Chinese flag next to a printed circuit board with semiconductor chips.
Florence Lo | Reuters
SMIC is China’s largest contract semiconductor manufacturer. The number nanometer refers to the size of the individual transistors on the chip. The smaller the transistor, the more transistors he can cram onto one semiconductor. Nanometer size reduction typically results in more powerful and efficient chips.
Although the 7-nanometer process is not the latest technology, it is considered very advanced in the semiconductor world.
It was a big deal at the time. But last week, the Financial Times reported that SMIC is setting up a new production line to make 5-nanometer chips for Huawei. It would mark further progress for China’s largest chipmaker.
The chips in Apple’s latest high-end iPhones are manufactured using a 3-nanometer process.
Without EUV tools, experts believed that SMIC would have difficulty producing chips smaller than 7 nanometers, or at least it would be more expensive to produce them.
So when the Huawei Mate 60 with its 7-nanometer chip arrived last year, it raised a lot of eyebrows.
One expert told CNBC at the time that SMIC was likely using older chip-making tools to make more advanced chips.
The FT reported as much last week. Citing people familiar with the plan, the paper reported that SMIC aims to use existing inventories of semiconductor equipment from the United States and the Netherlands to produce 5-nanometer chips, an evolution of 7-nanometer chips.
“SMIC is currently working very closely with both domestic tool manufacturers, leveraging its existing infrastructure of advanced lithography equipment and also leveraging external expertise such as Huawei to improve yields for advanced node processes. We’re continually improving,” said Associate Partner Paul Triolo. An employee at consulting firm Albright Stonebridge told CNBC via email.
“So, for now, SMIC is able to continue improving its capabilities and yields in 7nm and soon 5nm for a small number of customers, primarily Huawei.”
Using older equipment to manufacture more advanced chips presents two major challenges.
The first is that semiconductors cost more to manufacture than if they used more sophisticated tools and machinery. The second issue concerns yield, or the number of usable chips that can be produced and sold to customers. Older equipment also has lower yields.
FT also cited three people close to the Chinese chip company saying that SMIC will produce products with 5-nanometer and 7-nanometer manufacturing processes 40% to 50% more than TSMC does at the same node. He reported that he had to charge more.
TSMC (Taiwan Semiconductor Manufacturing Company) is the world’s largest and most advanced contract chip manufacturing company. TSMC makes semiconductors for companies from Apple to Nvidia.
Pranay Kotasthan, chair of the High Tech Geopolitics Program at the Takshashila Institute, told CNBC that SMIC and China may continue to pump money into this process, but ultimately with each successive chip generation, If the company doesn’t have access to it, costs will continue to rise, he said. Operate ASML EUV machines.
“SMIC may be able to overcome the current yield issue by investing more funds. This investment may also come from the government as this has become an issue of national prestige. Yes,” Kotastan said in an email.
“But the scope for higher costs will only increase with each successive generation of chips. Unless China finds a major alternative to EUV, costs will only increase further.”