The surge in AIGC and new technologies such IoT, AI, 5G, AR/VR are driving a huge demand for computational power of high-end chips. This has been even outpacing the performance increase offered by the long-standing Moore’s Law, ushering in a “post-Moore” era where revolutions in advanced chip design are crucial.

Over recent years, chiplet design has seemingly become the mainstream approach for upgrading high-end chips. The concept is to allow more transistors on a single chip, effectively increasing the production yield of high-end chips while reducing overall costs.

By the large, major IC players have all jumped on board. Even Apple has joined the game by releasing their M1 Ultra SoC using the chiplet concept, which doubles computational performance by integrating two M1 Max units in a single chip.

The CPU sector is definitely a clear demonstration of this trend:

• AMD took the leap with chiplet design in their 2nd-gen EPYC CPUs, doubling the computing cores from 32 to 64 within two years, while slashing costs by up to half. The company has extended this approach to their 4th-gen EPYC CPUs and even pioneered the GPU Navi 31, the first of its kind to use chiplets.
• Intel started incorporating chiplets into their Lakefield series SoC in 2020. Looking ahead, their upcoming CPUs like the Meteor Lake set for 2023, and Arrow Lake and Lunar Lake scheduled for 2024, will all use chiplet design.

Transition from Bumping to Hybrid Bonding

Our analysis in “Chiplet Design: A Real Game-Changer for Substrates” laid out the comprehensive impact of the evolution of chiplet technology on substrates. In fact, chiplets have already caused a significant disruption to the most advanced semiconductor packaging technologies, necessitating the transition towards advanced 2.5D and 3D packaging technologies.

The bottleneck of advanced packaging lies in the chiplets’ interconnections, with bump and microbump still being the key technology for linking chips and forming I/O joints. These connection densities are hard to enhance, thus limiting the overall chip’s transmission speed. In addition, the more chiplets being stacked, the bigger the chip volume gets. The challenge is how to limit the chip size within a specific range, considering the current technical constraints.

Therefore, copper-to-copper hybrid bonding, also known as DBI (Direct Bond Interconnect), has been emerging as the key technology route that overcomes major hurdles in chiplet integration from the bottom-up.

Unlike bumping technology, hybrid bonding significantly shrinks the I/O joint space. The future transmission demand requires the I/O joint space between chiplets to be less than 10µm. While bumping is limited to around 20µm, hybrid bonding can take this down to an impressive 1µm or even less. This also means more I/O joints can be fitted in the same chip size – even reaching up to millions on a mere 1cm2 chip.

On top of this, hybrid bonding only adds an extra 1-2µm of thickness, compared to the 10-30µm of microbump, thereby helping reduce the thickness of stacked chips.

To put it simply, hybrid bonding can boost transmission efficiency, minimize energy usage with higher density of copper joints, manage chip volume, and even cut down on material costs.

The Race for Advanced Packaging Is Kicking Off

Moving forward, hybrid bonding is set to become the key technology supporting the continuous development of chiplet design and 3D packaging. This has been exemplified by TSMC’s front-end So IC packaging technology which is based on hybrid bonding. This puts AMD, a key customer of TSMC, in a favorable position to get ahead.

From AMD’s roadmap of 3D V-Cache technology, they have stacked SRAM on top of CCX (CPU Complex), and gradually integrated it into Milan-X series, the EPYC server CPUs, and Ryzen series, the consumer-grade CPUs, over the past two years. This has significantly improved performance and power consumption as a whole.

Not to be outdone, this year Intel also launched their Foveros Direct packaging technology, which is also based on hybrid bonding route. Assuming everything proceeds smoothly, we can anticipate the release of CPUs utilizing Foveros Direct technology by 2024.

As we look at the current products, AMD’s hybrid bonding apparently focuses on stacking SRAM and computing units at the moment. However, as CPU leaders deepen their understanding of this technology, the application field is expected to further expand. In other words, the future of hybrid bonding solutions stacking multiple computation units is just around the corner.

Under the grand banner of China’s domestic substitution policy, the wave of locally produced chips is swiftly spreading to the realm of Power Management ICs (PMICs).

Over the past three years, the number of fundraisings for Chinese PMIC manufacturers has shot up. We’ve seen an increase from 18 rounds in 2020 and 19 rounds in 2021 to a whopping 24 rounds in 2022 – a substantial leap from the figures in 2018 and 2019.

Looking at the number of IPO last year, 23 Chinese automotive-grade chip companies went public, with another 25 poised to follow suit. Among these 48 automotive chip firms, 12 boast PMICs, making it the largest product sector in these investments.

New Energy Vehicles Fuel China’s PMIC Market

Both the data points signal a golden era for Chinese PMIC industry, with the new energy vehicles(NEV)emerging as a key driving force.

Compared to traditional vehicles with internal combustion engines, NEV requires a greater number of PMICs, like DC/DC converters, to manage voltage conversions. This, in turn, propels overall PMIC growth. From 2021, automotive PMICs have entered a phase of rapid growth. TrendForce forecasts that the scale of automotive PMICs will reach $7.65 billion by 2023, marking a year-on-year growth of 4.2%.

