Applied Materials, Lam Research, and KLA booked a combined $19 billion in China revenue across their fiscal 2025 reporting periods, according to a recent Nikkei Asia analysis of corporate filings, even as direct U.S.-to-China tool shipments fell 34% to roughly $2 billion, the lowest figure since 2017.

The gap moved through Singapore and Malaysia, where all three firms have spent years building out manufacturing capacity. At the same time, every major Chinese wafer-fab-equipment vendor posted record 2025 revenues, but gross margins contracted across the board as domestic vendors competed on price for fab share previously held by foreign suppliers.

Domestic vendor financials

Naura Technology Group, China's broadest equipment supplier by product line, reported first-nine-months 2025 revenue of 27.14 billion yuan, up from 6.05 billion yuan ($887 million) for all of 2020, per Nikkei's analysis of company filings. Gross margin slipped 2.8 percentage points year over year to 41.4%, and net margin contracted by nearly four points.

AMEC delivered full-year 2025 revenue of 12.4 billion yuan, up 36.6% from 2024, but gross margin fell 1.9 points to 39.2%. In Q3 alone, AMEC's margin dropped 5.8 points. Piotech, a thin-film deposition specialist, nearly doubled revenue to 4.2 billion yuan in the first nine months, but first-half net income fell 27% as the company absorbed high costs from new products still in customer validation, per its interim filing.

ACM Research, the U.S.-listed company that conducts most of its operations through its Shanghai subsidiary, posted 2025 revenue of $901 million, a 15% increase, but gross margin fell 5.7 points to 44.4%, and operating margin collapsed from 19.3% to 12.1%. Q4 gross margin of 41% landed below the company's own 42% to 48% long-term target band.

"While leading domestic equipment companies are still posting strong revenue growth, there are indications that their margin performance is deteriorating," Charles Shi, a veteran semiconductor analyst with Needham & Co., told Nikkei Asia. Shi attributed the squeeze to domestic vendors undercutting each other for business at Chinese fabs that were previously served by foreign suppliers.

U.S. vendor China revenue

As for the revenue figures from U.S. equipment makers, it’s clear that export controls haven’t completely severed commercial relationships with China.

Applied Materials booked $8.53 billion of China revenue in fiscal 2025, or 30% of total sales, down from 37% the prior year, according to the company's Q4 FY2025 earnings release. CFO Brice Hill told analysts on the Q4 call that the cumulative impact of U.S. export restrictions was equivalent to roughly 10% of the China market in fiscal 2024 and more than double that in fiscal 2025. Meanwhile, Lam Research reported $6.21 billion from China for 34% of total revenue, down from 42%, while KLA reported $4.01 billion, or 33%, down from 43%.

These revenue figures, however, are largely attributable to infrastructure. Lam Research’s Batu Kawan campus in Penang, for example, is its largest manufacturing site globally at 800,000, while Applied Materials opened a $450 million plant in Singapore in early 2024 and has committed to doubling its local manufacturing and R&D headcount under a plan it calls Singapore 2030.

KLA completed the first phase of a $200 million Singapore expansion in October 2024, with a second phase underway that will bring the site to 420,000 square feet and add roughly 400 jobs, expected to be completed this year. Chinese customs recorded $5.7 billion of Singapore-origin chipmaking equipment in 2025, up more than 17%, and $3.4 billion from Malaysia, more than double the 2024 figure, according to Nikkei's analysis.

ASML's China share of net system sales fell from 41% in 2024 to 33% in 2025, though total China revenue as a share of all sales, including service, came in at 29.1%, per Nikkei's figures. ASML in January projected that the recent cycle was abnormally high and estimated China would drop to around 20% of ASML's 2026 revenue. Tokyo Electron, the most China-exposed of the large tool makers, drew

Tokyo Electron, the most China-exposed of the large tool makers, drew more than 40% of its fiscal 2025 revenue from Chinese customers, according to Nikkei's analysis. A TrendForce report from December cited TEL finance chief Hiroshi Kawamoto as expecting China's share to fall to around 35% in the current fiscal year, with uncertainty over whether it would drop below 30% the year after.

Over the five years from 2020 through 2025, China's accumulated chip tool imports from Japan exceeded $42 billion, with Netherlands-origin shipments adding roughly $35 billion, per Nikkei's customs data analysis.

Equipment localization clears 30%

Beijing is pushing hard to localize more chipmaking, but despite hundreds of billions spent and significant progress made, China is still around a decade behind the West. Domestic tools accounted for roughly 35% of chipmaking equipment in use at Chinese fabs in 2025, up from 25% in 2024 and above the government's 30% target for that year, according to DigiTimes.

It’s understood that the Chinese government is unofficially requiring chipmakers to source at least 50% domestic equipment when adding new capacity, with YMTC’s third Wuhan fab already having cleared that threshold.

Gains are naturally concentrating in the mature process tool categories, with Chinese vendors now routinely approaching or exceeding parity in cleaning, etch, deposition, and thermal processing. Lithography is the laggard, representing around 18% domestic share, metrology around 255, and EUV exposure tools at zero. Only ASML, Canon, and Nikon produce commercially viable lithography systems, an area where Chinese suppliers continue to face fundamental technical barriers.

U.S. lawmakers are keen to maintain that barrier, with the recent bipartisan Multilateral Alignment of Technology Controls on Hardware Act, targeting both DUV and the Southeast Asia routing pattern highlighted in Nikkei’s report. The bill adds restrictions on SMIC, CXMT, YMTC, Hua Hong, and Huawei directly into statute rather than relying on Commerce Department entity listings, and imposes country-wide prohibitions on sales and servicing of chokepoint tools into China regardless of end user.

A 150-day clock requires Commerce to secure matching controls from the Netherlands and Japan, failing which the bill authorizes an expanded Foreign Direct Product Rule applied unilaterally. Bernstein analysts called the proposal far stricter than any prior restriction, warning it could make tool maintenance inside Chinese fabs nearly impossible. The bill remains in committee and faces an uncertain path through Congress, as the Netherlands and Japan have not publicly committed to matching its scope.

U.S. lawmakers have revised the MATCH Act to narrow its scope after industry pushback and removed one of the most sweeping provisions that prohibited sales of cryogenic etching tools to chipmakers in the countries of concern (most notably China), reports Reuters. Yet Chinese chipmakers were not allowed to obtain these tools anyway due to existing export controls, which makes the alterations somewhat cosmetic.

The updated version of the bill eliminates a nationwide restriction on cryogenic etch equipment produced by companies such as Lam Research and Tokyo Electron, according to Reuters, which claims it has seen the revised copy of the document (which does not appear to be available on official websites). In addition, the report claims that many of the restrictions proposed in the early April version of the bill have been removed, but does not elaborate. This provision had raised concerns across the semiconductor equipment industry due to its wide reach and potential impact on global trade.

