Massive expansion campaign targets wide variety of chips, but export controls limit growth at leading edge.
China has unveiled several initiatives to advance its domestic semiconductor industry, including a new and massive fab expansion campaign in the foundry, gallium-nitride (GaN), and silicon carbide (SiC) markets.
The nation is making a big push into what it calls “third-generation semiconductors,” which is a misnomer. The term actually refers to two existing and common power semiconductor device types—GaN and SiC power semis. Regardless of the name, China is playing catch-up here. Plus, the nation is falling further behind in leading-edge logic processes. On the flip side, China continues to make rapid progress in other parts of its IC industry.
China is a complex market with a multitude of dynamics. For one thing, China is the world’s largest semiconductor market in terms of consumption. In 2020, China represented 53.7% of worldwide chip sales, or $239.45 billion, according to Handel Jones, CEO of IBS. In 2020, the worldwide semiconductor market reached $446.1 billion, up 8.34% over 2019, Jones said. In 2021, the semiconductor market is expected to grow by 21.62%, according to IBS.
From China’s standpoint, there’s a big problem. For years, the nation has been importing a large percentage of semiconductors from multinational suppliers, creating a huge trade gap. In 2020, the multinationals in total registered chip sales of $199.7 billion in China, according to IBS. That represents 83.38% of total chip sales in China, according to the firm. China-based chip suppliers made up the rest. China also manufactures only a small percentage of its own chips.
Over the years, the nation has launched a number of initiatives to close the gap, but those efforts have fallen short. Now, the nation is pouring $150 billion into its domestic IC industry, hoping to become more self-sufficient in both developing and manufacturing chips of all types. Even so, China faces a number of challenges in its quest to become less dependent on foreign suppliers, and it may never reach its goals.
Still, China is expanding. Chipmakers worldwide will start construction on 19 new fabs in 2021, with another 10 in the works in 2022, according to SEMI. China and Taiwan are leading the way in new fab construction projects with eight each, according to SEMI. China has several more fabs in the works.
“We currently have 17 fabs from Chinese-owned companies on the radar, which will start construction from 2021 to 2023,” said Christian Dieseldorff, an analyst at SEMI. In total, the installed capacity of Chinese-owned chipmakers will increase from 2.96 million wafers per month (wpm) in 2020 to 3.572 million wpm in 2021, Dieseldorff said.
There are several major events taking place in China’s semiconductor industry, including:
Not all of these efforts are successful, however. Chinese foundry hopeful, HSMC, recently went under.
China’s plans
China has a long history in semiconductors. In the 1970s, several Chinese state-run chipmakers appeared and developed simple transistors, but they weren’t competitive. The nation fell off the radar until the 1980s, when the government moved to modernize its semiconductor industry. With help from foreign concerns, the country launched several chip ventures in the 1980s and 1990s.
These ventures developed logic and memory devices, but they were behind the West in technology. At the time, the West implemented strict export controls on China. Multinational equipment vendors were prohibited from shipping their most advanced systems in China.
Hoping to close the gap, China in 2000 launched its most advanced foundry vendor—SMIC. Then, starting in the late 2000s, Intel, Samsung and SK Hynix built memory fabs in China, and TSMC and UMC built foundry fabs in China.
By then, China had become a large manufacturing base for electronic products. Overnight, the country became the world’s largest market for chips. At that point, China’s IC industry was well established, but the nation imported most of its chips from multinational vendors. It also produced a tiny percentage of its own chips.
In response, and armed with billions of dollars in funding, the Chinese government unveiled a new plan in 2014. The goal was to accelerate China’s efforts in 14nm processes, memory and packaging.
Then, in 2015, China launched another initiative, dubbed “Made in China 2025.” The goal is to increase the domestic content of components in 10 areas — IT, robotics, aerospace, shipping, railways, electric vehicles, power equipment, materials, medicine and machinery.
China is making strides in these areas. But some initiatives were derailed starting in 2018, when the U.S. launched a trade war with China by slapping tariffs on Chinese-made goods. China retaliated.
