Shanghai Micro Electronics Equipment, or SMEE (上海微电子装备) is China’s ambitious
project to replace ASML.
The company has been around for a while, and they have received a lot of attention and
cheerleading in the Chinese media. But recent high profile export bans to China have brought
them special focus.
In this video, we are going to take a closer look at this under-covered company, what they
have been able to produce, and how they are doing so far.
I leaned pretty heavily on a deep dive profile by EqualOcean about SMEE. I highly recommend
it for additional detail if you are curious to learn more about this company and its future
challenges.
For everything else, I relied almost entirely on China-based sources. Keep that in mind,
please, before you start screaming at me in the comments.
China's first lithography machine was created in 1977, the GK-3. Two years later, it evolved
into the JKG-3, the first domestically created lithography machine for large scale commercial
production.
The GK-4 prototype came a year later in 1978. It was a contact lithography machine able
to print chips on 75 millimeter wafers. Contact lithography is where the photomask is in direct
contact with the photoresist coated substrate. It has its uses, but is also known for high
defect rates. The United States invented and commercialized contact lithography in the
1950s. So at this point China was two decades behind.
After this, the next stage in the commercial tech tree would be a proximity aligner. This
introduces a gap between the mask and substrate.
After that would be the step-and-scan device, or stepper. The Chinese would try to develop
these two simultaneously. In 1981, the Institute of Semiconductors of the Chinese Academy of
Sciences successfully developed two proximity aligner prototypes.
In 1985, after 6 years of work, the 45th Institute of the Ministry of Mechanical and Electrical
Engineering developed a stepper of their own. This machine, "inspired" by the 4800DSW, made
by US-based GCA, printed designs using the 436-nm G-line.
In 2000, China began research on machines using Argon fluoride lasers on the 193nm wavelength.
￼Since the West began shipping its first such machines in 1990, there has thus remained
a large technology gap. The government apparently must have thought a change of direction was
needed. SMEE was founded a few years later in March 2002.
China's Twelfth Five-Year Plan, which covers the 2011 to 2015 period, included 16 major
national special projects. Lithography was ranked the second highest, which is why it
would be called the 02 Special Project.
The special project had multiple goals. The top focus was to develop manufacturing equipment
capable of producing 22-45 nanometer process chips.
Other goals include carrying out forward research on 14-22 nanometer processes, work on 65-90
nanometer special processes, capture at least 10% of the domestic lithography market, and
attempt to open up the international market.
SMEE was thus deemed the country’s national champion for turning these goals into reality.
The company's first office was in the Shanghai Zhangjiang Hi-Tech Park in the Pudong district
of Shanghai. The company's semiconductor-related neighbors included SMIC, Grace Semiconductor,
and Spreadtrum.
The company's founding general manager and chairman was He Rongming. He worked hard at
the task, saying in an interview:
> I really have nothing worth writing about. I can't tell the wonderful stories you want
to hear. I just did one thing in more than ten years ... Except for business trips, I
go out at 7 AM and go home at 10 PM. Saturdays are guaranteed no rest, and Sundays are not
guaranteed. This was the whole of my life for more than ten years
Over the two decades of its existence, SMEE has developed its products on the back of
extensive R&D. As of 2019, the company has filed for over 3,000 patents and received
1,600 of them. Nearly 700 of those patents are in foreign countries, which is notable.
To support its journey, the company has received extensive support from both the Chinese local
and central governments. SMEE's single biggest owner, with 32% of the shares, is the Shanghai
SASAC, the commission overseeing all of the city's corporate assets. But there are a few
other private shareholders, including some VCs.
Lithography technology is a very protected space, dominated by three companies with government
backing. SMEE encountered import restrictions almost from the very start. For instance,
high level optics from Carl Zeiss of Germany. None of their best stuff could be imported
into China.
Thus for its first products, the company decided to target a portion of the lithography market
where the competition is less intense and the requirements, less strict: Lithography
for advanced packaging processes
Advanced packaging describes a set of processes for placing a chip in its protective casing
and connecting them to the outside world. It is an essential and previously unheralded
part of the semiconductor manufacturing process. Trends like chiplets have unlocked great performance
advances, and stimulated the need for advanced packaging technology.
The idea was that the company can cut its teeth in back-end lithography and then work
its way up from there to front-end lithography, where the big boys play. This strategy has
shown traction. SMEE products are now good enough to hold 80% of the domestic market
in back-end lithography, corresponding to 40% of the global market. In 2019, they shipped
over 50 units.
Their major back-end customers include Chiangjiang Electric Group, Taiwan-based ASE Group and
TongFu Microelectronics.
