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Industry Observer Doubts the Effectiveness of US Anti-China Chip Rule

New restrictions in the U.S. Department of Commerce (DoC) on global exports of advanced chipmaking technology targeted at Chinese chip designers like Alibaba and Baidu are \”overblown\” and unlikely to blunt the growth of Chinese companies, at least according to one longtime industry observer.

On Aug. 12, the DoC's Bureau of Industry and Security (BIS) established new controls over exports of technology from the 3 countries the BIS said are crucial to U.S. national security. The is through the most recent volley in a tech war between the U.S. and China that started under the administration of former U.S. President Mr . trump, and it has continued under President Joe Biden.

The technologies include two substrates of ultra-wide bandgap semiconductors-gallium oxide and diamond-as along with electronic computer-aided design (ECAD) software for the development of chips with gate-all-around field-effect transistor (GAA FET) structures, according to BIS. Such technologies can be used in military and civilian applications, the BIS said.

While the BIS didn't name countries whose imports stand to be negatively influenced by the controls, the measures are targeted at one adversary, Paul Triolo, senior VP for China at Albright Stonebridge, said within an interview with EE Times.

Triolo, who has advanced degrees in international relations and electrical engineering, has spent a lot more than 25 years in senior positions in the U.S. government.

\”Chinese fabless-design firms are clearly the target from the rule, as probably greater than a dozen, including tech giants like Alibaba, Baidu, yet others, will ultimately be seeking to design semiconductors using the innovative processing nodes, for example 3 nm and a pair of nm,\” Triolo said. \”There aren't any other countries that are considered U.S. 'adversaries' which have companies in comparable positions in terms of advanced fabless designs.\”

Karl Breidenbach, associate director at Boston Consulting, told EE Times that the BIS's announcement to help tighten U.S. export controls on equipment and materials might impede the growth of next-generation wide-bandgap (WBG) technologies for power electronics and leading-edge logic.

\”Multi-lateral export controls will further increase complexity and make one more burden for industrializing gallium oxide and diamond-based semiconductors at scale,\” Breidenbach said. \”It is likely that the pace of innovation might be negatively impacted in fields like MOCVD (metal organic chemical vapor deposition) epitaxy, where Japanese and European companies recently had made great strides.\”

Chinese aluminum producers possess a dominant share of refined gallium oxide, which is often used as the base material for wafers. Japan leads in prime-grade gallium oxide wafers, he added.

\”There is really a global interdependence which is affected by the brand new rules,\” Breidenbach said.

The measures are an escalation prior to an expected announcement of further controls on exports of deep ultraviolet (DUV) lithography equipment to China, based on an analyst who requested anonymity. Chinese chipmakers like Semiconductor Manufacturing International Corp. (SMIC) are currently permitted to import DUV tools.

The operations of overseas chipmakers operating in China would be also impacted by the new rules, the analyst said. South Korea's SK Hynix will have to \”rethink\” plans to upgrade existing chip facilities in China with GAA technology, the source said.

Triolo said there's \”considerable pressure from Congress around the Department of Commerce to show that it's controlling new and emerging technologies which have potential military applications for export to Chinese firms. The general justification is Beijing's military civilian fusion (MCF) initiative, and the potential for advanced semiconductor technology for use in weapons systems or supporting systems, for example satellite networks. The Commerce Department is considering this now as leading foundries, for example Taiwan Semiconductor Manufacturing Corp. (TSMC) and Samsung, are starting to unveil commercial processes at the 3 nm and finally 2 nm level that will leverage the performance advantages provided by GAA technology.\”

MCF may be the Chinese Communist Party's effort to develop the earth's most technologically advanced military, according to the U.S. State Department. A vital part of MCF may be the elimination of barriers between China's private sector and it is military. The Party is implementing this tactic by acquiring and diverting the world's cutting-edge technologies-including through theft-in order to achieve military dominance, according to the State Department.

The EDA (electronic design automation) restrictions on GAA technology affect mostly companies within the U.S., such as Ansys, Cadence, Synopsys, and Siemens-owned Mentor Graphics, based on Dan Hutcheson, analyst at TechInsights.

It's interesting to see the DoC use the old term \”ECAD\” versus the more modern \”EDA\”, which talks to their understanding of the technology, he says.

\”Ironically, as the U.S. has already established an enormous lead in EDA software, heavy export controls have caused China to invest heavily in coming to parity,\” Hutcheson told EE Times. \”Five years back, China's EDA offerings were essentially unusable. Today, they're very competitive, with limitations.\”

Hutcheson said his EDA surveys are according to private conversations with industry executives. China's best, most visible EDA players are Hejian, Amedac, Aerdai, and X-Epic, he added.

He said he heard Chinese firms reach \”a level where they are very competitive at 28 nm and above and competitive down to 14 nm. Given their speed of development, it's my own judgement they will hit state-of-the-art in three to four years, providing SMIC can reach 3 nm and a pair of nm technology in the same timeframe.\”

Triolo said the broader look at the Biden administration is that \”new controls are needed to prevent certain Chinese domestic foundries from operating at 14 nm or below processes and for processes more than 128 layers for memory production.\”

Chinese memory chipmaker Yangtze Memory Technologies Co. (YMTC) planned to start making NAND chips with 128-layer technology this year, the business's former acting chairman said at the end of 2022.

