There has been a lot of talk recently about SMIC.
I was hoping to spend my weekend working on a video about the bubble tea industry, but
I have gotten far more emails asking me to do this one.
TechInsights and SemiAnalysis recently broke news that the Chinese semiconductor national
champion has started producing chips made with their own 7 nanometer process node.
“Own” in quotations.
In this brief video, I want to say a few thoughts about SMIC's N+2 node - the 7 nanometer leap
forward.
## Note
Before we start, I want to say that this is a current event.
More news will break, and may invalidate or change what I have said in this video.
And I do want to make it clear that the only information I have here is what everyone else
has.
I am not interested in "American Failure" doomsayers, China maximalists, anti-China
name-calling, or any general nastiness.
Please be civil in the comments.
If you want to go back and dig up salt, take a deep breath and go outside for a picnic
or something.
Life is too short.
And, yes, there are probably many analysts out there who know the technical side of this
much better than I do.
I am just a guy with a YouTube channel.
Now that we have acknowledged all of this, let us break it down together.
## Thinking About 7 Nanometers
First, we need to go through this whole song and dance about the meaning of "7 nanometers".
Here it is again: Process node numbers are marketing devices that try to convey a better
chip in either Power, Performance, or Area.
Literally speaking, the "7 nanometers" phrase means nothing.
It does not correspond to any physical dimension.
It simply says that the chips are 70% better than the previous generation 10 nanometer
chips.
Which in turn are 70% better than the previous generation 14 nanometer chips.
And so on.
To avoid controversy, TSMC calls their 7 nanometer node, N7.
## SMIC N+2
This SMIC node - dubbed N+2 - is a descendant of the N+1 process which was first taped-out
in October 2020.
Both nodes use DUV immersion lithography with multi-patterning, which is what many foundries
had to resort to before EUV came out.
SMIC's N+2 is capable of using EUV technology as well, and SMIC tried to purchase such a
device from ASML to use it.
But the United States has placed an export ban on this technology, blocking this part
of the roadmap.
SemiAnalysis via TechInsights notes that N+2 is very similar to TSMC's N7 - as in like
99% the same.
As in the physical measurements of its transistors - fin-shaped thingies called FinFETs - and
their placements are similar.
TSMC first shipped N7 chips in high volume in 2018 so an N7-equivalent node in high volume
would put SMIC about 4 to 6 years behind the leading edge.
No question.
N+2 is one of the most advanced processes made available by any foundry to its customers.
But is it **economically** competitive without EUV?
Note the wording here.
Economically competitive.
We can still use 193 nanometer immersion technology and multi-patterning to fab chips at even
more advanced "nodes" than N7.
I did a video about this a long time ago.
In January 2022, legendary TSMC R&D director Dr. Burn Lin - the father of 193 nanometer
immersion lithography - mentioned in an interview that SMIC can fab even N5-equivalent chips
with only multi-patterning.
No EUV necessary.
But making a few wafers isn’t enough.
The issue is whether their node can yield in meaningful quantities.
Samsung has come out with a lot of really advanced process nodes - but the chips have
not hit their yields.
Yield, meaning they can be used and also perform to spec.
And then there’s Intel, which famously struggled to go from their 10nm equivalent node to a
7nm equivalent node without EUV.
But TSMC ramped up N7 without much reported trouble.
And N+2 is a node very similar to the TSMC N7 node.
So I would bet it follows the same yield optimization curve as N7.
Now, I do note that the market has changed since 2018.
Competition is rougher.
A foundry with EUV is going to have economic advantages over those only with DUV.
A N7-equivalent node with only multi-patterning has manufacturing limitations that place serious
design restrictions on the chip designer.
It’s a product but not an ideal one.
Is N+2 economically viable in the broader marketplace?
Right now, in an open market, I would say no.
There is a better-performing N7 equivalent out there with TSMC’s N6 - an evolution
of their N7 and one equipped with EUV.
## HiSilicon & SMIC
But then again, maybe SMIC is already expecting N+2 to be a China-only product.
N+2 is such a close ringer for TSMC N7 that it undoubtedly intrudes on some trade secrets.
In 2002 and 2006, TSMC successfully went to court in the United States to get product
import bans on SMIC products made with TSMC trade secrets.
They can try it again.
If successful, this would remove SMIC's N+2 viability as an export product - leaving it
for use only in domestic Chinese products and those for export to friendly countries.
SMIC does care about their export capability to countries like the United States - they
highlight it in their latest earnings call - but I suspect they no longer depend on it.
The Chinese chip design industry has advanced a great deal since the first TSMC-SMIC lawsuit
back in the mid-2000s.
It is much more sophisticated and the Chinese electronics industry has greatly matured.
I imagine that HiSilicon - Huawei's chip design arm and once China's biggest semiconductor
company - would love to use N+2 to make high-performing Chinese mobile processors for their very popular
phones and server chips for their very popular cloud services.
It would not surprise me to see a very sophisticated HiSilicon N+2 chip in the near future.
They should be familiar with it.
HiSilicon was one of TSMC’s flagship customers alongside Apple - fabbing the Kirin 980, 985,
and 990 series chips on N7.