The original draft explicitly included cryogenic etching equipment as a separate type of etching equipment requiring specific export controls. Cryogenic etching tools are designed for high-aspect-ratio, extremely smooth silicon etching, where sidewall roughness must be minimized. Such tools are used primarily in front-end semiconductor fabrication to create high-precision silicon features, such as advanced transistor structures (e.g., FinFET/GAA) and specialized MEMS. In addition, they are also used in R&D environments where ultra-smooth, high-aspect-ratio silicon etching is required.

The current U.S. export controls require an export license to ship tools used to build logic chips on 14nm/16nm-class process technologies that use FinFET transistors, so cryogenic etching tools have been covered by American export rules since 2021. The existing export controls curbed sales of advanced tools to select fabs, potentially allowing Chinese chipmakers to obtain such tools for their outdated fabs. The MATCH Act proposes to curb shipments of such equipment to actual companies (thus, plugging the loophole that allowed adversaries to circumvent existing rules), so the blanket ban on selling cryogenic etching tools to countries of concern was excessive.

Reuters reports that the latest version of the bill upholds restrictions on sales of advanced wafer fabrication equipment by U.S. and foreign companies to certain Chinese semiconductor manufacturers, including ChangXin Memory Technologies (CXMT), Yangtze Memory Technologies (YMTC), and Semiconductor Manufacturing International Corporation (SMIC). The bill also maintains requirements for licenses to service equipment at covered facilities. However, the updated version no longer applies a blanket presumption that such licenses will be denied, which should ease one of the more contentious elements for ASML and Tokyo Electron.

A bipartisan group of U.S. senators has proposed a new law that would impose an almost blanked ban on exports of advanced wafer fabrication equipment (WFE) to select entities in adversary nations, a rule that would complement the existing fab-based bans. If imposed, leading China-based chipmakers like CXMT, Hua Hong, SMIC, and YMTC would lose the ability to procure advanced tools for outdated fabs and use them to advance their leading-edge facilities.

"Certain entities, including [CXMT, Hua Hong/HLMC, Huawei, SMIC, and YMTC] are engaged in efforts to produce advanced-node integrated circuits that are especially crucial for the Military-Civil Fusion efforts of the People’s Republic of China and warrant comprehensive export controls to prevent those companies from accessing items made with [U.S.] technologies," the proposal reads.

The U.S. government restricted sales of advanced wafer fabrication equipment to potential foes like China back in late 2021. Under these restrictions American companies and eventually companies from allied nations, including the Netherlands and Japan, must obtain an export license from the U.S. government to ship WFE capable of 14nm process technologies for logic, 18nm-class DRAM fabrication processes, and 128-layer or more NAND if they ship to China-based entities. The new proposal does not introduce anything new in terms of curbs. What it does is change how shipments of tools are permitted.

Today export controls regulate shipments to exact fabs that may or may not be blacklisted by the U.S. government, not entities that own these fabs. To that end, WFE makers can ship advanced machines, such as the ASML Twinscan NXT:1950i/1980Di (which can be upgraded to the sanctioned 5nm-capable NXT:2000i) to companies like SMIC as long as the latter does not use these tools for advanced process technologies. However, controlling how these tools are used is extremely complicated as Chinese chipmakers and authorities do not really endorse such audits. Meanwhile, these advanced tools are indeed used to make chips using 7nm-class process technologies, such as SMIC's N+1 and N+2.

The newly proposed MATCH Act shifts export controls from fab-based controls to a hybrid model that is company-based (and affiliation-based), though fab-level triggers will remain in place. As a result, companies like SMIC will not be able to buy advanced tools for fabs that use trailing nodes and then redirect them to their fabs capable of 7nm-class technologies.

In addition, the MATCH Act is designed to force global alignment on semiconductor equipment export controls. At first, the U.S. will pursue coordination with allied supplier countries such as the Netherlands, Japan, South Korea, and Taiwan. If that effort fails, then the U.S. will expand restrictions extraterritorially to cover foreign-made tools that contain more than 0% of American technology, or require servicing that relies on American technologies. The end goal is to close loopholes that enable adversaries to circumvent existing controls.

An avid reader who has been following U.S. restrictions on advanced fab tools will ask whether it will be possible for restricted China-based entities to get sophisticated WFE from various intermediaries that are not restricted. As far as we can tell, while intermediary entities can in theory acquire semiconductor manufacturing equipment and divert it illegally, the MATCH Act is explicitly structured to prevent circumvention via intermediaries as export controls attach not only to the initial transaction, but also to end-use, end-user, reexport, and servicing. Therefore, routing semiconductor equipment through a third-party entity would not bypass restrictions, but will instead expose all parties involved, which essentially means losing access to advanced WFE in the future and servicing of existing tools, which in turn will render these machines useless over time.

While the bill cannot eliminate small-scale leakage of advanced systems, one-off tool diversion, or black market activity, it is designed to eliminate reliable supply chains currently used by Chinese entities to get advanced fabrication equipment to build up and maintain world-class fabs.

Last but not least, the MATCH Act introduces the 75% threshold that serves as a built-in calibration mechanism that limits controls to genuine technological chokepoints that countries of concern (i.e., China) cannot produce themselves. For example, if China can meet 75% of its demand for certain tools (e.g., etching or deposition tools), then the U.S. government no longer restricts shipments of appropriate tools to China. Under the newly proposed bill, restrictions are applied where they retain strategic leverage and can be relaxed if domestic alternatives reach sufficient scale. This seems to be important for American companies that sell etching and deposition tools. For now, they maintain lead over Chinese makers like AMEC or Naura, but the latter already offers world-class tools, so once they reach scale, American companies like Applied Materials will lose strategic positions on the Chinese market, at which point the U.S. government will cease regulating their shipments to customers in the PRC.

IBM and Lam Research have announced a five-year research collaboration to develop the materials and fabrication processes needed to scale logic chips beyond 1nm using high-NA EUV lithography and Lam's Aether dry resist technology. The work will take place at IBM Research's NY Creates Albany NanoTech Complex in New York, with Lam's Aether dry resist technology at the center of the effort alongside its Kiyo and Akara etch platforms and Striker and ALTUS Halo deposition systems.

The two companies have collaborated for over a decade on 7nm process development, nanosheet transistor architecture, and early EUV process integration. Notably, IBM unveiled what it described as the world's first 2nm node chip in 2021, marking a significant milestone in the ongoing partnership.

Under the new agreement, the focus will shift to validating full process flows for nanosheet and nanostack device architectures and backside power delivery, using Lam's Kiyo and Akara etch platforms, Striker and ALTUS Halo deposition systems, and Aether dry resist.

Aether and high-NA EUV

Standard EUV lithography utilizes chemically amplified resists, which are spin-coated onto wafers and developed using wet chemistry. That approach, however, has a fundamental problem at the geometries high-NA EUV scanners are designed to print: stochastic noise. This is a statistical variation in photon absorption per unit area, which drives defect rates up as features shrink.

Aether’s process, however, sidesteps wet chemistry entirely by depositing the resist via vapor-phase precursors and developing it using plasma-based dry processes. According to Lam, its metal-organic compounds absorb three to five times more EUV light than conventional carbon-based resist materials, reducing the exposure dose required per wafer pass and keeping single-print patterning viable at nodes where wet-process alternatives would require more expensive multi-patterning.

