SMIC and YMTC looking to acquire Chinese made manufacturing equipment

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SMIC prepares for 7nm chip
Image: SMIC

Chinese chipmakers Semiconductor Manufacturing International Corporation (SMIC) and Yangtze Memory Technologies Co., Ltd. (YMTC) are working on localizing their production lines. Both are concerned about losing access to U.S. made fabrication equipment amid mounting Sino-American trade tensions.

Reuters recently reported the U.S. Department of Defense wants to cut off SMIC’s access to cutting-edge American microelectronics technology.

SMIC and YMTC Seek Out Localized Chip-Making Equipment

According to Asian Nikkei Review, two of China’s most prominent electronic components manufacturers are working to source production equipment in-country.

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SMIC, the Mainland’s largest contract chipmaker, intends to begin trial production of 40nm chipsets without American equipment before the end of 2020. The firm also plans on fabricating 28nm semiconductors in three years.

Similarly, YMTC, China’s first 3D NAND memory producer, intends to source 70 percent of its fabrication equipment from domestic brands. At present, around 30 percent of the company’s fabrication tools come from local providers.

The Sino semiconductor industry has sought to localize its production resources since U.S.-China relations began worsening earlier this year. Asian Nikkei Review notes the sector intensified its efforts following Washington’s tightening of technology export controls in May.

The publication also notes several Chinese microelectronics manufacturers have begun stockpiling American made chip-making supplies.

The Complexities of Production Line Localization

As Chinese electronic component companies need up-to-date equipment to do business, production line localization might be unavoidable. Although the process will be time-consuming and disruptive, Sino chip vendors will have help making the transition.

The Chinese government is actively working to support the independence of its domestic semiconductor manufacturers.

Last October, the East Asian country established a $29 billion fund to provide capital for local microelectronics companies. Beijing also announced it would offer ten-year tax exemptions to qualified IC makers in August. In addition, Chinese officials are reportedly preparing to launch a five-year comprehensive semiconductor sector support initiative.

With government financial resources at their disposal, Sino chip-making equipment manufacturers can bolster their research and development efforts. Local firms could also subsidize production capacity expansions and headcount additions.

Accordingly, domestic semiconductor companies could gain unrestricted access to industry-leading fabrication tools sooner rather than later.

Right now, SMIC and YMTC are likely worried about the financial impact of losing access to U.S. technology. However, both companies will have fewer equipment sourcing headaches after localizing their production lines. In time, the two firms could come to view the present moment as the beginning of a positive transformation.

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