A year later, the U.S. added Huawei and its internal chip unit, HiSilicon, to the “entity list.” The U.S. blocked multinational companies and foundries from selling leading-edge chips to Huawei and HiSilicon.
Tensions have escalated in the region. This, in turn, has prompted China to accelerate its domestic semiconductor efforts, hoping to become more self-sufficient.
China, meanwhile, has its sights set on other areas, like battery-electric vehicles (BEVs). Tesla is the world’s largest BEV vendor, but China in total holds the largest share of BEVs, according to TrendForce.
In 2020, China unveiled “Road 2.0,” a plan for its EV industry through 2035. “By 2025, China is to achieve key technology breakthroughs in electric battery, drivetrain, and vehicle operation systems; lower the average power consumption of new pure electric vehicles to 12.0 kWh/100 km; and increase NEV (new electric vehicle) sales volume to 20% of total sales of new vehicles,” according to Phoebe Yin, Jake Levine and Ashwin Kaja, who are analysts from Covington, a public policy group.
Earlier this year, China unveiled its fifth 14-year plan covering 2021 through 2025. According to IDC, China is developing a multitude of technologies, including seven key areas:
According to Covington, China also wants to enter or expand into several fields, including, design tools, semiconductor equipment and materials, advanced memory and GaN and SiC.
Foundry setbacks
China also is continuing to expand its foundry industry. Foundries make chips for others using a process technology at various nodes. A process technology is the recipe used to make a given chip in a fab. A node refers to the design rules for the process.
Mature processes involve the 28nm logic node and above, where the key building blocks are planar transistors. Below 28nm, chips are built using finFETs.
Meanwhile, China’s foundry industry is split into two categories—domestic and multinational. On the multinational front, Powerchip, TSMC and UMC for years have operated fabs in China.
In its newer Nanjing fab, TSMC is ramping up a 16nm finFET process with plans to expand its 28nm technology. In Xiamen, UMC’s fab is manufacturing 40nm/28nm.
China’s domestic foundries include ASMC, CR Micro, Hua Hong Group, Sanan IC and SMIC. The Hua Hong Group includes three vendors — HHGrace, Hua Hong Semiconductor and Shanghai Huali.
China wants to be a foundry player for several reasons. First, it wants to make more of its chips. Second, China’s foundries not only want to make chips for multinational vendors, but they also hope to serve a growing number of domestic IC design houses that are developing leading-edge chips. Third, China wants to manufacture leading-edge designs at its domestic foundries.
“Five years ago, China really had trouble doing complex chips. Huawei or HiSilicon could do it. VeriSilicon is doing some interesting stuff. But they were the exceptions,” said IBS’ Jones. “Now, we have maybe 10 or 12 companies in China that can do designs at 5nm and moving to 3nm next year or after that.”
The country’s foundries have seen some success. Two vendors—SMIC and Hua Hong—are the world’s fifth and sixth largest foundries in sales, respectively, according to TrendForce. TSMC remains in first place, followed by Samsung, UMC and GlobalFoundries.
Fig. 1: Top 10 foundries by Q2 2021 sales. SMIC and Hua Hong solidified their positions in the foundry race. Source: TrendForce
China, however, is likely to fall short of its goals. It wants to produce 70% of its chips by 2025, according to IC Insights. In 2020, China produced 15.9% of its chips, and is projected to make only 19.4% in 2025, according IC Insights.
The nation also remains behind in process technology. SMIC’s most advanced technology involves a 14nm process with 7nm in R&D. In comparison, TSMC and Samsung are ramping up 5nm, with 3nm slated for 2022.
So for leading-edge processes, China’s design houses must rely on multinational foundries, a sore spot for the government. Still, the country’s foundries are thriving, thanks to huge demand for chips based on mature processes.
“Semiconductor manufacturing today is different from the old days when only the leading-edge fabs could make money,” said Leo Pang, chief product officer at D2S. “The auto industry and IoT applications are staying in the mature nodes, such as 28nm and larger.”