Government’s subsidy incentives and a booming domestic demand for NEV are the primary reasons for nudging the Chinese semiconductor industry to embrace PMICs more quickly. This trend aligns perfectly with the growth trajectory of China’s power semiconductors.

Chinese Manufacturers Plant Flags in Automotive PMICs

Over the past year, several domestic PMIC manufacturers, including SG Micro, Etek, Shanghai Belling, and Halo Micro, have rolled out automotive-grade PMICs. Some of these chips have even entered mass production and are being adopted by domestic vehicle bands.

Foundries are equally keen to seize the golden opportunity. For instance, GTA Semiconductor has successfully raised over 10 billion yuan in recent years. The company has earmarked a portion of the funds specifically for the R&D of automotive-grade PMIC.

However, the opportunities come with their fair share of challenges. New entrants must navigate stringent automotive certifications, ensure product resilience across extreme temperature ranges from -40°C to 125°C, guarantee a product lifespan exceeding ten years, and manage prolonged validation cycles. These demanding requirements significantly raise the entry barriers for newcomers.

On a global scale, international IDM giants like Infineon, NXP, TI, and Renesas are well entrenched in the PMIC sector, boasting a diverse range of products. In contrast, Chinese PMICs supply chain are just off the starting blocks of the race. To gain trust from customers, expand their product portfolio, and penetrate the global market, they are bound to confront a succession of hurdles, which will persistently scrutinise the enduring R&D capabilities and business strategies of each manufacturer.

The risks associated with the United States’ suppression of China’s semiconductor industry and the ongoing tension in China-US relations continue to permeate the supply chain. However, most customers of foundries are adopting a cautious approach, either maintaining a wait-and-see attitude or gradually introducing second sources to mitigate risks.

The operational conditions and challenges faced by China’s two major foundries, SMIC and HuaHong, differ to some extent. In the case of SMIC, despite being added to the U.S. Entity List as early as 2020, most of its customers continue to place orders with SMIC due to concerns about the time-consuming and costly nature of verification.

According to a survey by TrendForce, only one U.S.-based brand is actively pursuing a decoupling strategy in response to U.S. government bids, while other brands are mostly conducting risk assessments of their supply chains without fully implementing a complete decoupling strategy.

In particular, SMIC still maintains a competitive edge in terms of lower prices and the advantage of the domestic Chinese market, which keeps most of its customers placing orders and prevents a significant drop in overall capacity utilization rate compared to other foundries. Its utilization rate in 1Q23 was approximately 65-70%, and it is expected to slightly increase to nearly 70% in 2Q23.

HuaHong, on the other hand, is taking a cautious approach to address the risks arising from the China-US tension. HuaHong’s subsidiary, ICRD, primarily focuses on process technology R&D, with a particular emphasis on the 28/14nm process nodes.

It is currently setting up a specialized 28nm production line, which uses photolithography equipment from two major international manufacturers, ASML and Nikon. For all other equipment, Chinese domestically manufactured machines are being used as substitutes.

The planned total production capacity for this production line is 40Kwspm ( wafer starts per month). Considering the possibility of both Japan and the Netherlands potentially joining trade sanctions later this year, the future expansion plans for HuaHong’s production capacity are uncertain.

(Photo Credit: SMIC)

Samsung recently announced that they will ahead of TSMC in the foundry market within 5 years. At the same time, Intel also claimed to become the second-largest player in the market before 2030. Currently, both Samsung and TSMC are adapting 3nm process to do the chip manufacturing, with the technology of GAA(Samsung) and FinFET(TSMC) respectively.

Samsung sees GAA technology as a crucial key to surpassing TSMC. Currently, Samsung’s 4nm lags behind TSMC by about 2 years, and its 3nm is about a year behind. However, this situation will change when TSMC turns to 2nm. Industry insider sources indicate that TSMC plans to use GAA technology in 2nm process, and Samsung believes that they can seize the chance to catch up with TSMC since TSMC may have a hard time when turning to 2nm process.

Industry insiders have revealed that AMD has shifted some of its 4nm CPU chip orders from TSMC to Samsung. It is reported that AMD has signed an agreement with Samsung to manufacture some of its mobile SoC by using Samsung’s 4nm node, and Samsung may also manufacture AMD’s Chromebook APU.

The Fight in the Foundry Market is On

According to TrendForce, the top 10 global foundry players in 4Q22 with TSMC account for 58.5% of market share by revenue, far ahead of Samsung’s 15.8%. Industry insiders suggest that Samsung still has a long way to go to catch up with TSMC. Some sources say that TSMC’s 2nm process will be mass-produced as scheduled in 2025, while Samsung’s plans are still to be observed.