Fewer process steps between exposure and etch also reduce the number of points at which pattern fidelity can degrade, which is a compounding advantage as geometries continue to tighten. The renewed collaboration between IBM and Lam is specifically focused on proving that Aether can get high-NA EUV patterns reliably transferred into real device layers at production yield. Ultimately, that’s what needs to be done before sub-1nm processes can credibly move toward a production fab.

Nanosheet transistors, which stack multiple thin sheets of silicon to increase drive current without widening the transistor footprint, are one of the primary device architectures the teams will be validating. IBM’s press release also confirms work on nanostack devices and backside power delivery, which routes power connections through the back of the wafer rather than the front, freeing up front-side metal layers for signal routing and reducing the resistance losses that compound at high transistor densities.

Three deals in 14 months

The IBM announcement marks the third significant Aether-related move Lam has made since January last year. The company confirmed that month that Aether had been selected by an unnamed leading memory manufacturer as the production tool of record for its most advanced DRAM processes. Then, in September, Lam signed a cross-licensing and collaboration agreement with JSR Corporation and its subsidiary Inpria, integrating JSR's metal oxide resists and patterning materials with Lam's etch, deposition, and dry resist capabilities for high-NA EUV.

Across 14 months, Lam has moved from production adoption in memory to a materials supply chain partnership for high-NA EUV patterning to a five-year logic research commitment with IBM, assembling a dry resist ecosystem ahead of wider high-NA EUV adoption. ASML began shipping its first high-NA EUV systems in 2023, and as those tools move toward broader foundry adoption, the choice of resist process will become one of the more consequential materials chipmakers face. JSR and Inpria's existing metal oxide resist expertise is a direct complement to Aether's vapor deposition approach, giving Lam coverage across both dry resist and metal oxide patterning materials heading into sub-1nm.

Lam isn’t the only equipment company circling high-NA EUV. Applied Materials has its own patterning materials and process integration capabilities, and ASML's dominant position in lithography gives it natural leverage over how the resist ecosystem develops around its tools. Lam's partnerships with IBM and JSR/Inpria are, at least in part, an effort to establish dry resist as the default process integration path before tooling decisions are embedded within foundries.

IBM's research complex

IBM Research's Albany NanoTech Complex is a process development facility, not a production fab, so the output of this collaboration will be validated process flows and materials knowledge that commercial foundries can adopt.

This follows the same model as the companies' prior work on 7nm and nanosheet, with the research that was demonstrated at Albany eventually feeding into production processes at TSMC and others. Sub-1nm process work starting in 2026 is therefore unlikely to reach volume manufacturing before the early 2030s.

The collaboration also presents a huge opportunity for Lam. If it’s able to establish Aether as the validated dry resist solution for high-NA EUV logic, it stands to add a significant new revenue category on top of the etch and deposition tools it already sells to nearly every advanced chipmaker.

A five-year commitment with IBM builds process familiarity and customer confidence well before foundries are making resist process decisions for their sub-1nm nodes. Lam's commercial customers — TSMC, Samsung, Intel, and others — are the ones who will ultimately adopt whatever process knowledge comes out of Albany as a result of this new research effort.

IBM and Lam Research have announced a five-year collaboration to develop the materials and fabrication processes needed to scale logic chips beyond 1nm using High NA EUV lithography and Lam's Aether dry resist technology. The work will take place at IBM Research's facilities at the NY Creates Albany NanoTech Complex in Albany, New York.

The two companies have worked together for more than a decade, contributing to 7nm process development, nanosheet transistor architecture, and early EUV process integration, with IBM unveiling what it described as the world's first 2nm node chip in 2021 as part of that ongoing partnership. Under the new agreement, the focus will shift to validating full process flows for nanosheet and nanostack device architectures and backside power delivery, using Lam's Kiyo and Akara etch platforms, Striker and ALTUS Halo deposition systems, and Aether dry resist.

Conventional EUV lithography relies on chemically amplified resists, wet-process materials that struggle with the tighter tolerances demanded by high-NA EUV scanners. Meanwhile, Lam's Aether technology is a dry resist, deposited via vapor-phase precursors rather than spin-coating, and developed using plasma-based dry processes.

Aether’s metal-organic compounds absorb three to five times more EUV light than traditional carbon-based resist materials, which reduces the exposure dose needed per wafer pass and helps maintain single-print patterning at advanced nodes without resorting to more expensive multi-patterning. In January, Lam announced Aether had been selected by a leading memory manufacturer as the production tool of record for its most advanced DRAM processes, though it did not name the manufacturer.

According to the joint announcement, the collaboration seeks to enable High NA EUV patterns to be reliably transferred into real device layers at high yield, and to accelerate industry adoption of High NA EUV for next-generation interconnect and device patterning. That yield-at-transfer problem is where Lam's Aether dry resist technology has an edge over conventional wet processes, because fewer steps between exposure and etch mean less opportunity for pattern degradation at tighter geometries.

Meanwhile, nanosheet transistors stack multiple thin sheets of silicon to increase drive current without widening the device footprint. The press release confirms the teams will build and validate full process flows for both nanosheet and nanostack devices, alongside backside power delivery, which routes power through the back of the wafer to free up front-side interconnect layers for signal routing.

“Together, these capabilities are aimed at allowing High‑NA EUV patterns to be reliably transferred into real device layers with high yield and enabling continued scaling, improved performance, and viable paths to production for future logic devices,” says the press release.

A group of U.S. lawmakers this week sent a letter to the U.S. State and Commerce Departments calling to reinforce restrictions on wafer fab equipment (WFE) exported to China. The group calls to restrict the sale of virtually all chipmaking tools to China. With the exception of those that can be manufactured domestically in the People's Republic of China (PRC). In addition, the group demands the U.S. to work with allied nations and ensure that they implement similar export policies, thus banning sales of all advanced chipmaking tools to the PRC.

The group led by House Select Committee on China Chairman John Moolenaar and House Foreign Affairs Committee Chairman Brian Mast sent the letter to Secretary of State Marco Rubio and Secretary of Commerce Howard Lutnick demanding to impose more robust curbs on exports of semiconductor production tools to China and use diplomacy to make allied nations follow. Right now, American companies need an export license to ship WFE tools to China-based entities. These tools that can be used to make logic chips on 14nm/16nm manufacturing technologies, produce DRAM on 18nm-class half-pitch fabrication process, and fabricate 3D NAND with 128 or more layers. At the same time, American companies can obtain an export license and supply these very tools to entities that formally do not produce the aforementioned semiconductors. The new set of rules proposed by the group prohibit to sell any WFE to China-based entities except tools that can be manufactured locally in China.

The lawmakers argue that existing controls remain incomplete as certain foreign-produced 'chokepoint tools' (i.e., advanced lithography systems by ASML and sophisticated etching and deposition tools by Tokyo Electron) are restricted only when destined for specific Chinese entities rather than being subject to broad country-level limitations.