Nonetheless, China has come a long way in a short period. In 2001, SMIC moved into production with its first fab — a 200mm, 0.25-micron facility. Over time, SMIC developed several new fabs and processes.
By 2014, the company developed the nation’s most advanced technology, a 28nm process. In comparison, TSMC introduced 28nm in 2011. Later, GlobalFoundries, Samsung and UMC introduced 28nm.
Today, 28nm remains a big business, and all foundries continue to expand their fab capacities here. And several vendors are ramping up 22nm, an extension of 28nm. “Revenue from 28nm technologies continue to rise, while business engagements in 22nm have led to a growing number of customers’ tape-outs across wireless, display, and IoT markets,” said Jason Wang, UMC’s co-president.
Meanwhile, several foundries continue to pursue the leading edge, but there are several challenges. At 28nm/22nm and above, planar transistors are still used for chips. Below 20nm, planar transistors run out of steam.
That’s why Intel in 2011 moved to finFETs at 22nm. In 2014, GlobalFoundries, Samsung and TSMC moved to finFETs at 16nm/14nm. FinFETs are faster with lower power than planar transistors, and at 16/14nm they have much lower current leakage. But they also are harder and more expensive to make.
Hoping to play-catch up, SMIC in 2015 began to develop a 14nm finFET process. It shipped the technology in 2019, which is several years behind the competition.
It hasn’t given up, though. Recently, SMIC taped-out what it calls its 7nm, or “N+1” technology. “Volume production and yield improvement have yet to appear for the process,” said Samuel Wang, an analyst at Gartner. “SMIC’s N+1 is not a 7nm process. It can be considered as 8nm.”
From there, SMIC is stuck and unable to process chips beyond N+1. Recently, the United States blocked SMIC from obtaining ASML’s extreme ultraviolet (EUV) lithography scanners, a system used to develop chips at 7nm and beyond. Without EUV, SMIC can’t develop chips beyond N+1, thereby hampering China’s efforts to develop leading-edge processes.
Last year, the U.S. also put SMIC on the “entity list,” making it difficult for it to obtain other advanced equipment. So far, the U.S. hasn’t relaxed its restrictions on SMIC, which means the company will fall further behind.
“The gap is widening,” Wang said. “SMIC can no longer do anything after what they call N+1 or 8nm. They are not going to have a real 7nm or 6nm. In advanced technology, they are going to fall farther behind. I would say six years, or even longer.”
There is a silver lining, though. “SMIC, in terms of revenue, is doing great,” Wang said. “At 28nm and above, there is sufficient demand. SMIC’s fab utilization rate is over 100%. Even though they are restricted from developing advanced technology, they are still growing.”
Plus, SMIC and other China-based chipmakers continue to build fabs, albeit for more mature processes. According to SEMI’s “World Fab Forecast Report,” here are some of China’s current and future fab projects:
Hua Hong has three 200mm fabs and is ramping up its first 300mm facility. Focusing on mature processes, Hua Hong’s fabs are full. “Almost all market segments have strong demand — in particular, MCU, power management IC, IGBT, super junction, CIS, logic and RF,” said Tang Junjun, president of Hua Hong.
Shanghai Huali has two fabs, which are full. The company is 28nm-capable with 14nm slated by year’s end. Meanwhile, Huawei plans to build a fab, although its plans are uncertain. Not all of China’s fab projects will succeed. Plus, there are other issues.
“It’s true that China cannot get EUV scanners, so they cannot get into the leading edge. But that’s not a problem for them to build new fabs,” D2S’ Pang said. “But first, they need to gain market share and train the talent with local demand. Once they have both, they can gradually ramp up outside their domestic markets.”
Power semi push
China also is making a big push in a new segment — power semiconductors. Used to control and convert electrical power in systems, power semiconductors are found in cars, computers and industrial products.
Power semis are specialized transistors that allow the electricity to flow in the “on” state, and stop it in the “off” state. They boost the efficiencies and minimize the energy losses in systems. Used for decades, power devices are becoming even more critical.
