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TSMC’s Premium Over SMIC Shows Challenges for China’s Chip Fund

Daniel Nenni

Admin
Staff member
b18781be7f7f653a3cbcddf97c5df6f5


(Bloomberg) -- The share-price gap between Taiwan Semiconductor Manufacturing Co. and China’s biggest chipmaker is near its widest in almost two decades, highlighting the difficulty Beijing faces in building up its domestic chip industry.

Bolstered in part by state-of-the-art chipmaking capabilities, TSMC has soared 48% this year in Taipei while Semiconductor Manufacturing International Corp. lost 7.5%, leaving the gap between the two stocks’ annual performance poised to be the biggest since 2005. The chasm comes even as China’s largest semiconductor investment fund, known as Big Fund III, aims to develop the local sector amid US efforts to limit growth.

Boosting SMIC’s technology “is not something that can be achieved overnight, even with abundant funding,” said Shen Meng, a director at Beijing-based investment bank Chanson & Co.

China is currently capable of making 7-nanometer chips, two generations behind the most sophisticated semiconductors now in commercial production, but seeks to progress to 5nm amid US curbs. TSMC uses extreme ultraviolet lithography equipment to produce more-advanced 3nm chips, but such tools can’t be sold into China due to export controls.

“Even if SMIC can produce chips using 5nm technology, the cost would be at least 10 times higher than those produced at TSMC without EUV machines,” Bloomberg Intelligence analyst Charles Shum said. “The technology gap isn’t just about reaching a certain level, it’s also about how effectively you can achieve it. ”

Although the government has unveiled few details on the third vehicle of the National Integrated Circuit Industry Investment Fund, Big Fund III’s formal name, investors are betting it will help solve some sector issues.

“The new fund is expected to focus on advanced technology, including wafer manufacturing, packaging, process control and equipment materials,” said Xiang Xiaotian, a director at Shanghai Chengzhou Investment Management Co.

The fund may also target investments in AI chips, according to Li Xun, an investment adviser at Guotai Junan Securities Co.

 
“ten times” seems a bit a stretch even if you consider the multiple pass and yield loss.

The larger issue for SMIC and China is the lack of tools and ability to run volumes of advanced chips needed for a billion people and a desired growing tech country for phones, infrastructure, data center, AI, EV… and on and on. A few 5G phones made by Huawei with SMIC can’t replace for many more decades without something really big changing. Should they accept like Russia did technology like that was in their old MiGs, tubes to US solid state transistors.

We call silicon advanced chips the oil and steel driving the economy of the next decade.

The question is what will happen and if they, China, accept the situation or what they can and will do to fix this.
 
China is currently capable of making 7-nanometer chips, two generations behind the most sophisticated semiconductors now in commercial production, but seeks to progress to 5nm amid US curbs. TSMC uses extreme ultraviolet lithography equipment to produce more-advanced 3nm chips, but such tools can’t be sold into China due to export controls.

“Even if SMIC can produce chips using 5nm technology, the cost would be at least 10 times higher than those produced at TSMC without EUV machines,” Bloomberg Intelligence analyst Charles Shum said. “The technology gap isn’t just about reaching a certain level, it’s also about how effectively you can achieve it. ”
The article nails it - SMIC can produce 7nm and 5nm chips, but at what cost and margins ? SMIC March numbers expanded revenue by 20% Y/Y but cost of revenues went up by 30% Y/Y, killing gross margins, net margins and operating income (down 94% Y/Y). And that's when only producing a smallish volume of 7nm/5nm.
 
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