 1st Fab. The current subsidy marks an expansion of these efforts.

The local government Kumamoto is eagerly anticipating TSMC’s presence. Ikuo Kabashima, the Governor of Kumamoto Prefecture, recently proposed “New Airport Concept Next Stage” that envisions using the airport as a hub for semiconductor imports and exports over the next decade. This plan aims to stimulate the clustering of semiconductor-related industries and contribute to regional development centered around Kumamoto.

Moreover, the Japanese government has pledged to provide ¥330 billion in funding to enable Rapidus to construct a 2nm wafer fab in Hokkaido. These substantial subsidies underscore the Japanese government’s commitment to these semiconductor projects.

In response to the Japanese government’s additional subsidies, Tetsuro Higashi, Chairman of Rapidus, stated in an interview with Jiji Press on the 24th that apart from the new factory being built in Chitose, Hokkaido, “We also plan to construct second and third factories, and they will also be situated in Chitose, Hokkaido.” Rapidus’s 2nm chip R&D/production facility, Chitose Fab IIM-1, located in the Chitose Meimeimei World industrial park in Chitose, Hokkaido, commenced construction in September. The trial production line is expected to start in April 2025, with mass production slated to begin in 2027.

The semiconductor foundry, United Microelectronics Corporation (UMC), held an online briefing on October 25th to unveil its 3Q 2023 operational report. UMC achieved consolidated revenue of NT$57.07 billion, marking a 1.4% growth compared to the previous quarter’s NT$56.3 billion in 3Q23. However, it’s essential to note that this quarter’s revenue decreased by 24.3% in comparison to 3Q 2022.

In 3Q, a 35.9% gross margin yielded a net profit of NT$15.97 billion and an EPS of NT$1.29. The first three quarters of 2023 saw revenue at NT$167.575 billion, marking a 20.5% decline from 2022. The gross margin for this period remained at 35.8%, resulting in a net profit of NT$47.795 billion and an EPS of NT$3.87.

UMC’s Co-president, Jason Wang, highlighted that the company’s performance in the 3Q was boosted by the growing demand in the computer and communication sectors. This was further enhanced by ongoing improvements in product offerings and favorable exchange rates. Notably, despite a 2.3% decrease in overall wafer shipments, the revenue and gross margin remained robust compared to the previous quarter.

Delving into the terminal product market, products like LCD controllers, Wi-Fi, encoders and decoders, and touch IC controllers stimulated demand in the computer application sector. Additionally, the demand for RF front-end ICs and network chips contributed to the shipment volume in the communication sector.

Looking ahead to the 4Q, Wang said that the computer and communication sectors are gradually recovering in terms of short-term demand. In contrast, the automotive market remains challenging, and customers are adopting a cautious approach in managing inventory levels.

UMC foresees that the expansion of capacity at Fab 12A P6 in Nanjing in 2024 will provide significant support, further boosting revenue contributions for 22/28-nanometer technologies.

UMC’s estimate for the 4Q indicates that wafer shipments are projected to decline by 5%, with the average selling price remaining stable. Capacity utilization is expected to decrease from 67% in the previous quarter to a range of 61-63%, which will consequently impact the gross margin. It is estimated to decrease from 35.9% in the 3Q to a range of 31-33%.

Regarding capital expenditure, Q3 saw approximately $570 million spent, a 30.49% decrease from the previous quarter and a 25.39% decrease from 3Q 2022. Cumulative capital expenditure for the first three quarters reached around $2.4 billion, showing a 52.69% increase compared to 2022. The total 2023 capital expenditure remains at $3 billion, with 90% allocated to 12-inch capacity and 10% to 8-inch capacity.

(Image: UMC)

SK hynix has introduced LPDDR5T (Low Power Double Data Rate 5 Turbo), a mobile DRAM with a remarkable 9.6Gbps speed. What sets this apart is its compatibility with Qualcomm’s new Snapdragon 8 Gen 3 Mobile Platform.

LPDDR5T features a 16GB-capacity version, delivering data processing speeds of 77GB per second while maintaining low power consumption. Its efficiency and speed are achieved through the incorporation of HKMG (High-K Metal Gate) technology, which reduces power usage and increases processing speed.

“Generative AI applications running on our new Snapdragon 8 Gen 3 enables exciting new use cases by executing LLMs and LVMs on device with minimal latency and at the lowest power,” said Ziad Asghar, Senior Vice President of Product Management at Qualcomm Technologies, Inc. “Our collaboration with SK hynix pairs the fastest mobile memory with our latest Snapdragon mobile platform and delivers amazing on-device, ultra-personalized AI experiences such as AI virtual assistants for smartphone users.”

“We are thrilled that we have met our customers’ needs for the ultra-high performance mobile DRAM with the provision of the LPDDR5T,” said Sungsoo Ryu, Head of DRAM Product Planning at SK hynix.

This collaboration between SK hynix and Qualcomm signals a new era for smartphones, aims to provide on-device, ultra-personalized AI experiences. As smartphones continue to evolve with enhanced DRAM for mobile, the partnership is set to strengthen and drive innovation in this space, positioning the devices as key vehicles for AI applications in the coming years.

(Image: SK hynix)

Nvidia has announced that the White House’s embargo on exporting advanced artificial intelligence (AI) chips to China will take effect earlier than anticipated, with no expected significant impact on the company’s short-term earnings.

On October 24th, Nvidia issued an announcement through the U.S. Securities and Exchange Commission (SEC), stating that the U.S. government had notified that the temporary final rule of October 18, titled “Implementation of Additional Export Controls: Certain Advanced Computing Items; Supercomputer and Semiconductor End Use; Updates and Corrections,” would be immediately enforced. This rule is applicable to products related to data centers with a “total processing performance” of 4800 or higher. Nvidia’s affected products include A100, A800, H100, H800, and L40S.

Nvidia clarified that the originally scheduled implementation of the authorization provisions would have occurred 30 days after the regulations were issued on October 17. Given the strong global demand for Nvidia products, the early enforcement of the U.S. government’s authorization provisions is not expected to significantly affect its financial reports in the near future.

According to Reuters, Advanced Micro Devices (AMD), which is also impacted by the White House’s export ban, did not respond to media inquiries, and the U.S. Department of Commerce declined to comment.

Bernstein analyst Stacy Rasgon had previously noted that AMD’s current AI chip “MI250” on the market may also face constraints due to the latest restrictions, and the forthcoming “MI300” could encounter challenges.

Intel, which began selling the “Gaudi 2” chip in China in July 2023, stated that the company is “reviewing the regulations and assessing the potential impacts.” Intel had previously developed a specialized version of Gaudi 2 to comply with the advanced chip export ban imposed by the Washington authorities in 2022.
(Image: Nvidia)