China makes progress toward self-sufficiency in chip tools, but lithography remains a bottleneck
While U.S. export restrictions on China’s access to advanced chips and technologies have boosted local efforts to replace foreign chip manufacturing facilities, bottlenecks remain, industry insiders and analysts say.
Leading Chinese tool manufacturers such as Naura Technology and Advanced Micro-Fabrication Equipment (AMEC) are pushing for local chip foundries to adopt a “use first, optimize later” approach to producing domestic devices.
According to several industry insiders, there is even an unwritten rule in China’s semiconductor wafer factories that states that at least 70 percent of the production lines must consist of locally manufactured tools.
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After Washington imposed restrictions on the export of sophisticated chipmaking technologies, China’s leading chipmakers began shifting their focus from chasing cutting-edge technology to increasing their production capacity for conventional chips used in cars and home appliances – and significant progress is being made.
Workers inspect a semiconductor wafer at TankeBlue Semiconductor in Beijing, January 24, 2024. Photo: Xinhua alt=Workers inspect a semiconductor wafer at TankeBlue Semiconductor in Beijing, January 24, 2024. Photo: Xinhua>
“The Chinese semiconductor tooling sector has made great strides since the October 2022 U.S. export control package,” said Paul Triolo, senior vice president for China and head of technology policy at Albright Stonebridge Group, a Washington-based consulting firm. “This is the result of greater vertical integration among tooling manufacturers, greater integration with front-end manufacturers and much greater collaboration across the industry’s supply chain.”
Some industry veterans are increasingly speaking confidently about self-sufficiency. Gerald Yin Zhiyao, chairman and CEO of Shanghai-listed AMEC, said China could be close to achieving a basic level of self-sufficiency in chip manufacturing this summer, something that seemed unlikely just a few years ago.
Yin said at a panel discussion last month that China’s semiconductor supply chain could become self-sufficient despite gaps in “quality” and “reliability,” fresh evidence that U.S. restrictions may have accelerated the development of China’s chip industry.
However, there is one area that remains a bottleneck for China: lithography, the crucial technology for printing ultra-fine circuit patterns on wafers. But these systems are subject to the strictest export restrictions. Dutch company ASML is the only supplier of extreme ultraviolet (EUV) lithography systems needed for cutting-edge chips, and is also a key supplier of the less advanced deep ultraviolet (DUV) systems.
In 2023, only 1.2 percent of the lithography systems used in Chinese foundries were sourced locally, according to data shared by Li Hong, president of foundry China Resources Microelectronics, at an industry forum a year ago.
In the second quarter, ASML’s shipments to customers in mainland China totaled €2.35 billion ($2.5 billion), representing nearly half of its global systems revenue, reflecting China’s continued reliance on ASML tools at legacy nodes not subject to U.S. sanctions.
“Chinese companies have been purchasing large quantities of DUV lithography equipment from ASML, reflecting the fact that Chinese lithography leader SMEE is lagging behind ASML in reliably producing lithography equipment that can operate at the 28-nanometer and below scale,” Triolo said.
However, China is doubling its efforts in the field of lithography, and some experts believe a breakthrough is still possible.
This photo taken on April 29, 2024 shows an employee at a semiconductor factory in Huai’an, east China’s Jiangsu province. Photo: AFP alt=This photo taken on April 29, 2024 shows an employee at a semiconductor factory in Huai’an, east China’s Jiangsu province. Photo: AFP>
“I think several parties in China are quite capable of developing many of the individual modules and subsystems for DUV and EUV,” said Rene Raaijmakers, a Dutch technology writer and author of ASML’s Architects. China’s development timeline may even be faster than ASML’s on EUV, “because they can use more advanced technologies that are available on the market,” Raaijmakers said.
However, lithography is not the only bottleneck for China. According to Li of China Resources Microelectronics, the local supply ratios for ion implantation and inspection and measurement systems were 1.4 percent and 2.4 percent, respectively. The country’s imports of ion implantation systems rose 20 percent year-on-year to reach $1.3 billion in 2023, according to Chinese customs data.
Chinese wafer factories rely on US companies KLA and Applied Materials as well as Japanese company Hitachi for their measurement systems, according to a research report by brokerage firm Sealand Securities. KLA holds around 50 percent of the global market share in the area of inspection and measurement tools.
“The inspection and measurement sector has a small proportion of local supply, and domestic replacement is mainly at the lower end of the price range,” said a semiconductor investor from Meituan’s venture capital department who wished to remain anonymous.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice for reporting on China and Asia for more than a century. For more SCMP stories, visit the SCMP app or the SCMP Facebook page and Þjórsárdalur Pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.
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