They note that once equipment enters China, enforcement becomes difficult because verification visits require approval from Chinese authorities, which can take weeks or months to arrange, and are conducted under supervision. As a result, Chinese companies like SMIC can continue develop their process technologies using advanced manufacturing tools, whereas various entities funded by Huawei or even the federal government can reverse engineer these machines to build similar systems locally.

Reverse engineering of existing tools and subcomponents is another point of concern raised by the lawmakers. Despite the efforts of the U.S. government, Chinese companies retain access to the subcomponents of chipmaking equipment, which not only enables them to fix existing tools, but also reverse engineer these parts. Without tighter export controls on spare parts, China could eventually replace foreign equipment with locally developed alternatives, lawmakers believe.

"We urge the Administration to press allies to implement countrywide controls on key chokepoint semiconductor manufacturing equipment and subcomponents: that is, all equipment and subcomponents that China cannot produce indigenously," the letter reads. "This engagement should include clear and reasonable deadlines, after which the United States should be prepared to act to close remaining gaps itself if necessary, including by prohibiting the use of U.S.-origin components in the production of chokepoint tools destined to China."

The letter also mentions servicing of WFE as a potential area for even tighter regulation as now these rules adhere to export control rules, which means that certain restricted advanced systems can still be serviced as long as they are installed at an approved buyer. As these systems require ongoing maintenance and technical support to remain operational, limiting servicing could be a way to reduce practical lifespan of already installed equipment.

"The window to secure America's semiconductor advantage is narrowing," the letter concludes. "We request a briefing within the next month on the Administration's strategy for securing allied cooperation on countrywide controls on chokepoint semiconductor manufacturing equipment and components and the timeline for achieving this goal. We stand ready to work with you on a bipartisan basis to ensure our export control regime and the alliances that support it are equal to this challenge."

China's attempt to build a self-sufficient semiconductor industry has been instrumental in creating numerous companies, such as Huawei's HiSilicon, SMIC, and YMTC, that develop and manufacture world-class chips. However, while there are China-based firms that produce chipmaking tools, they cannot replace equipment made by American or European companies for advanced process technologies. Some, like Goldman Sachs, believe that China's chipmaking capability is about 20 years behind ASML, but there are signs that the situation may be more optimistic. But can China indeed unbind itself from the leading suppliers of chipmaking tools?

World-class memory and logic on Western tools

Although China-based chipmakers like CXMT, HuaHong, SMIC, and YMTC can produce logic (down to 7nm-class) and memory chips that are competitive on the global market, these companies rely on electronic design automation (EDA) and simulation software for chip design as well as production tools made in Europe, Japan, and the U.S., which makes them vulnerable to export controls from Western nations.

Domestically manufactured equipment accounts for just 15% to 30% of the total tools deployed in Chinese semiconductor fabs (according to AMEC estimates), which means that 70% to 85% of the tools they use are procured from American, European, Japanese, or South Korean companies.

To that end, it is crucial for the People's Republic's semiconductor industry to build its own EDA tools, ecosystem, and wafer fab equipment (WFE) supply chains, which the central government fully understands.

Last year, China began assembling the third installment of its Big Fund with the aim of funding companies producing ultra-pure chemistry or silicon wafers, as well as firms that develop and build chipmaking tools. However, this year it expanded the goal of the $50-billion Big Fund III to EDA and simulation tools. There are multiple ways for China to utilize this money to build advanced fab tools, but this will take time —a valuable asset, given the restrictions imposed on the country's semiconductor sector by the U.S. government.

Strong offerings for everything, but lithography

Every semiconductor production facility uses hundreds or thousands of tools, but they can be divided into several groups that perform different steps, including deposition (CVD, ALD, PVD), lithography (including tracking tools and lithography scanners), etching, ion implantation, annealing, cleaning, metrology, and inspection.

China has dozens of companies developing and producing wafer fab equipment for a variety of steps of the front-end production flow (actual semiconductor manufacturing), as well as companies making tools for back-end production (chip packaging).

It is simultaneously good and bad that China has so many WFE companies: on the one hand, there is competition both in terms of products and in terms of ideas, but on the other hand, small companies can't compete against industry giants like Applied Materials or Tokyo Electron. Still, there are quite big firms as well. Perhaps the best-known companies are ACM Research (equipment for cleaning, polishing, electrochemical plating, and plasma-enhanced CVD), Advanced Micro‑Fabrication Equipment (AMEC, deposition tools), Hwatsing Technology (chemical mechanical planarization/polishing), Kingsemi (spin-coating and developing tools), Naura Technology (etching, annealing, etc.), Shanghai Micro Electronics Equipment (SMEE, lithography tools, metrology, inspection tools), Piotech (deposition tools), and YuweiTek (optical inspection and metrology).

SiCarrier is a rising star in China's semiconductor equipment landscape. The company presented a catalog of dozens of fab tools at Semicon China this year and is believed to be developing a full stack of wafer fab equipment from deposition and lithography all the way to annealing and inspection. The main investor of SiCarrier is Shenzhen Major Investment Group, a government-backed fund supporting other semiconductor ventures associated with Huawei, which is why many observers think that SiCarrier is essentially a chipmaking tool arm of Huawei.

For now, Chinese companies have strong local offerings in etching, deposition, cleaning, CMP, and coating/developing, especially for mature and legacy process technologies (e.g., 28 nm and above). In fact, AMEC's tools can be used for the production of chips on 5nm-class nodes, according to the company. However, there is a caveat: many of the WFE equipment made in China uses components from Western companies, which are either subject to export controls already or will become so shortly. What is no less important is that lithography remains the most critical choke point for the People's Republic.

20 years behind?

Designing lithography tools is extremely challenging, as they sit at the intersection of optics, precision engineering, control systems, and materials science, all operating at nanometer-level tolerances in modern fabrication technologies.

SMEE, China's most advanced maker of litho tools, is significantly behind global leaders like ASML or Nikon. The company formally introduced its 28nm-capable immersion ArF DUV SSA/800-10W litho machine in late 2023, but it still does not list it on its website, and it is unclear whether it has shipped any production tools to actual chipmakers, such as HuaHong or SMIC, which have vast 28nm-class capacities. According to SMEE's website, the best lithography systems it has are the SSA600-series dry scanners, capable of 90nm, 110nm, and 280nm process technologies, which are from the early to mid-2000s.

SiCarrier is also developing lithography machines capable of 28nm-class production nodes (according to a Nikkei report), but the catalog from Semicon did not include any lithography tools, perhaps to keep its lithography developments a secret from the U.S. government, as they heavily rely on components made outside of China.

Keeping in mind that both SMEE and SiCarrier have so far developed lithography systems capable of producing chips on a 28nm-class process technologies, it is safe to say that both companies have managed to build immersion DUV scanners, which is a major milestone. ASML has 5nm-capable immersion DUV machines, which pretty much shows the immense capability of this technology.

