The signals from this ‘Made in China’ smartphone story

Source– The post is based on the article “The signals from this ‘Made in China’ smartphone story” published in “The Hindu” on 12th September 2023.

Syllabus: GS3- Indian Economy

News–  Huawei has created ripples within the strategic and business community with its newly unveiled Mate 60 Pro which houses the Kirin 9000 processor. The chipset reportedly used Semiconductor Manufacturing International Corp (SMIC)’s second-generation 7nm fabrication technique.

What are the challenges before the Chinese advanced chips manufacturing ecosystem?

1. The manufacturing method employed by Huawei-SMIC for producing the Kirin 9000 processor is ineffective. The efficiency metric known as wafer yield falls well below 50% for this technology.

In contrast, Taiwan’s Taiwan Semiconductor Manufacturing Company Limited utilizes a 7nm manufacturing process with a wafer yield exceeding 90%.

Consequently, Huawei SMIC’s approach becomes excessively costly. It is reaching up to ten times the expenses incurred by other market players.

2. The 7nm manufacturing process represents the highest level of China’s capabilities given the currently available Deep Ultraviolet (DUV) lithography tools.

Sanctions imposed by the United States denied Beijing access to the most advanced lithography tool in the market—the Extreme Ultraviolet (EUVs). It forced China to rely on DUVs for fabricating the Kirin 9000 chipset.

While DUVs can technically be used to create 7nm chips, the process is inefficient. It is leading to reduced yield.

3. There are doubts about Huawei-SMIC’s ability to engage in large-scale production of the current chipsets. Recent restrictions imposed by the U.S. and its allies pose a challenge for Chinese companies looking to scale up the production of 7nm chips.

What is the comparison between the Chinese chip manufacturing ecosystem and US chip manufacturing ecosystem?

1. The decentralized nature of the technology ecosystem led by the United States enables individual countries to specialize based on their unique comparative advantages.

This is evident in the current supply chain. The United States excels in Electronic Design Automation (EDA) tools and design.

2. The Netherlands specializes in manufacturing lithography tools. Japan is known for producing specialized materials. Taiwan and South Korea excel in fabrication.

In contrast, China faces the challenge of achieving self-sufficiency in each segment of the semiconductor value chain and attaining a high level of sophistication in each of these areas to remain competitive.

Specializing in any single segment of the chip value chain alone requires substantial capital investment. It is practically impossible in every segment.

3. In the U.S.-led ecosystem, the costs can be shared among participating countries, most of which have significantly higher per-capita income levels than China.

So, to compete effectively with this larger resource pool, China must achieve a higher success rate for every research dollar it invests.

This presents a challenge. Breakthroughs in fundamental research often require substantial capital and do not always lead to successful outcomes.

4. The U.S.-led tech ecosystem benefits from its ability to attract talent from diverse regions due to its open immigration policies and widespread network.

In contrast, China will increasingly rely on its national or overseas talent pool. The movement of human capital to China becomes more challenging due to escalating competition in the high-tech sectors.