If some random Bitcoin miner can use N+2, then so can HiSilicon.
SMIC would be kicking the hornets’ nest here but in some ways it is kind of worth
it because HiSilicon and Huawei can bring serious volume.
Foundries rely on massive production volumes to scale and yield-optimize their process
nodes.
HiSilicon and SMIC together will be a duo to be reckoned with.
So if they can get those volumes then we should expect N+2 to get better over time.
Back in 2018, TSMC shipped millions of N7 wafers for companies like Apple before EUV
arrived.
And they got really good at it too.
We should expect SMIC to do the same.
## The Driver
China has made leading edge semiconductor manufacturing a high policy priority for a
very long time - basically since the 2000s.
So what is different now?
I would point to SMIC Co-CEO Liang Mong-Song.
A TSMC alumni, Liang is known for his technical brilliance, difficult personality, and his
dogged chase for the leading edge.
I profiled him in a video that may or may not be released by now.
I highly recommend watching it, if you can.
When he joined SMIC in 2017 from Samsung, he brought with him his own 200-person R&D
team of Taiwanese and Koreans and immediately reoriented the company from being a boring
second-source manufacturer to a leading edge monster.
So long as Liang remains SMIC's Co-CEO - not exactly a given considering his past shenanigans
- the company will continue pushing towards the leading edge.
We should all know and respect his name.
If I were Intel, I'd give this guy and his team a Steph Curry-sized contract to come
to the United States and make magic happen.
And what about the Gulf States?
The Saudis are spending hundreds of millions on a golf tournament.
Abu Dhabi put $10 billion into GlobalFoundries.
What’s a few billion more?
## DUV Bans
Having access to the latest lithography technologies is crucial to SMIC's long march to the leading
edge.
Recently news have come out about the United States government pushing the Netherlands'
ASML and Japan’s Nikon to prevent export of their Immersion DUV lithography machines
to China.
The timing of this push and the N+2 shipment is probably not a coincidence.
The United States have long blocked the export and sale of the newest, most advanced EUV
machines to China.
But to expand the block to immersion lithography is interesting and represents another step
forward.
Immersion machines use water and other fluids to improve the resolution of an older 193
nanometer ArF laser technology - referred to as "Dry".
They are the workhorse of modern semiconductor manufacturing and quite mature.
Prototypes first entered the market in 2003.
Today, the only two suppliers in the market are ASML and Nikon.
Dry immersion 193nm ArF machines can be modified into immersion lithography machines.
And it can be done relatively quickly - as in like less than five years - though not
without substantial technical effort and expertise.
The semiconductor industry in the West transitioned from Dry to first-generation Immersion lithography
in about 2-3 years.
An N7-equivalent node will require more sophisticated immersion technologies than that so that adds
to the timeline.
As of this writing, Japan and the Netherlands have not decided on any ban.
The Chinese government has nevertheless responded with exclamations of unfairness, foul play,
and so on.
It is a very emotional topic.
It doesn't feel "fair".
What about free markets?
I get it.
But every government also protects their nationally important industries.
Europe protects their automobile industries.
China protects their telecom and internet industries.
And America has been protecting their computing technology industries since the days of the
Cold War.
Export control agreements to prevent American technologies from reaching unfriendly countries
have been widely debated for decades now.
Think tanks and internet forums all around the world continue to debate whether or not
they work.
My best guess is that an export ban on 193 nanometer immersion lithography technology
without a corresponding ban on dry ArF technology - which to me does not seem feasible - adds
from 4-6 years to SMIC's march towards the leading edge.
A ban is also likely to stimulate substantial investment in Chinese-made lithography.
Probably first in equipment that can maintain existing immersion equipment and second, anything
to facilitate the "Dry" to "Immersion" transition.
If mastered, then the expertise can be leveraged into a more comprehensive system.
Can such companies ever ship a complete system on par with ASML or Nikon?
It is debatable.
Personally, I feel that the gap there is greater.
Several years, perhaps.
But insurmountable?
Nothing is.
## Conclusion
A legitimate 7 nanometer node at high volume and good yield is a triumph for China’s
advanced manufacturing industry.
Only three other companies have ever progressed to this level of scale and sophistication.
China and the Chinese should be proud of this accomplishment - whatever the asterisks.
So, what is America to do?
Any successful immersion ban - if it comes - would not be a permanently damaging blow.
It can only maintain and perhaps slightly expand the Sino-American semiconductor gap.
The administration of course is probably aware of this, and thus values those few years very
highly.
As they should.
I want to harken back to the video I made about the American response to the Japanese
semiconductor challenge over thirty years ago.
Yes, there were politics and yes the American government got involved.
But all that can do was buy a little time.
Had the American semiconductor companies did nothing else but whine to the government to
come save them then they would have rightfully drowned.
With that preciously-bought time, the industry built out new markets, improved their manufacturing
weak spots, adopted innovative new suppliers, and more.
Nearly forty years later, I reckon they need to gather themselves up and do it again.
To quote my favorite Netflix show Castlevania: “Don’t be sorry.
Just be better.”