However, as the best thing listed on SMEE's website is its dry SSA600-series litho system, comparable to ASML's machines from the early 2000s, analysts from Goldman Sachs have every right to say that SMEE is 20 years behind ASML. But can SMEE and/or SiCarrier leapfrog from a 28nm-capable machine that they cannot ship in volume, to something more advanced? Let's theorize.

Immersion DUV lithography is hard

Modern ArF immersion DUV lithography tools are incredibly difficult to design because they must enable a resolution sufficient for 5nm-class (and possibly beyond that) process technologies using 193 nm-wavelength light, which is far beyond the natural resolution limit of that wavelength.

To overcome this, immersion DUV scanners rely on high numerical aperture (NA) lenses made from ultra-pure calcium fluoride (CaF₂), polished to sub-nanometer surface roughness. ASML claims that only a few companies worldwide have the capability to manufacture optics of this precision, and its advanced tools almost exclusively use optics from Zeiss. Chinese companies do not have access to Zeiss's optics.

Additionally, ArF immersion scanners incorporate a thin layer of high-purity water between the lens and the wafer to enhance resolution. This requires maintaining a 1 mm fluid layer flowing at speeds of up to 1 m/s with no bubbles, turbulence, or contamination, which demands precision control over fluid dynamics and thermal stability.

Mechanical components must match optical precision: the wafer and reticle stages move at high speed but must maintain sub-nanometer accuracy using air bearings or magnetic levitation and have feedback systems that operate at microsecond latency to correct any drift or vibration. Software and sensors must act with a nanometer overlay error, as any deviation in alignment, stage motion, or temperature can destroy the pattern.

Not all mechanical components that ASML uses in its lithography, metrology, or inspection machines are built by the company; many are produced by third parties, so other companies can procure and use them as well (which is how Chinese companies obtain loads of components for their WFE). However, replicating ASML's software and firmware is as challenging as assembling a high-precision machine.

Chinese firms like SMEE, attempting to develop similar immersion DUV systems (like the SSA/800‑10W), must not only replicate the success in the face of extreme engineering challenges, but also replace or recreate every banned or restricted component from scratch. This is why even reaching 28nm-class capability is considered a major milestone.

However, moving to 16nm or 7nm is not a linear progression for ASML or SMEE, so it does not get meaningfully easier. In fact, the jump from 28nm to 7nm lithography involves entirely new classes of technology, control, and precision, with exponentially higher complexity and capital intensity. Technologies involved in ASML's latest DUV scanners are protected by various export controls (which prohibit shipping technologies enabling Chinese entities to make 16nm-class (and below) logic chips to China), so essentially, SMEE cannot get any help from the outside world.

ASML's 28 nm-class DUV capability (via Twinscan XT:1930i/1950i) was mature around 2010, whereas its DUV-based 5 nm-class capability using self-aligned quadruple patterning (SAQP), complex optical proximity correction (OPC), new masks, and new resists (among other things, of course), was commercially supported by 2020 with the Twinscan NXT:2000i. Nikon began sales of its 7nm-capable NSR-S636E in early 2024.

SMEE yet has to achieve maturity with its SSA/800-10W and produce it in high volume before attempting to move towards 16nm and 7nm. Considering that virtually no newly built fabs in China target 28nm technologies and below, it is unlikely that SMEE is close to volume production of its SSA/800-10W. As a result, SMEE is probably over 10 years behind ASML's NXT 2000i, and well over 15 years behind ASML's contemporary EUV tools (we are not going to touch upon EUV in this article because it is a completely different branch of technology development that requires plenty of innovations that took 20+ years).

No domestic tools for advanced nodes in the next 10 or more years

There is no way that SMEE or SiCarrier can make semiconductor breakthroughs faster than ASML did, so you shouldn't expect either company to come up with a 7nm or 5nm immersion DUV scanner in less than 10 years. While industry espionage and reverse engineering of tools that Chinese companies already have can speed up some developments, replicating ASML's Twinscan NXT:2000i is impossible not only because it has 100,000+ bleeding-edge parts, but also because the process will require replication of the entire ecosystems behind this machine.

As there are no shortcuts that can lead to NXT:2000i-class machines, SMEE and SiCarrier have to invest billions in internal R&D, master their optical and precision mechanic capabilities, work closer with third parties to develop new classes of raw materials and parts, and cooperate with fabs to take into account their developments.

In short, while China's semiconductor industry may achieve self-sufficiency with mature nodes in the coming years and perhaps even produce world-class tools for deposition, etching, ion implantation, annealing, and cleaning, there is no way that Chinese companies can catch up with ASML or Nikon in lithography any time soon. To that end, China will have to rely on advanced lithography tools for 7nm or 5nm-class technologies made in Europe or Japan for the next 10 years at least.

Chinese chipmakers have been gradually shifting some of their production to tools made in China in a bid to support the local wafer fab equipment ecosystem and reduce reliance on tools produced abroad. China already has several well-known manufacturers of chipmaking tools that specialize in one or two types of equipment, which set sales records in 2024. However, there is a little-known Huawei-linked company, Si Carrier Technologies, that has revealed it has almost all types of wafer processing tools in its catalog published at Semicon China and re-published by Zhininren. 

SiCarrier Technologies is a startup widely discussed at this year’s Semicon China, but is little known outside of the People’s Republic. The company is closely linked to Huawei and was founded four years ago in Shenzhen to develop world-class fab tools that would compete against front-end chip production equipment made by market leaders ASML, Applied Materials, KLA, and Lam Research, according to Nikkei. SiCarrier's main investor is Shenzhen Major Investment Group, a government-backed fund supporting other chip ventures connected to Huawei, including PengXinWei Integrated Circuit Manufacturing and SwaySure Technology. 

SiCarrier currently operates R&D centers in Shanghai, Beijing, Xi’an, Wuhan, Chengdu, Hangzhou, and overseas. Its end-to-end development chain covers materials, components, and full systems. To support rapid development, the company aggressively recruits senior engineers from top global companies like ASML and Applied Materials. 

The SiCarrier catalog presented at Semicon China includes a wide range of semiconductor manufacturing equipment, metrology tools, and inspection systems. The catalog does not include any lithography tools (possibly to keep its lithography advancements a secret), but Nikkei reports that the company already has litho tools capable of processing 300-mm wafers on 28nm process technologies and older. Even without lithography machines, the company lists dozens of tools that can perform the vast majority of steps in the front-end semiconductor production flow. The company also has metrology, inspection, and testing tools. 

On the process side, the catalog includes tools used for atomic layer deposition (ALD) for dielectrics and metal gates, chemical vapor deposition (CVD), physical vapor deposition (PVD) blanket film deposition and metal contact deposition, epitaxy, etching, and annealing. The catalog does not explicitly characterize tools and their capabilities in terms of actual fabrication processes, but it does frequently refer to ‘advanced process nodes’ as well as ‘future advanced nodes.’ 

On the metrology and inspection front, the catalog includes tools for the optical inspection of both patterned and unpatterned wafers, atomic force microscopy for morphology inspection at nanoscale resolution, and advanced measurement systems for thin film thickness, element composition, and crystallinity. 