“We have to use technologies to protect the environment. One solution is hybrid and electric cars, where power electronics is key,” said Gary Zhong, head of the vehicle motion segment for Infineon Greater China. “Considering the automotive megatrends of electrification and digitalization, we expect rapidly growing demand for power semiconductors, such as IGBTs and SiC MOSFETs.”
Today’s power semiconductor market is dominated by silicon-based devices, which include power MOSFETs, super-junction power MOSFETs, and insulated-gate bipolar transistors (IGBTs).
Power MOSFETs are used in lower-voltage, 10- to 500-volt applications, such as adapters and power supplies. Super-junction MOSFETs are used in 500- to 900-volt applications. IGBTs, the leading midrange power devices, are used in 1.2-kilovolt to 6.6-kilovolt systems.
IGBTs and MOSFETs are widely used, but they also are reaching their limits. That’s why a growing number of vendors are developing power devices based on two wide-bandgap technologies, GaN and SiC. Both GaN- and SiC-based power devices are smaller and more efficient than silicon, but they are also more expensive.
Several China-based companies are developing and manufacturing power semis of all types. Nevertheless, domestic system houses still must import a large percentage of these devices from the multinationals.
For one thing, technologies like GaN are hard to develop. “Silicon carbide is even tougher,” IBS’ Jones said. “So the Chinese automotive companies are all buying from foreign companies.”
Going forward, the nation wants to develop and make more of its own power semis. By 2023, China is expected to become the leader in worldwide power and compound semiconductor fab capacity, according to SEMI.
The nation wants to make a major push in all areas, including mature products like power MOSFETs. Several domestic MOSFET suppliers have emerged, including CR Micro, Jilin Sino and Silan, according to Yole Développement. “It is therefore not surprising that Chinese players are investing in manufacturing capabilities,” said Milan Rosina, an analyst at Yole.
China is expanding in other ways. In 2017, NXP sold its Standard Products business, called Nexperia, to a Chinese consortium. In 2019, Wingtech, a Chinese telecom firm, took a controlling stake in Nexperia, a supplier of discretes and MOSFETs. Nexperia, now a subsidiary of Wingtech, is still headquartered in the Netherlands.
Nexperia has fabs in Germany and the U.K. In early 2021, Wingtech announced plans to build a 300mm power semiconductor fab in Shanghai. The $1.85 billion fab will move into production in 2022.
Following those events, Nexperia acquired Newport Wafer Fab (NWF), a U.K.-based power semi foundry vendor. “Nexperia’s interest in Newport is the volume production of 8-inch discrete power MOSFETs,” said Charles Smit, general counsel at Nexperia. “Newport will also enhance the company’s automotive-qualified product supply capability.”
The deal has come under scrutiny from the U.K. government, although it’s unlikely to block the move. NWF was near bankruptcy proceedings.
NWF, meanwhile, is also developing SiC, a technology that is of keen interest to China. So is GaN. In 2020, China invested in 25 projects in both SiC and GaN at a cost of $10.9 billion, according to TrendForce. Of those figures, China has some 14 production lines for 6-inch SiC wafers, according to TrendForce. HDSC, Sanan IC, Tankeblue and others have SiC lines in China. Not all projects will succeed.
Sanan IC, meanwhile, provides foundry services for compound semiconductor devices (GaN, SiC), power electronics, and opto-electronics. Recently, Sanan IC’s Changsha manufacturing site opened China’s first vertically-integrated SiC facility.
“Our Changsha site is front- and back-end integrated with a complete assembly and test facility to produce high-volume discrete and power module packages,” said Mrinal Das, director of technical marketing and sales at Sanan IC. “We have opened our Changsha phase 1 within one year and are currently ramping toward 15K 150mm SiC wafers per month.”
Like the multinational vendors, China’s domestic SiC suppliers have their sights set on several markets. “The booming EV market in China and throughout the world is motivating all SiC suppliers to expand manufacturing capacity,” Das said. “The significant increase in volume from the EV market is driving an accelerated reduction in the SiC device price, thereby increasing its adoption in other growth markets like PV string inverters, energy storage, UPS, and motor drives.”