Intel is also striving for the top spot in the wafer foundry market. Since the beginning of 2021, Intel has implemented a series of measures in its foundry business after announcing its “IDM 2.0” strategy. Last July, Intel stated that it will manufacture chips for MediaTek, and the first batch of products will be produced within the next 18 to 24 months using more mature manufacturing technology (Intel 16). In addition, Intel said that Qualcomm and Nvidia are also interested in having them manufacture their chips. To regain its leading edge in chip manufacturing, Intel has unveiled its 5 process technology stages to be launched in the next few years, including 10nm, 7nm, 4nm, 3nm, and 20A.

And TSMC has no competitive relationship with their clients by not doing the wafer design, apparently, this is also a significant advantage for TSMC and other foundry manufacturers. In recent years, more companies have recognized the importance and highly profitable nature of foundry manufacturing, leading to the independent establishment of foundry manufacturing operations. Samsung and Intel have also followed this trend, as foundry manufacturing can optimize production technology and provide major companies with more opportunities for trial and error.

From the Entity List in 2020 to the Chips and Science Act of 2022, the US government has been tightening its grip on China’s semiconductor industry by blocking the export of advanced semiconductor manufacturing equipment. The pressing question on everyone’s mind is: Will China’s semiconductor industry crumble under this pressure?

The answer, based on recent market reactions, is a resounding no.

Riding the Waves through Headwinds

Despite international semiconductor equipment manufacturers facing production cutbacks, China’s semiconductor equipment industry is thriving. In the first quarter, Naura, the leading semiconductor equipment manufacturer, reported a whopping 68.56%-87.29% increase in revenue, with a 171.24% to 200.3% increase in net profit. This has spurred growth across the entire Chinese A-share market for semiconductor equipment concept stocks such as Piotech, PNC process System, Advanced Micro, ACM Research and Hwatsing Technology.

This growth highlights a great leap forward in semiconductor process technology. Despite the adverse effects of the US’s broad-based restrictions, they have nonetheless created a favorable environment for testing and substitution opportunities. This, in turn, has enabled Chinese manufacturers of semiconductor equipment to increase their market share in the area of established semiconductor processes.

Full Speed Ahead: Aiming High for 5nm

In key semiconductor manufacturing processes such as thin film deposition, etching, ion implantation, CMP, and cleaning, Chinese manufacturers have already moved beyond traditional equipment development cycles and are progressing towards advanced process technology at full speed.

According to TrendForce, Chinese semiconductor equipment companies such as Naura and Advanced Micro(AMEC) are capable of supporting 28/14 nm in some process steps, and have even tentatively established their presence in 5 nm process technology.

Our summary identifies the main players to watch in thin film deposition, etching, and EUV:

• Thin film deposition: Naura

Naura has achieved full coverage of PVD, CVD, and ALD product lines, with product lines matching international leaders such as Applied Materials, Lam, and Tokyo Electron. Naura has unique competitive advantages in the PVD field, with over 20% of its PVD equipment being supplied to Chinese 12-inch production lines such as YMTC(Yangtze Memory Technologies Co., Ltd), making it the second-largest PVD equipment supplier after Applied Materials.

Additionally, since 2012, Naura has sold over 200 PVD equipment, gradually achieving their goals for equipment substitution.

• Etching: AMEC and Naura

As the leading CCP etching machine, AMEC has successfully penetrated TSMC’s 5nm production line, becoming the first domestic etching equipment to break through in the advanced process area. AMEC has also achieved large-scale adoption in 64-layer, 128-layer 3D NAND process, and 1x DRAM process. These main product portfolios contributed to the company’s 47.3% YoY revenue growth rate in the first half of 2022. In addition, AMEC’s etching equipment also enjoys a high gross profit margin of 46.02%.

On the other hand, Naura is at the forefront of ICP silicon etching equipment. Its first-generation 12-inch etching equipment underwent certification for 90-65nm at the SMIC’s fab in Beijing in 2008. In addition, with the support of national research projects, Naura’s ICP etching machine has also broken through 14nm barriers and been adopted by mainstream foundries.

• Photolithography: Shanghai MicroElectronics Equipment(SMEE)

Photolithography is a critical process that China is strategically including in their semiconductor industry plans. They’re aiming to develop 28nm immersion exposure machines and core components through collaborative efforts: SMEE will lead the overall design and integration, with five or more companies providing key components.

Although SMEE has preliminary DUV exposure machine technology, it’s limited to more mature processes on 8-inch and 12-inch wafers at 90nm, 110nm, and 280nm, leaving a significant gap with international leaders.

From Toddler to Major Player

Although China’s equipment manufacturers are still at their toddler stage, the increasing momentum suggests that they will continue to make significant progress. Assuming that China’s policy support towards the development of 14nm and below semiconductor processes remains unchanged in the coming years, it is highly likely that the country’s market will fundamentally experience a transformation.

At this point, China’s semiconductor industry will enter a new era of high-speed growth, paving the way for the country to become a major player at global level. As China’s domestic market grasps the technology and commercial logic along the way, it will potentially have more influence over the global supply chain, as a result triggering a shift in the worldwide semiconductor industry in the long run.