Finally, SiCarrier also has various testing machines, including wafer electrical performance tests, known-good die tests, and functional tests. However, these tools are currently aimed mostly at power semiconductors. 

For now, it is unclear whether all of the tools that SiCarrier lists can be ordered and acquired. It is also unclear whether these machines are compatible with existing production flows that rely on machines from ASML, Applied, KLA, Lam, TEL, and others. 

However, Nikkei claims that SiCarrier has partnered closely with Huawei, which has assembled a large internal team focused on semiconductor manufacturing and equipment, and that they are working to improve process implementation and identify technical challenges across production lines. This could mean that SiCarrier and Huawei intend to build tools for a ‘proprietary’ production flow involving exclusively Chinese tools. If this is the case, it could take years before the first fab with such a flow comes online. Nonetheless, given SiCarrier’s pace so far, it could well impress the industry.

The Trump administration is looking to tighten restrictions on exports of advanced AI processors from the country as well as persuade allies in Japan and the Netherlands to make Tokyo Electron and ASML stop servicing their tools installed in China, reports Bloomberg. While the move will certainly make the lives of Chinese chipmakers harder, it will affect U.S. allies and not in a good way.

Fewer AI processors for everyone

When President Joe Biden was prepping to leave the White House in early January, his administration proposed its final set of export restrictions on advanced AI processors. Under the new guidelines, called the AI Diffusion Rule, only entities from the U.S. and 18 allies (Tier 1 countries) can obtain powerful AI processors — such as Nvidia's H100 GPUs — without limits. Other foreign entities (Tier 2 countries) will have restricted access to AI GPUs unless they secure validated end user (VEU) status. Countries under arms embargoes (Tier 3 countries), including China, Russia, and Macau, will be almost entirely prohibited from importing AI GPUs. Trump's government is reviewing this framework to streamline and reinforce its efficiency, according to the report.

Under the Biden's AI Diffusion Rule, companies from Tier 2 countries can get up to 1,700 Nvidia H100 GPUs (or equivalent) without any export license. These orders will also do not count toward the national AI processor limit of around 50,000 units. One proposed change is reducing the number of AI chips that can be exported without government approval (i.e., from 1,700 to a lower number). Some people in the government want to lower this threshold and increase oversight over AI processors exports.

The move will not be exactly welcome by the industry as tech industry leaders were pushing back against AI Diffusion Rule restrictions. Nvidia's CEO, Jensen Huang, has expressed optimism that the Trump administration would adopt a more flexible approach. Companies worry that stricter limits on chip exports could harm business interests while encouraging Chinese firms to develop domestic alternatives faster.

Another hit on Chinese semiconductor sector

Officials from the U.S. government have held meetings with representatives from Japan and the Netherlands to push for restrictions on maintenance services for semiconductor manufacturing equipment in China. The goal is to prevent companies like Tokyo Electron and ASML from servicing chipmaking tools in China, mirroring U.S. restrictions on domestic firms such as Applied Materials, KLA, and Lam Research.

Without regular maintenance, tools from ASML and Tokyo Electron can quickly become obsolete. If allies agree to U.S. demands, Chinese semiconductor production could face serious disruptions. However, ASML and TEL will also lose tens of millions of dollars that Chinese companies pay for their services.

In addition, there are discussions underway in Washington about imposing sanctions against specific Chinese semiconductor firms. One proposal targets ChangXin Memory Technologies (CXMT), a company that was considered for restrictions by the previous government, but was spared due to Japan's opposition. Trump officials are now revisiting the possibility of blocking it from acquiring American chipmaking tools completely by adding it to the U.S. Department of Commerce Bureau of Industry and Security's (BIS) Entity List.

The administration is also looking to impose tighter restrictions on Semiconductor Manufacturing International Corp. (SMIC), which makes chips for blacklisted Huawei. Biden had restricted shipments to certain SMIC facilities while allowing case-by-case reviews for others. However, this approach allows SMIC to obtain U.S. tools that could be transferred from one facility to another to support production of processors on advanced nodes.

Despite these plans, it may take several months before any new regulations take effect. Trump's administration is still in the process of staffing key federal agencies, and allies may not immediately support these initiatives. To that end, Biden's AI Diffusion Rule will come into effect on May, whereas ASML and TEL will continue to service their tools at Chinese fabs.

Several trade organizations including the Semiconductor Industry Association (SIA) and Semiconductor Equipment Materials International, have written a letter to outgoing U.S. President Joe Biden, raising concerns about new U.S. export controls, reports Reuters. The organizations, which represent chip developers, as well as producers of chipmaking tools, criticized the lack of industry consultation regarding regulations restricting the global use of American processors for AI. 

The letter comes after the Biden administration introduced a three-tier licensing system for U.S. made AI processors (such as Nvidia's H100 or B200 GPUs), requiring most countries to obtain licenses. High-bandwidth memory (HBM), essential for AI GPUs and ASICs, is also set to face stricter export restrictions, especially for sales to China. These changes could have significant impact on U.S. companies like AMD, Broadcom, Intel, Nvidia, and Micron, as well as the global semiconductor market. Nvidia has heavily condemned the decision.

The trade organizations warned that these new restrictions could harm U.S. companies and shift market share to international competitors. The groups stressed the absence of meaningful consultation and public feedback on these economically significant policies. The trade groups urged the administration to reconsider the rules, emphasizing their long-term implications. 

Sales to China represents a significant figure for AMD, Intel, and Nvidia. Under the new export rules, these companies will be unable to sell almost any of their AI processors to Tier 3 countries — such as Belarus, China, Iran, Macau, Russia, and other arms-embargoed nations — which will severely harm their sales. Yet, China already has its own AI processors, such as Huawei's Ascend 900 series that may be slower than Nvidia's H20 HGX, but could be good enough to build a high-performance cluster for AI training. Since China could potentially sell these processors to other restricted countries, this will harm Nvidia's dominance on the AI market. Also, given the restrictions, some Tier 2 countries may reinforce their efforts to produce sovereign processors for AI and HPC based on open-source technologies, such as RISC-V, which will harm dominance of all American companies, such as AMD, Intel, and Nvidia. 

Additionally, the upcoming regulations might reverse a prior interpretation that benefited American producers of wafer fabrication tools, such as Applied Materials, KLA, and Lam Research. All of these companies generated billions selling their equipment to Chinese makers of 3D NAND, DRAM, and logic. The potential reversal could significantly impact its earnings. 

Neither the trade groups nor Lam Research responded to inquiries for comment, according to Reuters.

On Tuesday, Lam Research introduced its Dextro collaborative robot (cobot), which promises to enable accurate and repeatable maintenance of fab tools.

Typical wafer fabrication facilities house hundreds of tools that require complex maintenance regularly. Accuracy in tool maintenance is essential, as the precise assembly of subsystems directly impacts yields. However, human beings are not as accurate as machines, but until recently, they used to be the only option.