BEVs are the big market. In the first BEVs, IGBTs were used for the traction inverter, which provides traction to the motor to propel a vehicle. BEVs also incorporate other chips.
That began to change in 2017, when Tesla began using STMicroelectronics’ SiC power devices for the traction inverter within its Model 3 BEV. SiC is more efficient than IGBTs, but it’s also more expensive.
Now, all car makers are either incorporating or evaluating SiC for the power inverter in their new BEVs. SiC devices are also used for the DC-to-DC converter and on-board charger in BEVs. “With the increasing requirements of fast charging and self-driving, the vehicle requires high voltage platforms. SiC MOSFETs contribute to the future of this systems by offering longer range, compact size, and better overall system cost,” Infineon’s Zhong said.
Nonetheless, the multinationals are not standing still. Many have set up operations in China or formed joint ventures with domestic vendors. For example, China’s Zhenghai Group and Japan’s Rohm recently signed an agreement to establish a joint venture company in China. The venture will develop silicon carbide (SiC) power modules. Rohm has formed other alliances in China as well.
“The adoption of SiC power devices is already accelerating for a variety of applications such as solar power generation systems, industrial equipment, servers, and base stations. They are expected to be increasingly used in electric vehicles in the future,” said Travis Moench, senior director of sales at Rohm. “The new joint venture will also provide more options for our customers. We expect that the power module development at the new company will drive the installation of SiC power devices in new energy vehicles, which are gaining momentum in China, and will play an important role in other application research as well.”
Besides SiC, China also is interested in GaN, a III-V material used in LEDs, power semis and RF. GaN power semis are taking off in several markets, such as fast chargers. Based on GaN devices, fast chargers are small adapters that recharge smartphones and notebooks much faster than traditional chargers.
“For power conversion, the first market that’s blossomed for GaN is the fast charger segment,” said Stephen Oliver, vice president of corporate marketing at Navitas, a U.S.-based supplier of GaN power semis. “The charger market appreciates small size and lightweight products. If you are thinking about a 65-watt charger (using GaN), which would handle a laptop or phone, the BOM cost is about 15% higher for GaN than silicon. But it’s three times smaller and lighter, with three times faster charging for the same size.”
Fast chargers are popular accessories among Chinese smartphone vendors. Recently, Xiaomi introduced a smartphone as well as a standalone 55-watt fast charger based on Navitas’ GaN power device.
The multinationals dominate the GaN power device market, but China’s Innoscience is gaining steam. Several China-based companies are also building new GaN fabs. “TrendForce’s data indicate that, as of 1H21, about seven production lines have been installed in China for GaN-on-Si wafers, while at least four production lines for GaN power devices are currently under construction, also in China,” according to the research firm. Not all projects will succeed.
Fig. 2: Market share of GaN power device suppliers, showing China’s Innoscience gaining on multinational GaN suppliers. Source: TrendForce
Conclusion
There are other efforts, as well. For example, China’s memory makers have been producing 3D NAND and DRAM with mixed success.
All told, China is moving full speed ahead in semis. And while it won’t become self-sufficient anytime soon, it will continue to shake up the market.
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The geopolitical consideration is an enormous factor in all of this. From a Chinese perspective, they already consider anything Taiwanese to be in fact Chinese, just like they do the many ancient imperial Chinese treasures and artifacts within Taiwan’s borders.
Outstanding overview — THANK YOU
Very precise explanation.
Realistic and simple to absorb.
Many thanks. Jan
” .. China represented 53.7% of worldwide chip sales, or $239.45 billion, according to Handel Jones, CEO of IBS. .. ” In their claims of Chinese Semiconductor consumption, CCP functionaries were in the habit of including chips (mostly imported into China) used for outsourced assembly of electronic systems. Is that how US-based IBS also estimates Chinese consumption of semiconductor chips?