The US-China tech war continues to escalate, as reported by the Financial Times (FT). Beijing has reportedly instructed official institutions in China to refrain from using PCs and servers equipped with microprocessors from Intel and AMD, as well as to reduce procurement of Microsoft Windows operating systems and database software outside of China.

In response to these reports, both Microsoft and Intel have declined to comment, while AMD, China’s Ministry of Finance, Ministry of Industry and Information Technology, and the China Information Security Evaluation Center have not responded to requests for comment from FT reporters.

FT further reveals that Chinese authorities have requested state-owned enterprises to promote localization internally. Intel and AMD are the two major semiconductor giants in the United States, dominating nearly all global market shares of PC processors.

As both Intel and AMD are significant customers of TSMC’s advanced process nodes, this move is expected to influence TSMC’s future order status. Regarding China’s full-scale development of proprietary computer processors, its potential impact on ASIC-related companies in Taiwan remains to be seen.

As per Industry sources cited by the report, they have suggested that this move by Chinese authorities demonstrates their determination to strengthen local semiconductor autonomy and enhance manufacturing and design capabilities. On the manufacturing side, the focus remains on supporting SMIC, while chip design is primarily led by companies such as Huawei and Phytium.

Per the same report, following the release of new guidelines by China’s Ministry of Finance and Ministry of Industry and Information Technology on December 26th last year, officials have begun adhering to the latest standards for PC, laptop, and server procurement this year. They have mandated that government departments at the township level and above, as well as party organizations, must incorporate standards for purchasing “secure and trustworthy” processors and operating systems.

The China Information Technology Security Evaluation Center has published the first list of “safe and reliable” processors and operating systems, all of which are from Chinese enterprises.

Among the 18 approved processors are chips from Huawei and Phytium. Chinese processor manufacturers are utilizing a hybrid architecture combining Intel x86, Arm, and self-developed designs for chip production, while operating systems are sourced from open-source Linux software.

Prior to the speculated tightening of restrictions by China on the United States, a report from Bloomberg citing sources had already signaled that the US government is considering adding Chinese semiconductor companies linked to Huawei to a blacklist.

Currently, companies that have been listed on the entity list by the US Department of Commerce include Huawei, SMIC (Semiconductor Manufacturing International Corporation), and Shanghai Micro Electronics. Additionally, China’s other major memory manufacturer, Yangtze Memory Technology Corp, was added to this restriction list in 2022.

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• [News] US Government Considers Adding ChangXin Memory Technologies to Entity List, Imposing Further Sanctions on Chinese Firms
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According to Bloomberg citing sources, the US government is considering adding Chinese semiconductor companies linked to Huawei to a blacklist. This move comes after Huawei made significant breakthroughs in technology last year, indicating a potential escalation in US efforts to curb China’s ambitions in AI and semiconductors.

As per a report from the Semiconductor Industry Association (SIA), most of the potentially affected Chinese entities are identified as chip manufacturing facilities either acquired by or under construction by Huawei. Among them, companies that may be blacklisted include Qingdao Si’En, SwaySure, and Shenzhen Pengsheng Technology Co., Ltd.

Furthermore, US officials are also considering action against companies like Changxin Memory Technologies (CXMT). A previous report from Bloomberg already indicated that the US Department of Commerce’s Bureau of Industry and Security (BIS) was contemplating placing CXMT on the entity list, which would restrict their access to US technology. Additionally, restrictions on five other Chinese companies are being considered, although the final list is yet to be confirmed.

Regarding this matter, the BIS and White House National Security Council declined to comment at that time.

In addition to companies involved in actual chip production, the United States may also consider sanctioning Shenzhen Pengjin High-Tech Co., Ltd. and SiCarrier. Per the report citing industry sources, there are concerns that these two semiconductor manufacturing equipment companies may act as agents to help Huawei obtain restricted equipment.

Currently, companies that have been listed on the entity list by the US Department of Commerce include Huawei, SMIC (Semiconductor Manufacturing International Corporation), and Shanghai Micro Electronics. Additionally, China’s other major memory manufacturer, Yangtze Memory Technology Corp, was added to this restriction list in 2022.

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• [News] US Government Considers Adding ChangXin Memory Technologies to Entity List, Imposing Further Sanctions on Chinese Firms
• [News] Bypassing U.S. Restrictions? CXMT Showcases GAA Technology for 3nm Chips

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With numerous cloud computing companies and large-scale AI model manufacturers investing heavily in AI computing infrastructure, the demand for AI processors is rapidly increasing. As per a report from IJIWEI, the demand for HBM (High Bandwidth Memory), a key component among them, has been on the rise as well.