Dextro is a mobile robotic unit with an arm equipped with interchangeable end-effectors for three key maintenance tasks. The cobot can install consumable components with over twice the accuracy of manual installation, ensuring proper assembly and improved etch performance at the edge of a wafer. It can also tighten high-precision vacuum-sealing bolts to exact specifications, reducing a 5% manual error rate and preventing temperature deviations that could disrupt production.

Finally, Dextro can safely remove polymer build-up from chamber walls without requiring disassembly, eliminating the need for human engineers to use heavy protective breathing gear. It should be noted that Dextro does not replace human technicians who still control the unit; rather, it enhances them.

Currently, Dextro is compatible with Lam's Flex G and H series dielectric etch tools. Plans are in place to extend its compatibility to more tools by 2025, enabling broader use across the semiconductor manufacturing industry.

Dextro is now operational in multiple advanced semiconductor fabs globally to ensure improved first-time-right (FTR) results and reduce maintenance errors. Lam's cobot's key purpose is to carry out high-precision maintenance tasks with exceptional accuracy and repeatability. Intricate maintenance activities are typically error-prone and labor-intensive when executed manually, so using cobot fabs can indeed improve yields.

In addition, by automating repetitive and complex tasks, Dextro addresses critical industry challenges, such as a shortage of skilled engineers and the increasing complexity of modern wafer fabrication equipment.

Finally, by achieving repeatable maintenance performance, Dextro can significantly reduce waste, consumables, and time lost due to production interruptions, which increases tool uptime, a crucial metric for chipmakers.

"When manufacturing equipment requires maintenance, the work must be done quickly and efficiently to avoid extended tool downtime and wasted cost," said Young Ju Kim, vice president and head of the Memory Etch Technology Team at Samsung Electronics. "Error-free maintenance by Dextro helps drive improvements in production variability and yield. This is an exciting milestone in Samsung’s journey to the autonomous fab."

U.S. lawmakers have asked leading semiconductor equipment production companies — Applied Materials, ASML KLA, LAM Research, and Tokyo Electron — for information about their sales to China, reports Reuters. The U.S. is about to impose new export regulations for high-tech devices to China, so the letter is timely.

Republican John Moolenaar and Democrat Raja Krishnamoorthi, in a press release, said they sent letters to these firms to address concerns about maintaining U.S. competitiveness while limiting China’s access to advanced technology. On the one hand, the lawmakers want to assess how much Applied Materials, ASML KLA, LAM Research, and Tokyo Electron depend on their sales to Chinese entities. On the other hand, they want to assess how significantly this might impact the competitive advantages the U.S. currently has.

The request for sales details highlights U.S. concerns about China’s growing technological and military capabilities, believed to be supported by equipment from U.S., Dutch, and Japanese firms. The current U.S. government is poised to impose additional export restrictions aimed at curbing Chinese access to critical semiconductor technology, which the U.S. government fears could enhance China's military capabilities.

The letters highlight the worry that China now purchases more semiconductor manufacturing equipment than the U.S., South Korea, and Taiwan combined. This supply could aid China’s military capacity, support Russia, and enable technological progress in areas like artificial intelligence, impacting U.S.-China strategic competition.

Moolenaar and Krishnamoorthi asked for detailed revenue information from the companies, including sales involving U.S. export licenses and transactions with entities listed on the U.S. Department of Commerce's Entity List and other restricted lists. The inquiry also covers sales involving entities connected to the Chinese government. The letters also want details on semiconductor equipment models shipped to China that are capable of advanced technology nodes (e.g., 7nm). 

Additional questions cover company operations, including the company's global manufacturing footprint, export control staffing in China, and details on any plans to offshore or expand production facilities. These questions are asked because it is legal for the aforementioned companies to sell their devices assembled in Malaysia or elsewhere to Chinese entities, thus bypassing U.S. sanctions.  

The lawmakers argue that tighter controls on exports to China are compatible with the plan to sustain the strong U.S. semiconductor equipment sector, countering claims that such measures would inevitably harm American businesses.

The U.S. government is considering more severe restrictions on China's access to advanced chip making tools, which even some US allies reportedly call 'draconian.' Key proposals include applying the Foreign Direct Product (FDP) rule, pressuring allies to limit service and repair of equipment in China, and broadening the unverified list requiring licenses for certain technologies. These measures aim to hinder advancements of China's semiconductor industry.

One key proposal is application of the FDP rule, which would allow the U.S. to exert control over foreign-produced items that contain any American technology. According to a Bloomberg report, this would particularly impact companies like Tokyo Electron and ASML, restricting their ability to provide China with advanced wafer fab equipment (WFE). This measure is seen as 'draconian' by U.S. allies, but it reflects the administration's determination to restrict China's chipmaking progress. 

Additionally, the U.S. is urging its allies, including Japan and the Netherlands, to impose stricter limits on businesses within their borders, notably restricting their capabilities to service and repair semiconductor equipment already delivered to China. Again, if enacted, this will primarily impact ASML and Tokyo Electron. This measure aims to prevent Chinese chipmakers, such as SMIC, from maintaining or upgrading their equipment using foreign assistance, thereby stalling their progress in developing more advanced nodes and producing chips on sophisticated process technologies. 

Further sanctions on specific Chinese semiconductor companies are also under consideration. These additional measures would tighten existing controls and increase the pressure on China's chipmakers. The U.S. government wants to ensure that Chinese firms have limited access to critical technology, thereby hindering their ability to advance in the semiconductor industry. 

Another strategy involves expanding the criteria for the unverified list. This list requires companies to obtain licenses for shipping certain restricted technologies. By broadening this list, the U.S. aims to signal that firms continuing to serve Chinese customers deemed security risks might face additional controls, which could prevent Chinese companies from circumventing current restrictions by relying on foreign equipment and expertise. 

The U.S. WFE industry has voiced concerns that current export restrictions unfairly harm American companies while not irrecoverably hindering Chinese progress. Yet, companies like Applied Materials, KLA, and LAM Research argue that the proposed FDPR and other measures could lead to non-cooperation from allies and incentivize global firms to exclude U.S. technology from their supply chains. The American makers of fab equipment are reportedly advocating for expanding the criteria for the so-called unverified list to prevent Chinese firms from bypassing existing controls.

But while these measures aim to hinder China's technological advancements and to some degree protect American technologies from being copied by Chinese companies, they also pose significant economic challenges and risks for U.S. and allied companies as they too can lose sales due to U.S. curbs against China.

The U.S. Commerce Department is investigating whether Ronda Korea, a South Korean company, has been selling chipmaking equipment to Chinese firms. U.S.-based Lam Research produces the equipment, which was reportedly procured by Chinese companies subject to U.S. sanctions, reports The Information. The probe somewhat mimics another DoC investigation exploring shipments of Applied Materials tools to Chinese entities via South Korea.

The U.S. DoC is specifically examining whether Ronda Korea resold components for chipmaking equipment made by Lam Research to Chinese entities. Lam Research told The Information that Ronda Korea is not an authorized supplier and is cooperating with the Commerce Department to comply with export restrictions to China. Ronda Korea has not commented on the matter, and the Commerce Department has not disclosed specific details about the investigation.