After that, SMEE began expanding into lithography tools for other niche semiconductor products:
Power devices, Micro-Electro-Mechanical Systems or MEMs and LEDs. LEDs are probably the most
promising market of these.
Finally, the company started developing for the front-end with the intention of selling
those to companies like Yangtze Memory and SMIC. More likely Yangtze, since SMIC is pretty
locked in with ASML.
Unlike its Japanese competitors Canon and Nikon, SMEE is built in the ASML model. They
want to be the final system integrator for the lithography tool's various parts.
The company works with a variety of suppliers to help build and put together a new lithography
machine. At the heart of it, the core factors for a machine's success include 1) High-precision
Optics, 2) the light source, 3) High-precision mechanics, and 4) Software.
For the light source, ASML relies on companies like Cymer. For its optics, they rely on a
joint venture with Carl Zeiss. These are so important to the whole machine that ASML either
holds significant equity share in the corporate entity or owns it outright.
EqualOcean identifies SMEE's Carl Zeiss to be two companies: Changchun UP Optotech and
Beijing GuoWang Technology Co. But they also note that Changchun is no longer associated
with SMEE.
So that leaves Beijing GuoWang (北京国望光学科技有限公司). They are in the midst of building an optics
manufacturing factory. So they likely won't be able to supply an immersion-ready optical
system en masse until that is done.
SMEE’s Cymer would be Beijing RSLaser Opto-Electronics Technology. RSLaser's product is underpowered
compared to what ASML uses for their immersion systems.
I have never heard of any of these companies, and presume them to be state-backed entities
spun off from universities or research laboratories.
Something that is not really a problem for ASML, but has relevancy for SMEE has to do
with the requirement for domestic suppliers. There remains a number of core technologies
that still have to either be imported or purchased from foreign companies. For instance, photomasks
- the plates that hold the chip pattern to be printed onto the wafer.
The vast majority of these are made by Japanese companies - Toppan Printing and Dai Nippon
Printing.
Though EqualOcean again notes that a Chinese native company, Jiangsu Nata Optelectronic
Material Co., Ltd. or just Nata (南大光电), has created a photomask that successfully
works in an ASML immersion system. So maybe those can get replaced in due time.
But that is just one example. Ball bearings from Sweden, valves from France, and grating
alignment systems from the United States. None of these are made in China, and without
them, it is hard to ship a commercial-grade working machine. I do not want to give the
impression that once this one thing is done, then everything else is all good.
As of this writing in August 2021, SMEE's systems are for the 90nm, 110nm, and 280nm
processes. As I mentioned earlier, these are specialized systems for back-end lithography,
LED, MEMS, and power devices.
Lithography systems are generally grouped by their laser light source. You have i-Line
machines, Krypton Fluoride laser machines, Argon Fluoride laser machines, Argon Fluoride
Immersion laser machines, and finally, EUV machines.
The majority of SMEE's systems use i-Line and Krypton Fluoride lasers.
But their most advanced system, the SSA600/20 scanner for front-end manufacturing at the
90 nanometer node, uses an Argon Fluoride laser, which I will shorten to ArF because
it sounds cute.
A prototype of this product, the 600/10, was first profiled in 2011. It had a field size
of 22 millimeters by 32 millimeters, and can process about 50 wafers an hour. Comparable
Canon and Nikon machines can do up to 5 times that number.
That was over 10 years ago. Since then, it seems like they made just one more iteration,
from the 600/10 to the 600/20, which as of 2019 is estimated to not be selling in relevant
quantities. The company’s recent sales are still in the way outdated I-line lithography
machines. Which I do not think bodes well.
The most prominent piece of news about this company's future pipeline is that they have
an Argon Fluoride immersion system, which I will hereby refer to as an ArFi system because
that is also cute. This machine is said to be capable of the 28nm process node.
This 28-nanometer tool is right now a prototype. China has in general been pretty good at building
prototypes, lagging the leading edge by about 10 or so years. The 28nm node, a half step
node after the 32nm, probably first began shipping some time in 2011. So it fits the
pattern.
The issue is getting from prototype to customer clean rooms in high volume. China has never
been able to turn its prototypes into commercially competitive products. Something I’ve been
wondering, is why they put so much resources into prototyping this 28nm machine when they
have hardly commercialized and sold any of the 90nm prototype machines from 10 years
ago.
Anyway, the goal now is to deliver commercial-ready 28nm ArFi machines in 2021 or 2022. So you
get headlines saying that China "will" or "confirmed" to have such machines by 2021
or 2022.
But it seems likely to miss this deadline. Beijing GuoWang, the critical optics supplier,
is working on a foundry to build SMEE's optical systems. But EqualOcean points out that construction
on said foundry is not expected to be completed until September 2023. Considering the lag
of integration and all, a 2024 ship date might be ambitious. And even then, the product is
not expected to be commercially competitive.
