• Futures News
• February 5, 2025

China's Chipmaking Trails Rivals by 10-15 Years

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In a rapidly evolving technological landscape, the semiconductor industry stands out as a battlefield of innovation and international competition, particularly between China and the WestThe head of ASML, Christophe Fouquet, has made observations that emphasize the substantial gap that currently exists in semiconductor manufacturing capabilities between these two regionsHis assertion that stringent export controls, particularly the embargo on advanced EUV (Extreme Ultraviolet) lithography machines destined for China, has left Chinese semiconductor firms lagging by a decade or more is a stark reminder of the geopolitical intricacies at play.

Fouquet, drawing from his expertise and the experience at ASML—one of the world’s most pivotal manufacturers of chip-making equipment—notes that despite the remarkable advancements made by Chinese giants such as SMIC (Semiconductor Manufacturing International Corporation) and Huawei in recent years, they remain significantly behind their Western counterparts, including powerhouses like Intel, TSMC (Taiwan Semiconductor Manufacturing Company), and Samsung

The crux of the challenge lies in access to high-end EUV lithography systems, which are essential for producing the smallest, most powerful chips utilized in cutting-edge technology applications such as artificial intelligence and 5G communications.

According to Fouquet, the inability of Chinese firms to secure EUV machinery translates to a competitive disadvantage, which could span ten to fifteen yearsThis comment was made during an interview where he elaborated on how existing export restrictions truly impact the progress of the semiconductor industry in ChinaAs he put it, “By banning the export of EUV, China will lag behind the West by a decade to 15 years.” This statement speaks volumes about the strategic role that semiconductor technology plays in global economic and political arenas.

The intricacies of the semiconductor supply chain further complicate matters

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As noted, ASML has never supplied EUV systems to China due to the Wassenaar Arrangement, a multinational export control regimeIn light of this, ASML has continued to develop their DUV (Deep Ultraviolet) lithography machines, such as the Twinscan NXT:2000i, capable of producing chips with process technologies at the 5nm and 7nm nodesWhile China benefits from this technology, it still doesn’t bridge the gap that EUV technology could provide, which is crucial for the production of more advanced nodes.

China’s quest for self-sufficiency in semiconductor manufacturing has taken a different trajectory as it aims to establish its own EUV lithography technology and ecosystem, a challenging endeavor that could take a decade and a halfThis is a Herculean task, considering that ASML and its partners spent over twenty years developing and commercializing EUV machinesThey leveraged a wealth of publicly available technology from the 1990s, thus avoiding the steep learning curve that Chinese firms face today

Nevertheless, as China progresses in developing low-numerical-aperture EUV tools, the West is set to advance toward higher numerical-aperture EUV lithography, including Hyper-NA technologies, thus widening the gap.

Worries abound regarding the potential that Chinese companies might replicate ASML's mainstream DUV equipment in a matter of years rather than decadesThe U.Sgovernment is pressuring ASML to halt maintenance of its advanced DUV systems in China, a move intended to align with existing sanctions against Chinese semiconductor firmsHowever, the Netherlands has yet to comply with this request, as ASML wants to retain control over its equipment to mitigate the risk of sensitive information being compromisedThis delicate balance of maintaining competitive advantage while complying with international sanctions underscores the complexities within the semiconductor landscape.

ASML's financial relationship with Chinese firms adds another dimension to the discussion

They remain significant customers, purchasing DUV lithography tools that generate substantial revenue for ASMLShould Chinese manufacturers succeed in developing or replicating their own DUV systems, the implications for ASML could be profound; the company might see a reduction in sales domestically while facing competition in overseas marketsAlthough it’s unlikely these companies can produce machines equivalent to the Twinscan NXT:2000i in the near term, it is conceivable that less sophisticated systems could be replicated more easily.

Fouquet’s insights mark a crucial moment as he publicly addresses the semiconductor divide for the first time since stepping into his role as CEO in April 2024. He highlights a paradox where the world market urgently requires mature chips produced in China to meet supply shortages, especially in EuropeYet, the inability of China to independently develop advanced photolithography equipment remains a critical roadblock.

ASML occupies a cornerstone role in the global semiconductor supply chain, with nearly 90% of chip production reliant on its lithography systems

DUV equipment is sufficient for producing chips at 7nm and above, but it is the EUV machinery that enables the mass production of chips at the 5nm node and below, where ASML stands unchallenged as the sole supplier of EUV devicesRecently, ASML has introduced high NA EUV lithography tools that represent a breakthrough in capability, raising the numerical aperture from 0.33 to 0.55, and significantly improving lens resolution, further emphasizing the advanced trajectory of semiconductor fabrication technologies.

Amidst these challenges, China's semiconductor sector continues to expand rapidlyNotably, in the first ten months of this year, semiconductor exports from China exceeded 931.17 billion yuan, marking a 21.4% surge compared to the previous yearThe Chinese government has vocalized its opposition to the U.Sexport control measures, arguing that such actions compromise international trade norms.

In summary, the fierce competition within the tech industry highlights the stakes involved for firms like ASML while also illustrating broader implications for global market stability