As companies increased their investments in 2023, the Chinese semiconductor industry actively expanded, leading to a substantial increase in the import volume of China’s chip manufacturing equipment.

According to Bloomberg’s report citing official Chinese customs data, the import value of equipment used in the production of computer chips in China surged by 14% in 2023, reaching nearly USD 40 billion. This marks the second-highest import value recorded since 2015, indicating that Chinese semiconductor companies are rapidly investing in new fabs. This effort is expected to aim at enhancing capabilities and circumventing export controls imposed by the United States and its allies.

In 2023, before the implementation of new export controls, China experienced a sharp increase in the import of semiconductor equipment from the Netherlands.

Due to companies rushing to make purchases before the implementation of restrictive measures in the Netherlands, the import value of photolithography equipment from the country in December 2023, as per IJIWEI’s report, saw an almost 1000% year-on-year increase, reaching USD 1.1 billion.

Even before these restrictions took effect, Dutch company ASML complied with the U.S. government’s request to halt the shipment of certain high-end equipment to China.

In early January 2024, ASML reported that the Dutch government partially revoked previously issued licenses for the shipment of NXT:2050i and NXT:2100i lithography machines in 2023. This is expected to have an impact on specific customers in China.

Despite restrictions on China’s advanced process technology deployment, the main reason for its substantial purchases of semiconductor equipment lies in its efforts to break through in mature manufacturing processes.

According to a recent TrendForce’s data, China currently has 44 operational semiconductor fabs, with an additional 22 under construction. By the end of 2024, 32 Chinese wafer fabs will expand their capacity for 28-nanometer and older mature chips.

TrendForce predicts that by 2027, China’s share of mature process capacity in the global market will increase from 31% in 2023 to 39%, with further growth potential if equipment procurement progresses smoothly.

Read more

• [News] Surge in Chip Manufacturing Equipment Imports from the Netherlands to China, Soaring Tenfold After U.S. Tightens Restrictions
• [News] ASML Reports Partial Revocation of Export Licenses for DUV Equipment

(Photo credit: ASML)

NVIDIA CEO Jensen Huang has reportedly gone to Taiwan once again, with reports suggesting a recent visit to China. Industry sources believe NVIDIA is planning to introduce downgraded AI chips to bypass U.S. restrictions on exporting high-end chips to China. Huang’s visit to China is seen as an effort to alleviate concerns among customers about adopting the downgraded versions.

Experts indicate that due to the expanded U.S. semiconductor restriction on China, NVIDIA’s sales in the Chinese market will decline. To counter this, NVIDIA might adjust its product portfolio and expand sales of high-end AI chips outside China.

The export of NVIDIA’s A100 and H100 chips to China and Hong Kong was prohibited in September 2022. Following that, the A800 and H800 chips, which were further designed with downgraded adjustments for the Chinese market, were also prohibited for export to China in October of the previous year.

In November 2023, the NVIDIA’s management acknowledged the significant impact of the U.S. restrictions on China’s revenue for the fourth quarter of 2023 but expressed confidence that revenue from other regions can offset this impact.

CEO Jensen Huang revealed in December in Singapore that NVIDIA was closely collaborating with the U.S. government to ensure compliance with export restrictions on new chips for the Chinese market.

According to reports in Chinese media The Paper, Jensen Huang recently made a low-profile visit to China. The market is closely watching the status of NVIDIA’s AI chip strategy in China and the company’s subsequent development strategies in response to U.S. restrictions. The fate of the newly designed AI chips, H20, L20, and L2, to comply with U.S. export regulations remains uncertain and will be closely observed.

Liu Pei-Chen, a researcher and director at the Taiwan Institute of Economic Research, discussed with CNA’s reporter about NVIDIA’s active planning to introduce a downgraded version of AI chips in China. 

The most urgent task, according to Liu, is to persuade Chinese customers to adopt these downgraded AI chips. Chinese clients believe that there isn’t a significant performance gap between NVIDIA’s downgraded AI chips and domestically designed AI chips.

Liu mentioned that this is likely the reason why Jensen Huang visited China. It serves as an opportunity to promote NVIDIA’s downgraded AI chips and alleviate concerns among Chinese customers. 

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• [News] Chinese Companies Reportedly Disassembling NVIDIA Gaming Cards for AI Development
• [Insights] NVIDIA Maintains Confidence Despite Export Restrictions, Continues Unveiling New Products

(Photo credit: NVIDIA)

TSMC’s trillion-dollar investment plan for a 1nm fab is reportedly set to be established in the science park in Taibao City, Chiayi County, Taiwan. This follows TSMC’s recent announcement of the construction of its third 2nm fab in Kaohsiung, marking yet another strategic choice for advanced processes in southern Taiwan.

According to UDN’s report citing sources, TSMC has submitted a request for 100 hectares (roughly 247.10 acres) of land to the Southern Taiwan Science Park Administration, which oversees the Chiayi Science Park. Of this, 40 hectares (roughly 98.84 acres) are designated for an advanced packaging facility, while the remaining 60 hectares (roughly 148.26 Acres) are earmarked for the construction of a 1nm fab.

As TSMC’s land requirements exceed the initially planned 88 hectares (roughly 217.45 acres) in the first phase of the Chiayi Science Park, there are expectations for an accelerated expansion in the second phase to accommodate TSMC’s needs.