Kind of like with press release announcements of some revolutionary battery technology that
recharges in 5 seconds, microwaves your dinner, and never leaves the laboratory, Chinese news
sources tend to blow up the headlines.
Here is one example. In November 2018, the Institute of Optoelectronics Technology at
the Chinese Academy of Sciences announced that they created a 22nm "super-resolution"
lithography tool. CCTV announced that with multi-patterning, a special technique, process
nodes below the 10nm level can be achievable.
But the devil is in the details. As it turns out, the tool is not even close to being commercially
ready. The accuracy is low. And the tool's field of view is just a few square millimeters,
which means it will take forever to crawl across and finish just one wafer layer.
By contrast, ASML's TWINSCAN NXT:1970Ci, a comparable DUV machine capable of the 38 nanometer
node and below, offers a field of view of 858 square millimeters.
26 by 33 millimeters. This is a shipping product, capable of doing over 250 wafers an hour.
I feel like this one is a significant issue. We hear a lot of stories about Chinese companies
offering outrageous sums to some engineer to come work for them. But that does not seem
to be the case for SMEE and ASML.
Per Chinese job info sites, entry-level college graduates make about $45,000 USD a year - though
I have also seen much lower figures. PhDs on average make about twice as much.
SMEE's average PhD salary is about the same as ASML's company-wide average salary. Glassdoor
notes that at the higher end, some Staff Software Engineers make nearly $200,000 USD a year.
Imagine what an optics PhD might make.
Even considering the difference between Shanghai and the Netherlands, there is a significant
pay gap. SMEE eventually going public someday might help even out this gap a little, but
not significantly.
We have also not yet discussed the very real job benefits and working atmosphere associated
with working at a Dutch company: Share purchase plan, pension plan, commuting allowance, 40
days of paid leave, 8% holiday allowance, and so on.
It will be challenging for SMEE to be as generous in their benefits - holidays, commute, housing
or otherwise. The company has nowhere near ASML’s capital base - Europe’s most valuable
tech company at $300 billion, or even that of a Canon or Nikon.
Rather, SMEE is one of China's national champions and bears expectations on par with CATL or
Huawei. Thus, the company has adopted Huawei's working practices. This means long working
hours, considerable political intervention, tough annual assessments for bonuses, and
a Jack Welch-style bottom 5-10% layoff each year. This is based on comments from Chinese
message boards and job sites.
Human capital is the lifeblood of the semiconductor manufacturing industry. It is one of those
industries where the right person can bring immense value to a company's competitive edge,
and it is not like high precision optics and mechanics PhDs grow on trees.
I feel that there is a significant gap between how the two companies work and treat their
employees. ASML spends a lot of time and effort thinking about the best ways to develop their
people, and reduce turnover. SMEE's Huawei-inspired approach on the other hand is likely to lead
to a hard time acquiring and retaining the same type and level of talent.
SMEE’s efforts get a lot of ink in the Chinese press. They refer to the photolithography
effort as the Mount Everest of the intelligent manufacturing industry. As is the case with
any such high-profile effort, there is a lot of steadfast cheerleading and rah-rah optimism.
Here is one commonly encountered example:
> As an ancient civilization with history of five thousand years, China has countless
wisdom and strengths. Judging from China's four great inventions, two bombs and one satellite,
aerospace manned spacecraft, space station and many other scientific and technological
achievements, there is nothing that can't be done by us Chinese!
Strong rhetoric, and yeah sure, anything can happen. But so far, the reality is that SMEE
is at least 20 years behind ASML in bringing a commercial-ready, upper-class lithography
device to the market. Immersion lithography is just nascent and EUV is even farther away.
This is a reality that even Chinese sources readily acknowledge.
Such rah-rah words and outrageous claims are counterproductive. It leaves behind pessimism
when deadlines are inevitably missed, and prevents people from facing the actual problem
in front of them.
On the other hand, I also don’t want to say that China's semiconductor production
equipment ecosystem is dead on arrival. For instance, the progress in back end lithography
and LED lithography is heartening, especially as China gains market share in the display
industry.
Furthermore, a few Chinese companies have managed to build a strong track record in
certain semiconductor equipment areas. One has even managed to acquire TSMC as a client.
We can go over them in the future.
Anyway, one final thing on SMEE. I am seeing news that SMEE is considering an IPO some
time in the future, at valuations I reckon to be in the $5-10 billion range, but no official
confirmation yet. Assuming they do that, they would release a lot of new information in
their prospectus and I can do an update if that happens.