Amid the opportunity brought about by the surge in demand for computing power, which has in turn created a wave of opportunities for storage capabilities, when looking at the entire HBM industry chain, the number of China’s local companies which are able to enter the field is limited.

Faced with significant technological challenges but vast prospects, whether from the perspective of independent controllability or market competition, it is imperative to accelerate the pace of catching up.

HBM Demand Grows Against the Trend, Dominated by Three Giants

The first TSV HBM product debuted in 2014, but it wasn’t until after the release of ChatGPT in 2023 that the robust demand for AI servers drove rapid iterations of HBM technology in the order of HBM1, HBM2, HBM2e, HBM3, and HBM3e.

The fourth-generation HBM3 has been mass-produced and applied, with significant improvements in bandwidth, stack height, capacity, I/O speed, and more compared to the first generation. Currently, only three storage giants—SK Hynix, Samsung Electronics, and Micron—are capable of mass-producing HBM.

According to a previous TrendForce press release, the three major original HBM manufacturers held market shares as follows in 2023: SK Hynix and Samsung were both around 46-49%, while Micron stood at roughly 4-6%.

In 2023, the primary applications in the market were HBM2, HBM2e, and HBM3, with the penetration rate of HBM3 increasing in the latter half of the year due to the push from NVIDIA’s H100 and AMD’s MI300.

According to TrendForce’s report, SK Hynix led the way with its HBM3e validation in the first quarter, closely followed by Micron, which plans to start distributing its HBM3e products toward the end of the first quarter, in alignment with NVIDIA’s planned H200 deployment by the end of the second quarter.

Samsung, slightly behind in sample submissions, is expected to complete its HBM3e validation by the end of the first quarter, with shipments rolling out in the second quarter.

Driven by market demand, major players such as SK Hynix, Samsung, and Micron Technology are increasing their efforts to expand production capacity. SK Hynix revealed in February that all its HBM products had been fully allocated for the year, prompting preparations for 2025 to maintain market leadership.

Reportedly, Samsung, aiming to compete in the 2024 HBM market, plans to increase the maximum production capacity to 150,000 to 170,000 units per month before the end of the fourth quarter of this year. Previously, Samsung also invested KRW 10.5 billion to acquire Samsung Display’s factory and equipment in Cheonan, South Korea, with the aim of expanding HBM production capacity.

Micron Technology CEO Sanjay Mehrotra recently revealed that Micron’s HBM production capacity for 2024 is expected to be fully allocated.

Although the three major HBM suppliers continue to focus on iterating HBM3e, there is still room for improvement in single-die DRAM and stacking layers. However, the development of HBM4 has been put on the agenda.

Trendforce previously predicted that HBM4 will mark the first use of a 12nm process wafer for its bottommost logic die (base die), to be supplied by foundries. This advancement signifies a collaborative effort between foundries and memory suppliers for each HBM product, reflecting the evolving landscape of high-speed memory technology.

Continuous Surge in HBM Demand and Prices, Local Supply Chains in China Catching Up

In the face of a vast market opportunity, aside from the continuous efforts of the three giants to ramp up research and production, some second and third-tier Chinese DRAM manufacturers have also entered the HBM race. With the improvement in the level of locally produced AI processors, the demand for independent HBM supply chains in China has become increasingly urgent.

Top global manufacturers operate DRAM processes at the 1alpha and 1beta levels, while China’s DRAM processes operate at the 25-17nm level. China’s DRAM processes are approaching those overseas, and there are advanced packaging technology resources and GPU customer resources locally, indicating a strong demand for HBM localization. In the future, local DRAM manufacturers in China are reportedly expected to break through into HBM.

It is worth noting that the research and manufacturing of HBM involve complex processes and technical challenges, including wafer-level packaging, testing technology, design compatibility, and more. CoWoS is currently the mainstream packaging solution for AI processors, and in AI chips utilizing CoWoS technology, HBM integration is also incorporated.

CoWoS and HBM involves processes such as TSV (Through-Silicon Via), bumps, microbumps, and RDL (Redistribution Layer). Among these, TSV accounts for the highest proportion of the 3D packaging cost of HBM, close to 30%.

Currently, China has only a few leading packaging companies such as JCET Group, Tongfu Microelectronics, and SJSemi that possess the technology (such as TSV through-silicon via) and equipment required to support HBM production.