TSMC stated that the selection of the fab site involves various considerations. TSMC considers Taiwan as its primary base but does not rule out any possibilities, and continues to collaborate with the administration to assess suitable semiconductor fab sites. TSMC emphasized that all information should be primarily referred to the company’s official announcements.

As understood, the TSMC fab construction team conducted a site survey in the Chiayi Science Park in August of 2023, before it was incorporated into the jurisdiction of the Southern Taiwan Science Park Administration.

This move came after facing strong opposition during the third-phase expansion in the Longtan Science Park in Taoyuan. Following the intense protests, the TSMC construction team initiated a contingency plan and ultimately decided to abandon the construction project within the Longtan Science Park’s third-phase expansion.

Read more

• [News] TSMC Actively Increases 2-Nanometer Production Capacity Planning, Market Expects Explosive Demand
• [News] TSMC Earnings Conference: Q1 Revenue Estimated to Drop 6.2%, Expects Over 20% Annual Growth

(Photo credit: TSMC)

According to industry sources cited by South Korean media The Chosun Daily, Samsung has commenced the production of prototypes for its second-generation 3nm process and is testing the chip’s performance and reliability. The goal is to achieve a yield rate of over 60% within the next six months.

TSMC and Samsung are both actively vying for customers. Samsung is preparing to commence mass production of the second-generation 3nm GAA architecture in the first half of the year. The key to success in the competition lies in whether Samsung can meet the demands of major clients such as Nvidia, Qualcomm, AMD, and simultaneously achieve a rapid increase in production.

Samsung is currently testing the performance and reliability of prototypes for the second-generation 3nm process, with the initial product set to feature in the soon-to-be-released Galaxy Watch 7 application processor (AP). It is expected to be used in the Galaxy S25 series Exynos 2500 chip next year.

If the production yield and performance of the second-generation 3nm process are stable, there is a chance that customers who had previously switched to TSMC may return to Samsung, especially considering Qualcomm’s movements.

As per report, Qualcomm is collaborating with TSMC in the production of the next-generation Snapdragon 8 Gen 3. Additionally, Nvidia’s H200, B100, and AMD’s MI300X are expected to adopt TSMC’s 3nm process.

Samsung announced in November of last year that it would commence mass production of the second-generation 3nm process in the latter half of 2024. While Samsung has not responded to Chosun’s report regarding the production of prototypes for the second-generation 3nm process, the timeline seems plausible.

However, the report mentions a chip yield rate of 60% without specifying transistor count, chip size, performance, power consumption, or other specifications.

Furthermore, according to Tom’s Hardware’s report, the chip size, performance, and power consumption targets for processors used in smartwatches, mobile phones, and data centers are entirely different. A 60% yield rate for small chips would make commercial use challenging, but for chips with a reticle size of 60% yield rate, it would be reasonably acceptable.

However, caution is advised in interpreting this report due to the uncertainties surrounding Samsung’s second-generation 3nm process production targets at its semiconductor foundries.

Nonetheless, the commencement of the second-generation 3nm process production is a significant development for both Samsung and the semiconductor industry as a whole.

(Image: TSMC)

According to the report from TechNews, Intel CEO Pat Gelsinger, speaking at the World Economic Forum, stated that export sanctions from the United States, Japan, and the Netherlands are temporarily limiting China’s development in semiconductor processes below 7 nanometers.

Despite China’s ongoing efforts to advance its semiconductor industry and design more sophisticated chip manufacturing tools, it still lags behind the global semiconductor industry by approximately ten years, and Gelsinger believes this gap will persist.

Gelsinger suggests that to some extent, the policies of the United States, Japan, and the Netherlands set a threshold of 10 to 7 nanometers for China’s semiconductor industry. Currently, SMIC has 7-nanometer technology, lagging approximately five and a half years behind TSMC and Samsung. Shanghai Huali Microelectronics (HLMC) began trial production based on 14-nanometer FinFET process in 2020, trailing TSMC by nine to ten years.

Both SMIC and HLMC utilize manufacturing equipment and materials from the Netherlands, Japan, South Korea, Taiwan, and the United States. However, due to the unavailability of these raw materials, Chinese companies have had to develop their own wafer fab equipment and find methods for purifying gases, resists, and other chemicals used in advanced chip manufacturing.

Gelsinger estimates that China’s semiconductor industry lags behind the global standard by about ten years and, although it will continue to develop, he foresees this gap persisting for the next decade. Given the highly interconnected nature of the semiconductor industry, encompassing companies like Zeiss, ASML, Japanese chemical suppliers, and Intel for mask manufacturing, he believes that this cumulative difference amounts to a ten-year gap and will continue to do so under export policies.

If China cannot acquire advanced chip equipment and technology, Chinese semiconductor companies might attempt to narrow the gap with the global semiconductor industry through reverse engineering and replication. While not a sustainable approach, it may be the only choice available.

Regarding advanced processes, Gelsinger also mentioned that Intel is actively developing technologies below 2 nanometers and is looking beyond to 1.5 nanometers, stating, “We are racing to go below 2nm and then 1.5nm, and you know we see no end to that in sight.”

(Image: Intel)