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China’s Semiconductor Industry:  From Design to Reality: China’s Chip Manufacturers (3/3)

{{{Sharon Chen}}}

As seen in the case of HiSilicon in the previous article, chip designs mean nothing without the ability to turn them into physical reality. This is the job of foundries and assembly, testing, and packaging (ATP) firms, which harness cutting-edge physical and chemical processes to craft chips based on designs provided by fabless design companies. In this article, we examine the state of Chinese chip manufacturing through the stories of China’s biggest foundry, SMIC, and further down the supply chain, China’s biggest ATP player, JCET. 

SMIC: China’s Own Foundry 

SMIC, China’sleading chip foundry, was founded in 2000 by Taiwanese engineer and businessmanZhang Rujing. Zhang had worked in the US at Texas Instruments for 20 years, first in R&D then in operations, before returning to his birthplace, Taiwan, to start his own fab, Shida Semiconductor, in 1997. After becoming a formidable market player in just three years, Shida was acquired by industry leader TSMC. Without missing a beat, Zhang moved to mainland China in to start a new fab venture, Semiconductor Manufacturing International Corporation (SMIC), in Shanghai.   

A foundry cleanroom(Source: Bloomberg) 

Zhang’s arrival inmainland China was greeted with fanfare from a government that had been tryingto bolster its lagging semiconductor industry, with only slight success from Projects 908 and 909. SMIC built its first fab in Shanghai’s Zhangjiang Hi-tech Park, and by 2002, its first chip line was in operation, processing 8-inch wafers at 0.18 um resolution. In 2004, SMIC became profitable and went publicin both the New York Stock Exchange and the Hong Kong Stock Exchange.   

SMIC’s founding sawnearly 200 of Shida (by then part of TSMC) employees follow Zhang Rujing from Taiwan to Shanghai to join his new mainland venture. Their expertise jump started SMIC’s progress, but also planted the seed for intellectual property disputes that would plague SMIC and Zhang Rujing in the tumultuous decade that followed.    

In 2003, TSMC suedSMIC in California court for stealing trade secrets, and won a settlement of$175 million two years later. SMIC was further ordered to surrender all use of TSMC-related documents, technology and processes. Hot on the heels of this, TSMC launched another intellectual property suit in 2006, including allegations that SMIC did not comply with orders from the previous settlement. The momentous court decision in 2009 ordered SMIC to pay another $200 million and grant TSMC a 10% ownership stake in the company. Zhang resigned following this blow.   

Despite its rocky beginning, SMIC has grown steadily, opening fabs in Shanghai, Beijing,Shenzhen, and Tianjin. Technologically, its leading plants process 12 inch wafers with 14 nm-equivalent resolution using Fin Field-Effect Transistors (FinFET), an advanced structure type that allows denser arrays of transistors than ever before. However, SMIC is still battling to catch up with its largest rival - TSMC started producing 5 nm FinFET chips at scale in 2020. In Q1 2021, TSMC accounted for 57% of chip foundry revenue worldwide with $12.9 billion in revenue, while SMIC’s revenue of $1.1 billion gave it approximately 5% of the global market share, making it the 5th largest chip foundry in the world. 

  

SMIC fabs in Shanghai, Beijing, Tianjin and Shenzhen: processes andproduction capacities (Source: SMIC website) 

In the past few years, SMIC has seen its importance expand beyond its technical capabilities, as US sanctions against Chinese semiconductor companies, including SMIC itself, have forced the Chinese market to rely on domestic suppliers. Hisilicon/Huawei, for instance, has shifted chip production to SMIC, after its access to TSMC was cut off by US sanctions. However, SMIC’s lagging technical capability means that HiSilicon’s most advanced 7- and 5-nanometer chips are stranded without a viable production route. Reflecting its rising strategic importance, SMIC delisted from the New York Stock Exchange in 2017, and in 2019, managed a record speed 29-day IPO onto the STAR Market, a newly-established tech-focused market under the Shanghai Stock Exchange.   

Furthermore, avariety of national and local measures now aim to boost SMIC’s manufacturing capability. For instance, in 2020, in the midst of tightening US sanctions, China’s National IC Fund invested $1.7 billion to help SMIC build out 14-nm manufacturing capability, while Shanghai’s municipal IC industry fund invested an additional $750 million. Furthermore, SMIC now routinely analyzes its supply chains for dependence on foreign suppliers, reflecting the company’s heightened concern over geopolitical risk. From nearly every perspective, SMIC has become a firm centerpiece in Chinese industrial policy.   

JiangsuChangdian (JCET): A World-Leading ATP Player 

Jiangsu Changdian (JCET) is a major Chinese assembly, test and packaging (ATP)* service provider. Founded in 1972, JCET is a rare example of a companythat has evolved and succeeded across half a century of China’s reform and development. 

Example structure ofa packaged IC chip (Source: NGK Co.)

 

CET started as Jiangyin Transistor Factory, a state-run operation. Initiallycontributing to China’s communication satellite program, the company wasbattered in the Reform and Opening Up of the 1980’s, which brought in foreign semiconductor firms, generations ahead in technical expertise. In 1990, current chairman Wang Xinchao was appointed to lead the struggling factory. In order to revive the company, he oversaw the development of new product types and sourcing of new customers, as well as Jiangyin’s renaming to Changjiang Electronics.    

However, the company met new challenges in the form of competition fromsmuggled products and the Asian Financial Crisis of 1997. In order to better compete, the company crafted an aggressive “increase scale, decrease cost” strategy, doubling down on investing in new capacity. Annual output quadrupled from 300 million to 1.35 billion chips. The crackdown on smuggling in the late 1990’s cleared the way for even more rapid growth, and the company achieved production of 10 billion devices in 2003. When Changjiang Electronics was finally renamed Jiangsu Changdian (JCET) at the turn of the century, it had become China’s largest discrete device manufacturer. Based on this explosive performance, in 2003, JCET became the first semiconductor company to go public in China on the Shanghai Stock Exchange.   

JCET entered theATP field in 2004, when it established China’s first (and the world’s fourth)8-inch and 12-inch ATP operation, as a joint venture with Singaporean ATP company Xianjin. This joint venture, Changdian Xianjin, greatly elevated JCET’s technical capability. With key innovations in copper pillar bumping and wafer-level packaging, Changdian Xianjin began attracting global industry leaders, such as Texas Instruments, as customers. In 2009, JCET packaged 3 billion chips, becoming the 8th largest ATP provider worldwide.    

Another transformative moment occurred in 2015, when JCET, financially supported by China’s NationalIC Fund, acquired Singaporean ATP giant Xingke Jinpeng (4th largest ATP company at the time) for $780 million, significantly bolstering its technical portfolio and customer base. This acquisition helped JCET become the 3rd largest ATP company in the world. In 2020, it generated a record revenue of over $4 billion, representing around 10% of the global ATP market.  

A JCET plant in SouthKorea (Source: GlobeNewswire)

Today, after successfulpartnerships and acquisitions through five eventful decades, JCET is one of thefew Chinese semiconductor firms that can truly count itself as a world-leading player in terms of both technology and business.    

As chip manufacturing emerges as a key factor in China’s technological and geopolitical future, SMIC and JCET form the cornerstones of China’s rapidly expandingsemiconductor ecosystem. Indeed, these two giants have found a partner in eachother, and have established joint venture Zhongxin Changdian via a $1 billion investment, aiming to find synergies along the next-generation chipmaking value chain.     

* Also referred to as “outsourced semiconductor assembly and testing”(OSAT); for more details on the role of ATP in the semiconductor value chain,refer to first article in series 

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