“SMIC was suddenly identified as having ‘large uncertainty’ by rating firms.”
Author: Miao Zheng Produced by: Financial Graffiti
According to the company intelligence expert “Financial Graffiti”, on December 28, China Chengxin International issued an announcement on the concern that SMIC Integrated Circuit Manufacturing Co., Ltd. (00981.HK) was included in the “entity list”. China Chengxin International believes that the inclusion of SMIC in the “entity list” will make the company’s future production, operation and investment face greater uncertainty. China Chengxin International will continue to pay attention to the follow-up progress of the above matters, and maintain communication with SMIC, actively Collect relevant information, timely assess the impact of the above matters on the company’s future production and operation and overall credit status, and disclose relevant information. The announcement stated that the “19 SMIC MTN001” issued by SMIC will be rated by China Chengxin International.
SMIC, which was thriving all the way, was suddenly identified by its rating company as having “great uncertainty”.
Since the departure of the CEO of SMIC in December 2020, the company has received a huge bad news. SMIC released such an announcement, saying that SMIC Integrated Circuit Manufacturing Co., Ltd. was included in the “entity list.”
The announcement explained that for products or technologies that are applicable to the U.S. Export Control Regulations, suppliers must obtain an export license from the U.S. Department of Commerce to supply the company; For products or technologies, the U.S. Department of Commerce will adopt the “Presumption of Denial” approval policy for review; at the same time, companies may be restricted in providing foundry services for some special customers.
What does this mean for SMIC?
Stuck at 10nm
In October 2020, SMIC’s official website news stated that the company has completed the tape-out of the 7nm process N+1 process, and it is expected that in 2021, the 7nm process chips can be mass-produced at risk (ie small-scale, low yield). The so-called N+1 is actually an internal code name, which still uses DUV for production, rather than EUV as TSMC and Samsung do.
Although SMIC has not disclosed the detailed data of the N+1 7nm chip, according to Intel’s 10nm situation, the CPP of this process chip is 54, the metal layer 2 height (M2P) is 44, and the track height is 6.18. Such a value is comparable to TSMC’s Samsung’s 7LPP process 7nm chip and TSMC’s 7FF process 7nm chip. And Liang Mengsong also publicly stated that the N+1 7nm process is more like Samsung’s 8nm process, so SMIC’s process chip is a 7nm equivalent technology, which can achieve the same effect as 7nm performance on Electronic equipment, but the chip It’s not 7nm itself.
During the photolithography process of the chip, the wafer will be exposed with ultraviolet light, and then developed with chemical materials after exposure. The more complex the chip, the more exposures are required, and the traditional DUV machine needs to perform multiple exposures in order to achieve the requirements of 7nm. However, multiple exposures will greatly increase the cost of materials and reduce the yield, which is not suitable for mass production at the enterprise level. So ASML launched EUV, which only needs one exposure to meet the requirements of 7nm or even more advanced specification chips.
The reason why 10nm is clearly limited in the “entity list” is because the chip process is not clearly defined in the international community, which is why Intel’s 10nm process is almost the same as TSMC’s 7nm process. For Intel, the company’s 10nm process is followed by a 7nm process. Traditional DUV machines cannot achieve mass production of the 7nm process, so EUV machines are needed.
Similarly, if SMIC wants to enter the 7nm process, EUV must also be used. Back to the “entity list” section, this “entity list” just stuck SMIC’s neck.
As early as 2018, SMIC ordered an EUV lithography machine from ASML, a Dutch lithography machine manufacturer, worth 120 million US dollars (about 800 million yuan), which is expected to be delivered in early 2019. ASML also holds a license to export lithography machine products to China under the Wassenaar Agreement.
However, it backfired and the transaction was eventually terminated by force majeure. ASML said the company is still awaiting approval of the new license application.
In 2020, after Jiang Shangyi became the vice chairman of the company, he once again proposed to ASML an invitation to negotiate on the import of EUV. Through the “entity list” order issued by the United States, most of the negotiations this time were successful, but most of them could not be realized.
Liang Mengsong who ran away
Liang Mengsong took office in October 2017 and served as co-CEO with former CEO Zhao Haijun. Coincidentally this year, the National Development and Reform Commission released the “Catalogue of Key Products and Guidance for Strategic Emerging Industries (2016)”. It is clearly pointed out in the catalog that the status of electronic core industries such as integrated circuits is clarified, and integrated circuit chip design and services are listed as key products and services in strategic emerging industries.
In 2018, the Ministry of Finance, the State Administration of Taxation, the National Development and Reform Commission and the Ministry of Industry and Information Technology jointly issued the “Notice on Enterprise Income Tax Policies for Integrated Circuit Manufacturers”. The notice pointed out that preferential tax reduction and exemption policies will be implemented for integrated circuit manufacturers that meet the requirements, and qualified integrated circuit manufacturers can enjoy five-year exemption from corporate income tax. SMIC is naturally outstanding.
