China is reportedly in the process of establishing its third-phase of its big fund, with plans to inject USD 27 billion in funding aimed at supporting top-tier technology development, as per Bloomberg’s report. The goal is said to be enhancing China’s semiconductor self-sufficiency and overcoming export restriction measures imposed by the United States.

According to Bloomberg, the funding for the third phase of Big Fund primarily originates from local governments, state-owned enterprises, and their investment branches, with relatively smaller contributions from the central government. This aligns with China’s strategic focus on concentrating resources to support the development of key technologies.

The initial round of financing for the third phase of Big Fund aims to raise USD 27 billion, which, in the context of China’s semiconductor industry standards, is a relatively modest amount. The fund will directly support local companies and finance three to four sub-funds, diversifying transaction sources and investment strategies.

The National Integrated Circuit Industry Investment Fund, commonly referred to as the “Big Fund,” originated from the Chinese State Council’s “Outline for the Promotion of National Integrated Circuit Industry Development” issued in June 2014. Its ultimate goal is to bring China’s semiconductor industry up to international standards by 2030 and nurture a group of companies to become international Tier 1 suppliers.

As early as September of 2023, the second phase of the Big Fund initiated a round of financing, raising USD 41 billion to support local fab equipment manufacturers. As for the third phase of the Big Fund, this USD 27 billion will be allocated to critical projects across various regions in China.

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(Photo credit: iStock)

According to sources cited in Bloomberg’s report, the US government is considering imposing sanctions on Chinese technology firms, including ChangXin Memory Technologies (CXMT), in its latest move against China’s advanced semiconductor sector.

The same report has pointed out that the US Department of Commerce’s Bureau of Industry and Security (BIS) is currently considering including CXMT in the Entity List, which would restrict the listed companies’ access to US technology. Apart from CXMT, US officials are also contemplating restrictions on five other Chinese companies, though the final list has yet to be confirmed.

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

CXMT is a major Chinese DRAM manufacturer whose products include chips applicable in computer servers, smart vehicles, and other devices. Its primary competitors include Micron, Samsung Electronics, and SK Hynix. Micron.

The recent actions by the US government reportedly stem from Huawei’s breakthrough last year in circumventing US restrictions to acquire advanced process chips, specifically obtaining chips using the 7-nanometer process from SMIC (Semiconductor Manufacturing International Corporation). This allowed Huawei to make a comeback in the 5G smartphone market, prompting concerns and responses from the US government.

Gina Raimondo, the US Secretary of Commerce, has responded by stating that the US will take “as strong and effective action as possible” to uphold national security interests.

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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(Photo credit: CXMT)

Geopolitical factors are driving countries to actively establish semiconductor manufacturing locally and offer subsidies. According to TSMC’s annual report, subsidies received from Japan and China amounted to NTD 47.545 billion in 2023, signaling a 5.74-fold increase from the previous year, reaching a record high. In contrast, the report also suggest the subsidies from the US government have yet to materialize.

TSMC did not specify the individual amounts of subsidies from the Japanese and Chinese governments. However, estimations cited by the report suggest that the Japanese government, aiming to revitalize the semiconductor industry, subsidized TSMC’s Kumamoto plant with up to JPY 476 billion, likely serving as the primary driver behind the substantial increase in TSMC’s subsidies in 2023.

The construction of TSMC’s Kumamoto Fab began in April 2022, with full assistance from the Japanese central and local governments. Recently, the opening ceremony was held, and trial production has commenced, with mass production expected in the fourth quarter of this year.

The subsidies from the Japanese and Chinese governments to TSMC are mainly used to subsidize the costs of real estate, buildings, and equipment purchases, as well as some of the costs and expenses associated with building construction and production operations.

On the other hand, TSMC’s US fab began construction in early 2021, with a grand tool-in ceremony held in December 2022, attended by the US President. Initially planned to invest USD 12 billion, the facility aims to build a N5 process fab with a monthly capacity of 20,000 wafers. Construction was scheduled to commence in 2021, with mass production slated to begin by the end of 2024, creating approximately 1,600 job opportunities in the local area.

