On June 10, Taiwan's Ministry of Economic Affairs expanded its list of strategic export-controlled customers to include Huawei and Semiconductor Manufacturing International Corporation (SMIC). The ministry announced that this decision followed a review meeting focused on preventing the proliferation of arms and other national security concerns. Moving forward, any Taiwanese exporter must obtain formal government approval before shipping semiconductors, lithography machines, or related equipment to Huawei or SMIC. TSMC immediately confirmed its full compliance. Company representatives reminded stakeholders that no orders have been fulfilled for Huawei since September 2020 and pledged to enhance internal verification procedures to block any unauthorized transactions. These steps build on one‑billion‑dollar penalty, imposed after investigators determined that two million advanced AI chiplets had been supplied for Huawei's Ascend 910B accelerator without proper clearance.

For Huawei and SMIC, this latest measure compounds the challenges created by existing US export controls, which prohibit both companies from sourcing many US-origin technologies and designs. The two Chinese giants will accelerate efforts to develop domestic alternatives, yet true semiconductor independence remains a distant goal. Designing and building reliable extreme ultraviolet lithography systems demands years of specialized research and highly precise manufacturing capabilities. Scaling production without foreign expertise could introduce costly delays. In response, Chinese research institutes report that the country's first homegrown EUV lithography machines are slated to enter trial production in the third quarter of 2025. Meanwhile, state‑backed partners are racing to develop advanced packaging tools to rival those offered by ASML. Despite these initiatives, experts warn that catching up with global leaders will require substantial time and continued investment.

According to a report produced by semiconductor industry analysts at Kiwoom Securities—a South Korean financial services firm—Semiconductor Manufacturing International Corporation (SMIC) is expected to complete the development of a 5 nm process at some point in 2025. Jukanlosreve summarized this projection in a recent social media post. SMIC is often considered to be China's flagship foundry business; the partially state-owned organization seems to heavily involved in the production of (rumored) next-gen Huawei Ascend 910 AI accelerators. SMIC foundry employees have reportedly struggled to break beyond a 7 nm manufacturing barrier, due to lack of readily accessible cutting-edge EUV equipment. As covered on TechPowerUp last month, leading lights within China's semiconductor industry are (allegedly) developing lithography solutions for cutting-edge 5 nm and 3 nm wafer production.

Huawei is reportedly evaluating an in-house developed laser-induced discharge plasma (LDP)-based machine, but finalized equipment will not be ready until 2026—at least for mass production purposes. Jukanlosreve's short interpretation of Kiwoom's report reads as follows: (SMIC) achieved mass production of the 7 nm (N+2) process without EUV and completed the development of the 5 nm process to support the mass production of the Huawei Ascend 910C. The cost of SMIC's 5 nm process is 40-50% higher than TSMC's, and its yield is roughly one-third." The nation's foundries are reliant on older ASML equipment, thus are unable to produce products that can compete with the advanced (volume and quality) output of "global" TSMC and Samsung chip manufacturing facilities. The fresh unveiling of SiCarrier's Color Mountain series has signalled a promising new era for China's foundry industry.

Semiconductor Manufacturing International Corporation (SMIC), one of the leading semiconductor foundries in the world, today announced its consolidated results of operations for the three months ended September 30, 2024.

Third Quarter 2024 Highlights

• Revenue was $2,171.2 million in 3Q24, compared to $1,901.3 million in 2Q24, and $1,620.6 million in 3Q23.
• Gross profit was $444.2 million in 3Q24, compared to $265.1 million in 2Q24, and $321.6 million in 3Q23.
• Gross margin was 20.5% in 3Q24, compared to 13.9% in 2Q24 and 19.8% in 3Q23.

According to Bloomberg's latest investigation, Huawei and Semiconductor Manufacturing International Corporation (SMIC) have submitted patents on the self-aligned quadruple patterning (SAQP) pattern etching technique to enable SMIC to achieve 5 nm semiconductor production. The two Chinese giants have been working with the Deep Ultra Violet (DUV) machinery to develop a pattern etching technique allowing SMIC to produce a node compliant with the US exporting rules while maintaining the density improvements from the previously announced 7 nm node. In the 7 nm process, SMIC most likely used self-aligned dual patterning (SADP) with DUV tools, but for the increased density of the 5 nm node, a doubling to SAQP is required. In semiconductor manufacturing, lithography tools take multiple turns to etch the design of the silicon wafer.

