The decision by the US Administration to sabotage the growth of China’s semiconductor industry could not have come at a worse time for the global economy. Every piece of smart technology depends on advanced semiconductors, and so does the technology behind everything related cloud and digital transformation. We just can not get enough of that, and the global pandemic even made us want and need more.
The entire global semiconductor market combined is not able to fill the gap of Chinese chip manufacturers, so here we are in the middle of continuous growing demand and a global shortage of advanced microchips. It isn’t the lack of raw materials that initially caused Chinese manufacturers issues, and it is only partially the required advanced machinery that is now harder to get for Chinese companies that was causing them to not be able to move forward with manufacturing advanced microchips to fill the demand. No, it is the lack of advanced software to design not only the chips, but also the needed machinery and processes and even the secure packaging that brought them to an (almost) full stop in their growth. The reason behind that is that there were only less than a handful of suppliers for this kind of software and they are all under the US embargo!
So, what will it take for Chinese companies to be able to design and mass produce inhouse developed microchips of 28nm or even better, 14nm and beyond? The advanced software they no longer can use freely! This appeared to be a very tight checkmate move by the US that disabled the Chinese semiconductor industry to advance from producing licensed advanced microchips for others (mainly US based companies) to designing and producing its own technology.
Appeared, because there is one engine that has been driving the Chinese economy and its role as global technology powerhouse and that is the Chinese software and AI industry. The growth of its relevance and capabilities can best be measured by the number of patent applications over the last 10 years, and once we combine that with the parameter of semiconductor developments (H01L), we see how fast China is developing its own advanced semiconductor capabilities.
Where these Chinese patent applications mainly focused on devices itself in the past, the past 3 years have seen a rapid increase in patents to design and manufacture advanced microchips. A timeline that matches the embargo policies of the US for that kind of technology and China’s desire the depend less on US technology. In short, this means that Chinese companies are finding their way out of complete dependence on US technology and with that the licensed manufacturing, and towards their own patented processes and design capabilities.
The combination of semiconductor specific patents and the booming Artificial Intelligence market, where China surpassed the US and Japan, have created the turbocharger for China’s semiconductor development without dependance on US suppliers and the legislative powers of the US Government. With the knowledge and important AI based software already available to design machinery and processes for the 28nm segment, which is a large element of the semiconductor demand, China is only a few steps away from reaching the breakthrough in the 14nm segment.
China and Chinese companies have a double incentive to go all-in on being able to mass-produce advance semiconductors and continue to push forward even after breaking through the 14nm barrier. The Chinese internal market and demand for smart technology grows faster than any other country in the world, on not being able to fulfil that demand would be nothing short of surrendering to the external powers that play their hand as they see fit. In addition to that, breaking through the US monopoly of legislative powers in this industry, will also untie the final knot in the US made noose tied around the necks of Chinese tech providers. Supplying the internal market and the global market, which both continue to grow faster than any previously predicted volume, is essential for the competitiveness of these companies.
Even ByteDance, the mother company of TikTok, is considering to enter China’s semiconductor industry. China has the (wo)manpower, the advanced technology, and the capital to not only being able to mass produce advanced semiconductors in the 28nm and soon 14nm segment, but also to scale of volumes very rapidly. This will lead to the badly needed diversity in the semiconductor industry that will help us prevent future supply chain shortages, as we experience them now for more than a year.
Although we consider 5nm and 7nm cutting edge technology for advanced semiconductors, this segment is only a relatively small element in the global demand. 14nm is the segments where the demand continues to rise and where there is still no end in sight for the shortages. Although the road towards 14nm is not without challenges, China’s semiconductor industry is rapidly addressing these challenges, and ready to step beyond 14nm sooner than most of us expect. With 28nm already ramping up to high volume mass production, the focus is now on stabilizing the 14nm processes and finetuning the ongoing developments.
Just like Chinese manufacturers wend from concept to mass production for 28nm based on the learnings and experience from 40nm technology, they will do the same with 14nm. By 2022, these manufacturers will achieve mass production levels in 14nm! Why? Because they have the learning and experience from developing 40nm and 28nm mass production, and most importantly, they have overcome the most important hurdle: the advanced software that enables designing chips, machinery, and processes!