However, it was previously reported by the TechNews that due to the delay in the first phase’s production timeline from the end of 2024 to the first half of 2025, the production schedule for the second phase will also be postponed to start after 2027. Subsequently, the production schedule has been pushed from this year to next year.

Despite the US government’s declaration to reinvigorate manufacturing and the introduction of the “CHIPS Act,” totaling USD 52 billion in subsidies, only three US companies have been subsidized so far.

These include BAE Systems, Microchip, and the third-largest foundry, Global Foundries, with Global Foundries receiving the most substantial subsidy of USD 1.5 billion. As of now, subsidies for TSMC have yet to be finalized.

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(Photo credit: TSMC)

In recent years, with the continuous surge in demand for Silicon Carbide (SiC) substrates, the call for cost reduction in SiC has been growing stronger, as the ultimate product price remains the key determinant for consumers. The cost of SiC substrates accounts for the highest proportion in the entire cost structure, reaching around 50%.

This means that cost reduction and utilization rate improvement in the substrate segment are particularly crucial. Therefore, large-size substrates, due to their cost advantages, are gradually being placed with high expectations.

According to the calculation by Chinese SiC substrate manufacturer TankeBlue Semiconductor, upgrading from 4 inches to 6 inches is expected to reduce costs by 50% per unit; from 6 inches to 8 inches, costs are expected to decrease by an additional 35% on top of that.

Meanwhile, 8-inch substrates can yield more chips, resulting in lower edge wastage. In simple terms, 8-inch substrates offer higher utilization rate, which is the main reason why major manufacturers are actively developing them.

Currently, 6-inch SiC substrates are still dominant, but 8-inch substrates are beginning to penetrate the market. For instance, in July 2023, Wolfspeed announced that its 8-inch fab had begun shipping SiC MOSFETs to Chinese customers, indicating its bulk shipment of 8-inch SiC substrates. TankeBlue Semiconductor has also started small-scale shipments of 8-inch substrates, with plans to achieve medium-scale shipments by 2024.

Accelerated Advancement of 8-Inch SiC Substrate Lineup

Since Wolfspeed first showcased samples in 2015, the 8-inch SiC substrate has undergone a development history of 7-8 years, with significant acceleration in technology and product development in the past two years.

Looking at international manufacturers, aside from Wolfspeed, which has achieved mass production, there are seven SiC substrate, epitaxial, expected to achieve mass production of 8-inch substrates this year or in the next 1-2 years.

In terms of investment, Wolfspeed continues to construct the John Palmour Silicon Carbide Manufacturing Center (SiC substrate facility) in North Carolina, USA. This facility will further drive the expansion of substrate production capacity to meet the increasing demand for 8-inch wafers.

Coherent also announced plans last year to expand its production of 8-inch substrates and epitaxial wafers, with large-scale expansion projects in the United States and Sweden. In terms of product export channels, Coherent has received a USD 1 billion investment from Mitsubishi Electric and Denso to provide long-term 6/8-inch SiC substrates and epitaxial wafers to both companies.

STMicroelectronics also invested in the 8-inch domain last year by partnering with Hunan Sanan Semiconductor to construct an 8-inch SiC fab. The latter will accompany it by establishing an 8-inch SiC substrate plant, ensuring stable material supply for the joint venture. Simultaneously, ST is developing its own substrates and previously collaborated with Soitec to achieve mass production of 8-inch SiC substrates.

Turning to Chinese manufacturers, currently, over 10 enterprises have entered the sampling and small-scale production stages for 8-inch SiC substrates. These include companies such as Semisic Crystal Co., Jingsheng Mechanical & Electrical Co., SICC Co., Summit Crystal Semiconductor Co., Synlight Semiconductor Co., TanKeBlue Semiconductor Co., Harbin KY Semiconductor, IV Semitec, Sanan Semiconductor, Hypersics, and Yuehaijin Semiconductor Materials Co.