Especially with smaller nodes getting ever-increasing density requirements, it is becoming challenging to etch sub-10 nm designs using DUV tools. That is where Extreme Ultra Violet (EUV) tools from ASML come into play. With EUV, the wavelengths of the lithography printers are 14 times smaller than DUV, at only 13.5 nm, compared to 193 nm of ArF immersion DUV systems. This means that without EUV, SMIC has to look into alternatives like SAQP to increase the density of its nodes and, as a result, include more complications and possibly lower yields. As an example, Intel tried to use SAQP in its first 10 nm nodes to reduce reliance on EUV, which resulted in a series of delays and complications, eventually pushing Intel into EUV. While Huawei and SMIC may develop a more efficient solution for SAQP, the use of EUV is imminent as the regular DUV can not keep up with the increasing density of semiconductor nodes. Given that ASML can't ship its EUV machinery to China, Huawei is supposedly developing its own EUV machines, but will likely take a few more years to show.

Semiconductor Manufacturing International Corporation (SMIC) posted better than expected fourth quarter 2023 financial tallies, but issued a warning with a downward revisement of near future gross margin expectations. According to DigiTimes Asia and TrendForce, China's leading pure-play semiconductor foundry has experienced an overall decline in net profit due to various cited factors including: "the industry downturn, weak market demand, high industry inventory, and fierce competition among peers, all contributing to reduced capacity utilization and decreased wafer shipment for the group." The DigiTimes report focuses mainly on a significant SMIC shares plunge—stock prices are reported to have dropped by ~20% in early 2024, indicating a loss of confidence in the foundry's prospects.

TrendForce laid out the financial nitty gritty: "SMIC International saw a revenue increase of over 3.5% to more than USD 1.678 billion, marking the only quarter of revenue growth last year. Net profit plummeted by 54.7% to nearly USD 175 million. The gross margin of 16.4% was almost halved compared to the same period in 2022 and experienced a significant decline from the previous three quarters, reaching its lowest point of the year. In the full year of 2023, SMIC International experienced a revenue decline of over 13% to USD 6.3 billion, with a net profit decrease of 50.4% to USD 900 million. The gross margin was approximately halved to 19.3%." Many industry watchdogs believed that SMIC was in a comfortable position, thanks to an uptick in demand for natively developed AI GPUs—their flagship Shanghai plants are reportedly churning out 7 nm wafers for Huawei's Ascend 910B model. Insiders also claim that high profile smartphone clients are pushing for 5 nm production lines—a significant challenge for the foundry's existing collection of (less than cutting-edge) equipment.

News reports from Asia point to an ongoing price battle between major chip foundries in the region—sluggish market conditions in 2023 have caused the big industry names to adjust charges, in concerted efforts to retain customers. This situation has escalated in early 2024—news media outlets claim that mainland China-situated factories have plenty of new production capacity, and are therefore eager to get their order books filled. The reports point to: "Semiconductor Manufacturing International Corporation (SMIC), Hua Hong Semiconductor and Jinghe Semiconductor lowering the price of tape-out services to chip design companies in Taiwan." Industry insiders believe that several Taiwanese IC designers have jumped onto better deals, as offered by Chinese facilities—it is alleged that Samsung, GlobalFoundries, UMC and Powerchip have all experienced a worrying increase in customer cancellations (at the tail end of 2023). The loss of long-term clients has forced manufacturers—in South Korea and Taiwan—into a price war.

TrendForce's analysis of market trends stated: "Due to the mature manufacturing processes in China, unaffected by US export restrictions, the lowered wafer fabrication costs have become attractive to Taiwanese IC design companies seeking to enhance their cost competitiveness. Reports also indicate that this competitive pressure has forced Taiwan's foundries, UMC and PSMC, to follow suit by reducing their prices. UMC has lowered its 12-inch wafer foundry services by an average of 10-15%, while its 8-inch wafer services have seen an average price reduction of 20%. These price adjustments took effect in the fourth quarter of 2023." Samsung is reportedly slashing prices by ~10-15%, and is expressing a "willingness to negotiate" with key clients in early 2024. Reports state this is a major change in attitude for the South Korean chip giant—allegedly, leadership was unwilling to budge on 2023 tape-out costs. TrendForce reckons that TSMC's response was a bit quicker: "(having) already initiated pricing concessions last year, mainly related to mask costs rather than wafer fabrication. It was reported that these concessions primarily applied to the 7 nm process and were dependent on order volumes."

