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China’s export controls on crucial semiconductor materials are reportedly hitting the supply chain, with concerns rising over potential shortages of advanced chips and military optical hardware.
According to the U.S. Geological Survey, China produces 98% of the world’s gallium and 60% of its germanium. However, since July of last year, the Chinese government has imposed export restrictions on these minerals, causing their prices in Europe to nearly double over the past year. China claims these measures are to protect national security and interests in response to U.S. export sanctions.
As per a report from the Financial Times, an industry source who works at a large consumer of semiconductor materials has revealed that the situation with China is extremely critical, with significant reliance on China’s supplies.
Affected companies have also disclosed that while there is still some bulk shipment of Chinese gallium, the overall export volume has dropped by about half since the controls were implemented. If China continues to reduce gallium exports as it did in the first half of the year, reserves could be depleted, leading to shortages.
Per the same report from Financial Times, Jan Giese, Senior Manager at Frankfurt-based trading firm Tradium, noted that the gallium and germanium his company obtained through China’s new export licensing program account for only a small portion of past purchases. These export controls are adding additional pressure on markets outside China, making an already challenging market even more complex.
Gallium and germanium are crucial for semiconductor applications, military, and communications equipment. They are essential materials for producing advanced microprocessors, optical fiber products, and night vision goggles, so ongoing export restrictions by the Chinese government could hinder the production of such items.
Meanwhile, the Chinese government has announced new export restrictions on antimony this month. Antimony is used in armor-piercing ammunition, night vision goggles, and precision optical components. This follows previous export controls on graphite and rare earth extraction and separation technologies.
Under the regulations, each shipment requires approval, which takes 30 to 80 days and involves uncertainty, making long-term supply contracts impractical. Applications must specify the buyer and intended use.
The report cites sources in the semiconductor materials sector, noting that China is using these restrictions to catch up with the U.S. and other semiconductor technology leaders. Given the current global situation and U.S.-China relations, there seems to be no motivation for China to ease export controls.
Addressing the matter, the China’s foreign ministry declined to comment.
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According to a report from the Korean media outlet The Chosun Daily, Chinese company Huawei plans to collaborate with memory manufacturer Wuhan Xinxin Semiconductor Manufacturing Co. (XMC) to produce High Bandwidth Memory (HBM) semiconductors. Additionally, Jiangsu Changjiang Electronics Technology (JCET) and Tongfu Microelectronics, which are developing CoWoS advanced packaging technology, are also participating in the project.
CoWoS is a high-precision technology that integrates graphics processing units (GPUs) and HBM on a single substrate. This enhances computational performance, saves space, and reduces power consumption. Currently, the CoWoS technology developed by leading foundry TSMC is used in the production of AI chips for GPU giant NVIDIA.
In May 2023, according to another report from Reuters, China’s leading DRAM company CXMT (ChangXin Memory Technologies) collaborated with Tongfu Microelectronics to develop HBM chip samples. Additionally, tech media outlet The Information reported earlier that a series of Chinese companies, led by Huawei, plan to mass-produce HBM and increase China’s HBM output by 2026.
Furthermore, in March 2023, XMC announced the construction of an advanced HBM manufacturing plant, which is expected to produce 3,000 12-inch wafers per month.
The report further emphasizes that China is still in the early stages of HBM development. However, under the technological restrictions imposed by the United States in the semiconductor and artificial intelligence sectors, Huawei and a series of Chinese semiconductor companies’ move into HBM production has attracted close attention.
Currently, South Korean companies SK Hynix and Samsung Electronics control most of the global HBM market share, indicating that Huawei’s plan to develop HBM still has a long way to go.
Per TrendForce’s data, the three major HBM manufacturers held market shares are as follows: In 2023, SK Hynix and Samsung each held around 47.5%, while Micron’s share was roughly 5%. Still, forecasts indicate that SK Hynix’s market share in 2024 will increase to 52.5%, while Samsung’s will decrease to 42.4%.
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Following US sanctions in August 2019, Huawei’s internal operating system backup, HarmonyOS, emerged and has been in development for nearly 5 years. Currently, HarmonyOS is widely recognized, and its native version is set to launch on June 21st, marking the cornerstone of Huawei’s ambitious HarmonyOS project.
According to a report from UDN, Huawei is pursuing a dual-track development strategy for HarmonyOS. Internally, it focuses on its “1+8+N” terminal business strategy: “1” refers to smartphones, “8” includes large screens (TVs), tablets, PCs, wearables, car units, and more, while “N” covers a wide range of IoT devices. This approach aims to expand and flourish the HarmonyOS ecosystem.
In essence, HarmonyOS follows two main paths, while the first shares similar market positioning with current market leaders Android and iOS in the consumer sector, primarily focused on Huawei’s own terminal devices, aiming to expand the HarmonyOS ecosystem within the consumer domain.
The second path is OpenHarmony, also known as Open Source HarmonyOS. Reportedly, this initiative involves Huawei’s ecosystem partners leveraging Huawei’s donated OpenHarmony code base to develop their own commercial versions of HarmonyOS. These partners utilize their industry expertise and resources to vertically expand into sectors such as education, finance, transportation, and more. OpenHarmony primarily targets industrial applications.