However, despite these efforts, the number of Chinese companies truly involved in the HBM industry chain remains limited, with most focusing on upstream materials.
With GPU acquisition restricted, breakthroughs in China’s AI processors are urgently needed both from its own self-sufficiency perspective and in terms of market competition. Therefore, synchronized breakthroughs in HBM are also crucial from Chinese manufacturers.

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• [News] Another Semiconductor Giant Makes a Move on HBM
• High-End AI Server Demand from North America’s Top Four CSPs Expected to Exceed 60% in 2024, Says TrendForce

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As the pressure from the United States to strengthen export controls on semiconductor manufacturing equipment to China continues to grow, as per a report from Yonhap News Agency (YNA), the United States has reportedly urged allies such as Japan, the Netherlands, Germany, and South Korea to join forces and expand the scope of their containment measures, extending to equipment, raw materials, optical components, and other areas.

While countries like the Netherlands, Japan, and Germany have yet to make their positions known, the same report indicates that the South Korean government, in efforts to maintain stability in its relationship with the United States, is considering cooperation with U.S. efforts to impose export controls on semiconductor equipment to China.

YNA’s report has indicated that, since October 2022, when the U.S. government announced a ban on American companies exporting equipment and technology essential for advanced semiconductor manufacturing to China, it has continuously urged its allies to implement similar levels of export controls on exports to China.

Sources cited by the report indicate that initially, the Netherlands and Japan, which have high levels of semiconductor technology, were the primary targets of U.S. pressure. However, starting from the second half of 2023, the pressure from the United States on South Korea has intensified, even directly naming specific South Korean companies.

In February this year, the U.S. Department of Commerce and the South Korean Ministry of Trade, Industry, and Energy reportedly held negotiations on this issue. Sources cited in YNA’s report revealed that the U.S. side is concerned that South Korea could become a loophole in its export controls on semiconductor technology to China, and South Korea is working to address U.S. concerns.

The same sources stated that although the South Korean government has not yet made a decision on this matter, considering national interests and taking into account the U.S. position, it is at least inclined to “partially” meet U.S. demands.

Per the same report, the South Korean government is also concerned that measures related to export controls on China will adversely affect the competitiveness of the South Korean semiconductor industry. South Korean companies’ semiconductor equipment technology is already inferior to that of the United States, Japan, and the Netherlands. If exports to China, particularly crucial ones, are further restricted, it will undoubtedly worsen the situation for the semiconductor industry in South Korea.

Yeo Han-koo, a senior researcher at the Peterson Institute for International Economics (PIIE) who formerly served as Director-General of Trade Negotiations at the South Korean Ministry of Trade, Industry, and Energy, noted that considering the recent dynamics in U.S.-China relations and international geopolitical factors, South Korea faces challenges in completely disengaging. However, South Korea aims to minimize losses for its companies to the greatest extent possible and is committed to exploring reasonable compromise solutions with the United States.

On the other hand, as per TrendForce’s previous report, China is focusing aggressively on mature process technologies (28nm and older), particularly in response to export controls on advanced equipment by the US, Japan, and the Netherlands. By 2027, China’s share in mature process capacity is expected to reach 39%, with room for further growth if equipment procurement proceeds smoothly.

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Intel has reportedly retained the export licenses that would have prohibited them from selling laptop processor (CPU) chips to the Chinese telecommunications giant Huawei. This signifies that Intel has temporarily preserved its business of providing chips worth hundreds of millions of dollars to Huawei.

According to sources cited by Reuters on March 12th, the US placed Huawei on a trade blacklist in 2019, alleging violations of US sanctions. However, at the end of 2020, the US Department of Commerce granted special licenses to some US suppliers, including Intel, allowing them to sell certain technology products to Huawei.

Still, some sources cited in the report believe that Intel’s license is expected to expire later this year and is unlikely to be renewed.

The sources cited in the same report also stated that Intel’s competitor, AMD, had applied for a similar license to sell comparable chips in early 2021 but did not receive approval from the US Department of Commerce. AMD subsequently protested, claiming that the US government’s differential treatment was unfair.

Regarding this matter, Intel, Huawei, the Commerce Department and the White House declined to comment. AMD did not respond to a request for comment.

As per TrendForce, Intel is forecasted to hold a market share of 68.8% in the CPU market in 2024, while AMD is expected to have a share of 20.2%.

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• [News] China’s Third Big Fund Reportedly Set to Inject USD 27 Billion to Counter US Chip Restrictions
• [News] Huawei Shifts Focus, Prioritizing Production of AI Chips over Mate 60 Series

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