It is against this background that Liang Mengsong and Zhao Haijun took only two years to break through the 14nm technology. This is unheard of for the Chinese semiconductor industry. 28nm, 14nm, 10nm, 7nm and even smaller processes are all advanced processes. You must know that the semiconductor industry in China has almost never been involved in such a field. Even if there is, it is difficult to achieve mass production of advanced manufacturing processes like SMIC.
And the semiconductor industry seems to be responding to Liang Mengsong’s efforts, from global sales of 149.4 billion US dollars in 1999 to 468.778 billion US dollars in 2018, an industry that has existed for more than half a century, there are still more 6.20% compound growth rate. From the perspective of the value chain of the semiconductor industry, the value of wafer manufacturing is the highest, accounting for 50%, IC design accounting for 20%, packaging and testing accounting for 15%, and the rest of the industry value is classified as equipment and materials.
SMIC’s business includes production and packaging and testing, which are the two most “popular” categories in the semiconductor industry. With the rise of total industry sales, SMIC’s future is also infinitely bright.
Liang Mengsong is undoubtedly a technology pioneer of SMIC, and his resignation letter mentioned that “the company should give me a comprehensive and fair evaluation of my contributions over the past three years” is also reasonable. After all, even practitioners in the non-semiconductor industry are aware of the progress of China’s semiconductors. After he left, SMIC’s A shares fell 9% before the temporary suspension of trading, and the market value evaporated by more than 30 billion, which is enough to see people’s evaluation of him.
The founder of SMIC, Zhang Rujing, graduated from National Taiwan University, joined Texas Instruments Semiconductor as an engineer, and later founded World University Integrated Circuits. Created SMIC’s strong technical DNA, even if Liang Mengsong resigned, SMIC’s research and development capabilities are still at the forefront of the mainland.
But as mentioned above, the problems that SMIC is currently facing are not problems that can be solved by technology at all. Even if Liang Mengsong, a technical wizard, did not leave SMIC, the company could only look at this “sweet pastry”. Pastry” into someone else’s pocket.
From the perspective of the semiconductor industry, when companies purchase integrated circuits, high-end products will definitely use the highest-spec advanced manufacturing process, while mid- and low-end products will use processes with specifications ranging from 45nm to 120nm. This makes it difficult for SMIC, which stays in the N+1 7nm process, to move forward, which also explains China Chengxin’s evaluation of “big uncertainty” on SMIC.
When Zhang Rujing founded SMIC, he wanted to keep up with TSMC. TSMC’s current market share is 50.81%, with revenue of US$33 billion and net profit of US$11.64 billion in 2018. SMIC’s market share is 4.48%, with revenue of US$3.36 billion and net profit of US$134 million in 2018 – the market share is one-tenth of TSMC’s, but the net profit is as low as one percent .
But if you take a closer look at their business, you will find that TSMC’s main orders are advanced processes such as 7nm and 5nm, but SMIC’s revenue structure is: 40/45nm accounts for 17.2%, 55/65nm accounts for 25.8%, 150/180nm accounted for 31.2%. This also means that TSMC’s business has a very high threshold, and SMIC’s business core competitiveness is low and can be replaced.
Such a situation, coupled with the technological stagnation brought about by the lack of EUV, will inevitably lead to a further widening of the gap.
However, things have turned around, and SMIC itself is also ready.
In the 12-inch wafer fab built by SMIC in Yizhuang, Beijing, the equipment was completely separated from the American route, and a de-beautified production workshop was created. At the same time, for the first time, the supply chain of this new plant has adopted materials from domestic suppliers in large quantities. For example, the lithography machine of Shanghai Microelectronics 193nm light source supports 28nm process. Once verified, it will be possible for domestic lithography machines to catch up with ASML, enabling SMIC to step into 7nm with great strides.
On the other hand, judging from the announcement, the United States prohibits technology nodes of 10nm and below. However, in the chip manufacturing process, materials such as photoresist and abrasives are clearly defined with their corresponding process specifications. However, some other materials do not have corresponding process specifications.
Take EUV and DUV as an example, the biggest difference between the two is the wavelength of ultraviolet light emitted by the laser. EUV uses extreme ultraviolet rays and DUV uses deep ultraviolet rays. Both machines require beam straighteners, energy controllers, etc. – and these products are not limited to the process. Because in general, these components have a certain degree of backward compatibility, which leads to a certain degree of coordination in the definition of the 10nm prohibition. If SMIC can take advantage of it, they still have the ability to explore 7nm and below processes.
There have been many rumors on the Internet. For example, the reason for Liang Mengsong’s resignation is that Jiang Shangyi’s salary is three times that of Liang Mengsong. Liang Mengsong’s heart is unbalanced. But in any case, SMIC’s next step is not entirely determined by this.
From the perspective of the industry, the development history of SMIC is almost the development history of my country’s semiconductor industry. The only thing that can affect the domestic semiconductor industry is whether the supply chain can be completely replaced by domestic production. This is also the original intention of SMIC to build a completely “de-Americanized” production facility in Yizhuang. There is indeed a lot of uncertainty in domestic semiconductors, and it needs more time, let’s forge ahead.