In addition to the mentioned companies, there are many other Chinese manufacturers currently researching 8-inch substrates, such as GlobalWafers, Dongni Electronics, Hesheng Silicon Industry, Tiancheng Semiconductor.

At present, the gap between Chinese substrate manufacturers and international giants has narrowed significantly. Companies like Infineon have established long-term partnerships with Chinese manufacturers such as SICC Co. and TanKeBlue Semiconductor Co.. From a technological standpoint, this narrowing gap reflects the overall improvement in substrate technology globally. Moving forward, concerted efforts from various manufacturers are expected to drive the development of 8-inch substrate technology.

Overall, there is a growing momentum in the overall development of 8-inch SiC substrates, with significant breakthroughs in both quantity and quality.

Global 8-Inch SiC Fabs Accelerate Expansion

As substrate materials continue to break through technological ceilings, the expansion scale of global 8-inch SiC fabs reached new heights in 2023.

As per TrendForce, approximately 12 expansion projects related to 8-inch wafers were implemented in 2023. Among them, 8 projects were led by global manufacturers such as Wolfspeed, Onsemi, STMicroelectronics, Infineon, Rohm, and others. STMicroelectronics also collaborated with Sanan Semiconductor on one project. Additionally, 3 projects were spearheaded by Chinese manufacturers such as Global Power Technology, United Nova Technology Co., and J2 Semiconductor.

From a regional perspective, significant investments in new 8-inch SiC fabs are expected in key regions such as Europe, America, Japan, South Korea, China, and Southeast Asia. As of now, there are approximately 11 8-inch fabs either under construction or planned globally (with clearer details).

These include 2 facilities by Wolfspeed (in Mohawk, USA, and Saarland, Germany), 1 by Bosch (in Roseville, USA), 1 self-built by STMicroelectronics (in Catania, Italy), 1 joint venture with Sanan (in Chongqing, China), 1 by Infineon (in Kulim, Malaysia), 1 by Mitsubishi Electric (in Kumamoto, Japan), 2 by Rohm (in Chikugo, Japan, and Kunitomi, Japan), 1 by ON Semiconductor (in Bucheon, South Korea), and 1 by Fuji Electric (in Matsumoto, Japan).

Regarding the expansion directions of manufacturers, Bosch and ON Semiconductor’s investments in 2023 are directly aimed at the automotive SiC market. STMicroelectronics’s planned 8-inch SiC chip factory in Italy also targets the electric vehicle market. While other manufacturers have not explicitly stated the application direction of future production capacity, electric vehicles are the primary growth engine for SiC both currently and in the future, making it a focal point for expansion among major manufacturers.

In the electric vehicle sector, the 800V high-voltage platform has emerged as a clear development trend. The 800V platform requires higher-voltage power semiconductor components, prompting manufacturers to begin developing 1200V SiC power devices.

From a cost perspective, although 6-inch wafers are currently mainstream in the short term, the trend towards larger sizes like 8-inch is inevitable for cost reduction and efficiency improvement purposes. Therefore, the electric vehicle market is expected to drive continuous growth in demand for 8-inch wafers in the future.

From a supply chain perspective, transitioning to 8-inch wafers represents a breakthrough for SiC manufacturers. Per industry insights, the 6-inch SiC device market has entered a phase of intense competition, particularly in the SiC JBD. For smaller-scale and less competitive enterprises, profit margins are increasingly squeezed, indicating an impending round of consolidation and restructuring in the future.

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According to a report by TechNews citing an article from the international column Project Syndicate, Burn Lin, former R&D Vice President of TSMC, Chintay Shih, former President of the Industrial Technology Research Institute, and Chang-Tai Hsieh, an Academia Sinica member and economics professor at the University of Chicago Booth School of Business, collaborated on an article titled “How America’s CHIPS Act Hurts Taiwan.”

In the article, they collectively elucidated how US semiconductor subsidies weaken TSMC’s strength, rendering the entire semiconductor industry more vulnerable. Additionally, they expressed concern that if China were to blockade or invade Taiwan, the supply chain would become compromised.

