SMIC Still Limited by US Export Controls Despite Chipmaking Advancements, Expert Says

Even though U.S. export controls haven’t cut into SMIC’s profit margins, they have hurt the Chinese semiconductor company’s ability to advance its chip-producing technology, said Min-Hua Chiang, a Heritage Foundation research fellow. Because restrictions imposed by the Bureau of Industry and Security limit SMIC’s ability to import equipment for making chips below 10 nanometers, the company is “stuck with using older technology,” she wrote in an August post. “Without access to foreign equipment,” the post said, “it will be very difficult for China to produce the most advanced chips any time soon, putting a severe crimp in Beijing’s plans for its military and security apparatus.”

The post said, however, that SMIC recently announced it's able to produce 7 nanometer chips, a “big leap forward” for the company’s manufacturing capability. But even though SMIC can produce more advanced chips, “without the use of EUV lithography, the chips will be more costly to make, and their quality will be questionable,” the post said. “With the continued ban of EUV exports, SMIC is unlikely to be able to reach mass production and expand the global market share of high-tech chips in the foreseeable future.” In addition, BIS is conducting a review of the types of semiconductors and chipmaking equipment that can be exported to China to determine whether it needs to tighten those restrictions (see 2207150023)

U.S. export restrictions have also hurt SMIC’s ability to retain Taiwanese executives and other semiconductor talent from the island, the post said. Although China has “actively recruited” Taiwanese talent in recent years, the “impossibility of procuring advanced chip-making equipment has deeply darkened the outlook for China’s semiconductor industry,” the post said. “Taiwanese executives have recognized this and are leaving for greener pastures.”

Although SMIC can continue making a profit -- and recently reported that its first quarter revenues this year were 67% higher than last year -- the post said it will be “very challenging” for the company to become a “truly major player in the global semiconductor industry” without advanced technology from the U.S. and other nations.

“Continued targeted, strategic manipulation of key nodes in tech supply chains, including in semiconductors, has the potential to constrain China’s most dangerous ambitions for years to come,” the post said. “SMIC’s most recent breakthrough, however, serves as a warning that development can come in unanticipated ways.”