Vertically, Huawei is reportedly looking to integrate HarmonyOS and OpenHarmony through foundational technology, establishing interoperability and connectivity to create an unified HarmonyOS. This strategic integration is designed to position HarmonyOS as a world-class operating system for the future IoT, aligning with Huawei’s ultimate goal of establishing HarmonyOS as a global IoT OS.
Recently, the unified device interconnection technology standards for OpenHarmony were officially released. Huawei’s Consumer Business Group Chairman, Richard Yu, recently disclosed plans to unify application and service ecosystems across Harmony OS and the commercial versions of OpenHarmony. This initiative aims to enhance consumer and industry experiences by sharing a unified HarmonyOS ecosystem that includes programming languages, compilers, and tools, thereby constructing a comprehensive smart terminal operating system.
Huawei is also said to be advancing another significant vertical initiative: the native HarmonyOS. Currently, Huawei has successfully developed the entire stack of HarmonyOS as an independent Chinese-made operating system, contrasting with the majority of global operating systems such as Android and iOS, which are based on the Linux or Unix kernel.
Huawei’s recent strides not only shape the future of HarmonyOS and OpenHarmony but also bolster Huawei’s autonomy and control. These developments are crucial for China’s tech enterprises, providing resilience against potential US sanctions. Whether in consumer or industrial sectors, the Mega HarmonyOS can be activated promptly, underscoring why numerous Chinese companies are joining the HarmonyOS ecosystem.
Moreover, OpenHarmony reportedly shows rapid growth with over 7,500 community contributors, 70 collaborative units, and a codebase exceeding 1.1 billion lines across nearly 600 software and hardware products. Huawei is set to unveil significant advancements in HarmonyOS at next week’s developer conference, bringing the vision of Mega HarmonyOS closer to realization.
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The ongoing tightening of US restrictions on China’s access to advanced chips and production equipment may have significant impact on China’s semiconductor development progress. According to a report from Liberty Times, a top executive at Huawei, a Chinese tech giant, admitted that China’s ambitious semiconductor efforts may have reached a plateau. This statement has surprised many in the industry, as China has consistently expressed confidence in its semiconductor growth capabilities.
During the Mobile Computility Network Conference in Suzhou, China on June 9th, Zhang Ping’an, the Chief Executive Officer of Huawei Cloud Services, expressed concern that China, due to US sanctions, is unable to purchase 3.5nm chip equipment.
Recently, Huawei successfully mass-produced 7nm chips without using lithography technology. This development has surprised the global semiconductor market and has led to speculation that Huawei may soon also mass-produce 5nm chips.
Per a report from Business Korea, Zhang further noted that manufacturing 3.5 nm semiconductors necessitates EUV lithography machines, which Huawei is reportedly working on independently. However, overcoming U.S. and Dutch patents to internalize this technology is considered highly challenging.
Previously, as per a report from Chinese media outlet “Phoenix New Media,” Zhang Ping’an also pointed out that the semiconductor industry in China currently cannot directly compete with developed countries in cutting-edge processes, such as 3nm and 5nm. This is an indisputable fact, but it does not mean that China’s semiconductor industry has no prospects for development. Furthermore, Zhang believed that the semiconductor industry in China should be more focused on deepening efforts in relatively mature processes, such as 7nm, to enhance product performance and reliability, meeting the needs of the market and users.
Moreover, some Chinese manufacturers are exploring ways to overcome these restrictions. Notably, Chinese DRAM manufacturer ChangXin Memory Technologies is reportedly preparing to mass-produce 18.5nm DRAM to circumvent US sanctions on DRAM equipment below 18nm.
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The US government, according to a report from Reuters, is asking allies to stop domestic companies from servicing certain chip-making tools for Chinese customers, a U.S. Commerce department official said on March 27th.
“We’re pushing for not servicing of those key components and these are the discussions we are having with our allies,” stated export controls chief Alan Estevez, as reported by Reuters during an annual conference. “We are working with our allies to determine what is important to service and what is not important to service,” hinting that the US is not proposing restrictions on non-core components that Chinese firms can repair themselves.
The recent trigger for heightened vigilance in the US was Huawei’s launch of a new 5G smartphone in August last year, equipped with domestically manufactured advanced 7-nanometer chips from China. According to a recent Bloomberg report, the chips supplied to Huawei by its partner SMIC are manufactured using equipment from US suppliers such as Applied Materials and Dutch company ASML.
Since then, the US has reportedly been increasing pressure on allies such as the Netherlands, Germany, South Korea, and Japan, urging them to further tighten restrictions on China’s access to advanced chip technology.
Additionally, the US has restricted equipment suppliers like Applied Materials from providing maintenance services for entities in China subject to sanctions. However, neither the Netherlands nor Japan has implemented similar maintenance bans on their domestic companies, prompting the US to encourage allied firms to follow suit.
Gina Raimondo, the US Secretary of Commerce, previously responded by stating that the US will take “as strong and effective action as possible” to uphold national security interests.
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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