Semiconductor Manufacturing International Corporation (SEHK: 00981; SSE STAR MARKET: 688981) ("SMIC", the "Company" or "we"), one of the leading semiconductor foundries in the world, today announced its consolidated results of operations for the three months ended March 31, 2023.

According to the international financial reporting standards, in the first quarter, the Company's revenue slightly beat guidance, gross margin was close to the high end of our guided range; in the second quarter, the Company expects the capacity utilization rate and shipments will perform better than first quarter. Revenue is expected to increase by 5% to 7% sequentially, with a decline in blended ASP due to the impact of changes in product mix; gross margin is expected to be between 19% and 21%.

From 2020 to 2025, the compound annual growth rate (CAGR) of 12-inch equivalent wafer capacity at the world's top ten foundries will be approximately 10% with the majority of these companies focusing on 12-inch capacity expansion, which will see a CAGR of approximately 13.2%, according to TrendForce's research. In terms of 8-inch wafers, due to factors such as difficult to obtain equipment and whether capacity expansion is cost-effective, most fabs can only expand production slightly by means of capacity optimization, equating to a CAGR of only 3.3%. In terms of demand, the products primarily derived from 8-inch wafers, PMIC and Power Discrete, are driven by demand for electric vehicles, 5G smartphones, and servers. Stocking momentum has not fallen off, resulting in a serious shortage of 8-inch wafer production capacity that has festered since 2H19. Therefore, in order to mitigate competition for 8-inch capacity, a trend of shifting certain products to 12-inch production has gradually emerged. However, if shortages in overall 8-inch capacity is to be effectively alleviated, it is still necessary to wait for a large number of mainstream products to migrate to 12-inch production. The timeframe for this migration is estimated to be close to 2H23 into 2024.

The Trump administration has reportedly been considering adding to Chinese chipmaker SMIC (Semiconductor Manufacturing International Corporation) to the trade blacklist of Chinese companies, restricting the company of doing any business with the United States and/or with any of its affiliates. The original report comes from Reuters and it states that the move came from Pentagon after considering whatever SMIC should be placed on a blacklist. It is so far unclear if other US agencies support the decision, however, it should be public in the near future. The company has received the news on Saturday and it was "in complete shock" about the decision. Shortly after the news broke, SMIC stock has fallen as much as 15% amid the possible blacklist. If SMIC would like to continue working with American suppliers, it would need to seek a difficult-to-obtain license from the government.

Update 28th September: The United States government hasofficially imposed sanctions on the Chinese chipmaker SMIC. The company is now under US sanctions and is placed on a trade blacklist.

As the US stranglehold on Huawei keeps on tightening its grip, China's government is keen on both investing more heavily into in-country semiconductor manufacturing that can become a viable alternative to Huawei as a source a silicon, as well as decrease the country's dependence on Western or Western-tied companies. The country has already developed promising alternatives to foreign DRAM solutions via Xi'an UniIC Semiconductors and Yangtze Memory Technologies (YMTC). Now, following a previously-successful funding round held in Hong Kong (worth some $2.2 billion injected last month), China's largest contract chipmaker Semiconductor Manufacturing International Corporation (SMIC) is looking for an additional $2.8 billion funding round via Shanghai.

SMIC is currently years behind TSMC, the current benchmark when it comes to semiconductor manufacturing. For now, SMIC is only able to provide 14 nm product designs - and even in that node, silicon is being quoted as having as much as a 70% defect-rate on any given wafer produced by the company (they've already started 14 nm production of Huawei's low-cost Kirin 710 chipset). At any rate, sources point towards a 6,000 monthly wafer production capacity within SMIC, a very, very low number that fails to meet any current demand (TSMC, for scale, are quoted as producing as many as 110,000 7 nm wafers per month). It's definitely an uphill battle, but SMIC counts with the might of the Chinese government through its sails - so while the waters might not be smooth, investment rounds such as these two (which amount to some $5 billion capital injection in two months) will be sure to help grease the engines for china's semiconductor expansion as much as possible.