The US CHIPS and Science Act, aiming to address this issue with a USD 52 billion subsidy, seeks to encourage semiconductor manufacturers to relocate to the United States. However, according to the report addressing on the design of the bill, its objectives may not be achievable and could even weaken Taiwan’s most crucial industry, posing a threat to Taiwan’s security.

Concerns Arise Over Chip Act Threatening Taiwan’s Security

Currently, the semiconductor industry is dominated by specialized companies distributed globally. TSMC specializes in contract manufacturing, focusing primarily on high-end chips. Other important companies include AMD, NVIDIA, Qualcomm, ASML, Tokyo Electron, and Arm.

Specialization in the industry offers two major benefits.

Firstly, each part of the global supply chain can concentrate on its core expertise and advance further, benefiting other supply chains. Secondly, the production capacity of each link in the global supply chain increases, enhancing resilience against demand shocks.

The cost of specialization is that the industry becomes vulnerable to supply shocks. This issue is not unique to Taiwan; all segments of the supply chain face potential bottlenecks.

However, unlike other segments, Taiwan is reportedly confronted with territorial claims from China. Therefore, the United States and Japan have offered substantial subsidies for TSMC’s relocation. TSMC is constructing new factories in Kumamoto, Japan, and Phoenix, Arizona, in the United States.

Currently, Fab 1 in Kumamoto has been completed according to plan, and many of TSMC’s suppliers have also set up shop there. However, the Arizona plant is substantially behind schedule, and fewer TSMC suppliers have followed suit to establish operations in the United States.

Moreover, TSMC’s experience at its Portland plant in Washington state over the past 25 years has raised doubts about the prospects of the Arizona plant. TSMC struggled to find competitive workers there; even with identical training and equipment, production costs in the U.S. were still 50% higher than in Taiwan. Therefore, TSMC chose not to expand its Portland plant further.

Still, the fundamental issue lies in the fact that while American workers are skilled in chip design technology, they lack the skills required for chip manufacturing, which is crucial in this field.

The article further mentions that TSMC’s Phoenix plant will continue to struggle because there is a shortage of American workers with the skills necessary for semiconductor manufacturing.

As warned by TSMC’s founder, Morris Chang, in 2022, seeking economic security by relocating semiconductor manufacturing to the United States is an expensive exercise in futility. Furthermore, while the USD 52 billion subsidy from the United States may seem substantial, it is insufficient to establish a self-sufficient semiconductor ecosystem in Phoenix.

Additionally, the article points out that Taiwan’s industrial planners have deliberately chosen a niche market built upon existing manufacturing advantages, without attempting to replicate the model of the leading Intel at that time, due to the scarcity of Taiwanese workers with the necessary design skills. Similarly, Japan’s subsidies for TSMC are likely to succeed because Japan already possesses an ample supply of skilled manufacturing workers.

The article also highlights three major risks brought about by the US chip act at the end:

Firstly, if TSMC shifts its focus and loses its investment in innovation, the biggest losses will be incurred by its customers and suppliers, most of which are American companies.

Moreover, it may hinder AI development, as this field largely relies on TSMC-manufactured advanced chips. Consequently, TSMC may reduce its investment in production capacity in Taiwan, reducing the entire semiconductor industry’s ability to withstand demand shocks.

Lastly, TSMC may lose its way and risk being replaced by other companies, losing its leadership position in the field of advanced semiconductor manufacturing.

Well-Intentioned US Chip Act with Poor Design May Ultimately Harm Taiwan’s Economy

The commentary suggests that despite the well-intentioned nature of the US chip act, its design is flawed. Instead of establishing a sustainable semiconductor manufacturing cluster in the United States, it may result in long-term damage to TSMC and ultimately harm Taiwan’s economy.

A better approach for the United States, per the report, would be to protect its own economic security while strengthening Taiwan’s, committing to defend Taiwan, and building production capacity in countries like Japan. This strategy may be more prudent in the long run.

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(Photo credit: TSMC)