U.S Senator Charles Schumer along with other Democratic leaders in the U.S. have required YMTC to be blacklisted, based on Reuters. Schumer's office didn't respond to attempts by EE Times to verify the report.

\”The still-unstated goal is to keep China 2 to 3 generations behind U.S. along with other western companies within the manufacturing space,\” Triolo said. \”But the particular impact of recent controls being considered, including for deep ultraviolet lithography, previously uncontrolled, would be to give the U.S. government veto power over what any new foundry in China can establish.\”

ASML, located in the Netherlands, is the world's sole supplier of EUV and DUV lithography tools.

ASML's TWINSCAN NXE:3400B, that will support EUV volume production at the 7 and 5 nm nodes. (Source: ASML)

\”Global commerce is driven by innovation-new ideas, and novel ways to apply old ones,\” said Thea D. Rozman Kendler, assistant secretary from the Commerce for Export Administration, in prepared remarks. \”BIS is vigilant in assessing the introduction of new technology and whether or not this can be utilized for civil and military purposes. Export controls are most effective when multilaterally imposed.\”

Military-Use Concerns 'Overblown'

\”The vast majority of applying these technologies is for civilian commercial uses, for smartphones, IoT devices, semiconductors optimized for AI algorithms, etc.,\” Triolo said. \”The general nods to potential military purposes of semiconductors based on the technology appear to be overblown.\”

\”On what Commerce should do, obviously that is the purview of the present administration and it is part of a larger China strategy, which remains not so well defined in terms of goals,\” he added. \”On the specific approach that industry favors for technology-related controls, it would be narrow controls with clearly defined national security justifications.\”

The new restrictions will potentially change up the world's innovative chipmakers.

\”TSMC, Samsung, and Intel will eventually deploy GAA processes at the most advanced nodes,\” Triolo said. \”As long as Chinese fabless design companies can use these foundries to fabricate semiconductors, China can continue to remain at the leading edge of semiconductor deployment. This is happening as other U.S. export controls are crippling ale domestic Chinese foundries to manufacture at advanced nodes, due to restrictions on advanced lithography systems, which are also required to manufacture at 3 nm and a pair of nm.\”

The new controls follow press reports that China's SMIC is making chips at the 7 nm node, which surpasses the ability of any U.S. chipmaker, Doug Fuller, an associate professor at Copenhagen Business School, told EE Times.

\”Commerce has been fighting a rear-guard action against broad controls, and the panic around SMIC's supposed 7 nm has not made Commerce's job any easier,\” Fuller said.

Old Alliances Come into Play

The U.S. intends to implement the controls with its international partners within pact dating back to the Cold War known as the Wassenaar Arrangement.

The new rule has been \”coordinated through the Wassenaar Agreement, therefore it would be multilateral anyway,\” Triolo said. \”In relation to companies that might be affected, with this particular rule, it is the EDA tool makers that might be most affected, here Cadence, Synopsys, and Siemens EDA. However, the wording of the rule remains unclear, and as written, the is pushing back because it is unclear that advanced versions of EDA tools can have GAA capabilities disaggregated from the overall software package.\”

\”No EDA tool is designed in such a way that GAA FET design capability could be separated out,\” he added. \”It is not clear just how this restriction would work.\”

The U.S. controls a wider range of technologies, including equipment, software, and technology accustomed to make chips, past the items decided in the Wassenaar Arrangement, based on the BIS. The U.S. hosts the world's largest suppliers of chipmaking equipment, companies including Applied Materials and Lam Research.

Those companies rely on China for any large part of the sales. For example, Lam Research said in its latest quarterly results that China is the reason 31% of its revenue.

\”Look in the revenue of leading U.S. the likes of Applied Materials, Lam, KLA, plus Cadence, Synopsis, and Mentor, and just how a lot of their revenue comes from China,\” Triolo says. \”Implementing the controls has proven to be challenging since the export-control system wasn't created for these kinds of companies or technologies, but for weapons of mass destruction-related technologies-which tend to be simpler to define and for that your smaller number of information mill involved, with no global and sophisticated supply chains on the line here.\”

When the new rules went into effect, Alan Estevez, undersecretary of Commerce for Industry and Security, said, \”When we recognize the risks along with the benefits, and act in concert with our international partners, we can make sure that our shared security objectives are met, innovation is supported, and companies around the world operate on an amount arena.\”

Widening Spat

The U.S. regulations on exports of chip tech come amid a widening spat with China.

The China Semiconductor Industry Association (CSIA) last week issued an argument criticizing the recently enacted U.S. CHIPS and Science Act as an infringement of World Trade Organization regulations.

According to China's Ministry of Commerce, the CHIPS Act provides huge advantages to the U.S. chip industry in the form of subsidies and tax incentives, the CSIA statement said.

\”Parts of the act restrict the standard trade and investment activities of certain companies in China and therefore are obviously discriminatory, seriously violating market regulations and international economic trade rules, that will distort the global semiconductor logistics and disrupt international trade,\” CSIA said. \”China firmly opposes this. The implementation of the U.S. law should comply with the appropriate World Trade Organization rules and the principles of openness, transparency, and non-discrimination to assist maintain the security and stability of worldwide industrial supply chains and steer clear of fragmentation.

\”China continues to concentrate on the implementation from the Act and take effective measures to guard its legitimate rights and interests when necessary.\”