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Shanghai Micro Electronics Equipment Group, a tech company blacklisted by the U.S., is on track to develop a lithography machine capable of producing 28nm chips by the end of the year, according to Beijing-based newspaper Securities Daily.

We’ve gathered reporting and insight into how consequential this potential development could be in the tech war between China and the U.S.

Insights

▪ China’s rapid push to develop so-called “legacy chips” worries the U.S. and its allies. While the chip technology is not new, it still plays a role in powering a wide array of products ranging from electric cars to missiles. China producing these semiconductors would likely help Beijing dominate the market and stymie competition because of the country’s ability to keep costs low. —

▪ The U.S. created this problem for itself by attempting to restrict Chinese chip development, argues Brian Tycangco, a China-focused analyst at Stansberry Research. “US lawmakers effectively shut out the Western market from these low-cost chips while trying to shut China out from high-end chips,” he writes.

▪ With little details about the reported breakthrough, the two critical questions now are: How this new machine compares to already-existing technology and how fast they can be made to accelerate chip development, writes Martijn Rasser of Datenna, a firm analyzing Chinese investment.

▪ The U.S.-induced chip war will not severely inhibit Chinese development, but artificial intelligence is now the new variable in the tech war, writes “Boss Dai,” an influential Chinese tech blogger. If China wants to outpace the U.S., Dai writes, Beijing must not adopt its historic closed-door strategy to innovation. The U.S. is likely to also target Chinese AI development, but AI’s relatively short supply chain means Beijing can still overcome these hurdles, according to the blogger. The key now, Dai says, is pushing for venture capital funding to have innovation funds comparable to those at companies like Microsoft or OpenAI.

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Chinese Firm's 'Breakthrough' 28nm Chipmaking Tool to Debut Soon: Report

Shanghai Micro Electronics Equipment Group (SMEE), a state-backed firm, is on track to reveal its first scanner capable of producing chips on a 28nm process technology by the end of 2023, state-controlled the Global Times reports. The machine could help China reduce its dependency on foreign wafer fab equipment, Bloomberg noted.

SMEE is aiming to introduce the first domestically produced SSA/800-10W lithography machine to the market by the end of 2023, which would be a major breakthrough for the company, which currently only produces scanners good enough for 90nm nodes and older. The litho scanner is expected to use locally developed and produced components, which is why the stock price of China-based optical components manufacturers Mloptic, Kingsemi, and Castech were up on Wednesday.

Meanwhile, there is still uncertainty about whether the Shanghai-based firm can produce these machines at scale. Details about this technological advancement were not readily available on Wednesday, and the sources of information are the state-owned Global Times and Xinhua News Agency.

China's major chipmakers, such as Semiconductor Manufacturing International Corp. (SMIC) and Hua Hong Semiconductor, all use equipment made abroad by companies like ASML, Canon, Nikon, and Tokyo Electron. However, the U.S., Japan, and the Netherlands recently imposed restrictions on Chinese companies when it comes to sales of advanced wafer fab equipment. These restrictions essentially blocked access to 14/16nm-capable tools for China-based foundries.

For now, SMIC and Hua Hong can purchase 28nm-capable tools from abroad, but a local scanner would be more cost-effective. Furthermore, its emergence would mark SMEE's ability to leapfrog several generations of scanners and go straight from a 90nm-capable to a 28nm-capable machine. SMEE's reported breakthrough could be a significant step in developing self-reliant chip manufacturing, assuming that the company designed the device entirely in-house.

Founded in 2002, SMEE is China's leading lithography machine maker and is considered China's only potential competitor to ASML.

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