This investigation is part of a larger effort to enforce export controls and prevent sanctioned Chinese firms — particularly Huawei, Semiconductor Manufacturing International Corp., and Yangtze Memory Technologies Co. — from obtaining advanced wafer fab tools. The U.S. DoC is also looking into other South Korean companies that might supply sanctioned Chinese companies with advanced wafer fab tools. 

Due to these tighter export restrictions, Chinese chipmakers have faced increasing difficulties in obtaining necessary components and equipment. The U.S., the Netherlands, and Japan have imposed stringent controls to block China's access to logic technologies below 14nm/16nm, DRAM production nodes beyond 18nm, and 3D NAND with more than 128 active layers. Despite these efforts, South Korean companies have emerged as alternative suppliers, helping to keep Chinese fabs operational.

Unlike the U.S., Japan, and the Netherlands, South Korea has not imposed strict Chinese export rules on wafer fab tools, which made it a key player in the semiconductor supply chain to China. Ronda Korea has been expanding its operations in China, establishing three subsidiaries in 2023.

However, the U.S. has been urging South Korea to restrict these exports since March, adding pressure on South Korean authorities and companies. The outcome of this probe could influence other South Korean companies and prevent the re-export of advanced fab tools to Huawei, SMIC, YMTC, and other entities from China. However, this situation poses a risk of retaliation from China, which could impact South Korea's significant trade relations with the country.

According to the founder of one of China's leading etching equipment manufacturers, Advanced Micro-Fabrication Equipment (AMEC), the US's import restrictions will only negligibly impact his companies' capacity to operate. More specifically, Gerald Yin said that around 80% of imported (and now restricted) equipment could be replaced by domestic alternatives by the end of the year. In fact, Yin said AMEC estimates it could resume full operational capacity by the second half of 2024 - a result of China's billion-yuan drive to achieve semiconductor self-sufficiency.

AMEC expects to reach a 60% domestic dominance for the capacitively coupled plasma (CCP) etching equipment market in the next few quarters - a significant increase from its 25% overall market share as of October 2022. But the company is also eying the inductive coupled plasma (ICP) tool market - and aims to control three quarters of it almost as fast. 

While AMEC grows its share, US-based Lam Research shrinks - the same Lam Research that recently presented a possible design for 3D DRAM. It's perhaps telling that AMEC can take such a significant market share from such a company - either China's market is deceptively advanced, or Lam Research is being bled to death in the Chinese market by being restricted in what it can sell. 

How exactly AMEC is able to fill in - especially considering the purported 5-generation technological gap between US tech and Chinese tech - would also be an interesting question to ask. In fact, Lam Research served a lawsuit for IP theft against AMEC in December 2010 - one that resulted in a favorable court decision in March 2017. AMEC appealed and won the second instance trial judged in the Shanghai High Court, as announced on July 11th. And in a twist, not only has Lam Research to pay damages and legal costs to AMEC, but it was also ordered to reimburse it for misappropriating the Chinese company's trade-secrets instead. 

AMEC's market share growth is also happening in a shrinking market, however: China's domestic markets for the semiconductor equipment it manufactures shrunk 33 percent year-on-year in the first half of the year. That's higher than the global semiconductor market itself, which contracted at an average of 23%. In that market, AMEC clinched 4.7 billion yuan (approximately $645 million) in revenue. A far cry, however, from the $2.5 billion Lam Research expects to lose in all its Chinese areas of business for the duration of the export restrictions. And interestingly, Lam Research hasn't had another product-related announcement since December 2021. That's when it announced a 100th-chamber sale milestone for its Prismo UniMax system, used to mass-produce gallium nitride-based (GaN) mini-LEDs found in TVs, laptops, monitors, automotive displays, outdoor displays, and other products.

But then, vacuum can't hold out for long, and multiple players throughout all areas of the semiconductor supply chain are sprouting in Chinese soil - including chip-making manufacturers with the required tech to at least serve the domestic market. Those - and the giants like SMIC - account for the remainder portion of Lam Research's estimated losses. And with Lam Research lie all those who aren't within China's domestic market.

Of course, China has all the interest in maintaining its course. What's $5 billion here and $5 billion there? Being self-sufficient also means that the economies that used to export towards your territory are left with one less trade route. Lam Research expecting a $2.5 billion loss is but one of many such similar cases. Even Nvidia is missing out on the already incredible success of its AI accelerators. China's internal market conquest means a smaller pie for everyone else, in the end.

When you picture a 19.2 million core supercomputer, it really doesn't seem like China is being all that deterred by US sanctions. And while it may be true that China is 5 generations behind leading-edge tech (which it increasingly seems like it isn't), they are at least leading on high-quality academic research against the same country sanctioning them. And AMEC does say it fabricates tools capable of 5nm etching nodes and beyond on its homepage footer.

There's dealing with sanctions now (by creating the domestic capability and satisfying China's thirsty markets), and there's dealing with sanctions later (by researching your way towards the future). In any case, it seems China is happy (it says) with how it has been mostly hit by shrapnel instead of with an economic time-bomb. It seems the jury may still be out on that, within the broad scheme of things.

If there's one tech product where scaling doesn't work quite as well, it's DRAM. There are a number of reasons for this, the most important being the actual design of DRAM cells and how it relates to fabrication. But according to Lam Research, the end result of these scaling difficulties means that researchers in the DRAM field may be out of ways to increase DRAM's density scaling as early as five years from now.

It's in this context that Lam Research, a company specializing in semiconductor circuit design, has published a proposal for how future DRAM products may evolve. And that future may very well be 3D, so it seems that memory cubes aren't that far outside the realm of possibilities. According to the company, it'll take us around five to eight years to be able to design a manufacturable 3D DRAM device, leaving the world with a possible three-year gap between the moment 2D DRAM scaling ends and 3D DRAM scaling picks up.

Using their proprietary SEMulator3D software, Lam Research iterated on possible 3D DRAM designs. Their focus was on solving scaling and layer stacking challenges, capacitor and transistor shrinking, inter-cell connectivity, and via arrays (such as TSMC's TSV [Through Silicon Vias], which we've seen in other 3D semiconductor designs already). Finally, the company laid down the process requirements that enable fabrication of their proposed design.

Due to the way DRAM cells are designed, it won't be possible to simply lay 2D DRAM components on their side in order to then stack them on top of each other. This happens because DRAM cells have a high aspect ratio (they're taller than they are thick). Laying them on their side would need lateral etching (and filling) capabilities that are beyond our current capacity.

But when you understand the architecture itself, you can change it and adapt it while attempting to flow around design constraints. This is easier said than done, however, and there's a reason we don't already have 3D DRAM.

Current DRAM circuit designs need essentially three components: a bitline (a conductive structure that injects current); a transistor that receives the bitline's current output and serves as the gate controlling whether electrical current can flow into (and fill) the circuit; and a capacitor, where the current that flows through the bitline and transistor is ultimately stored in the form of a bit (0 or 1).

Lam Research used a few chip design "tricks" to reach a working architecture. For one, they moved the bitline over to the opposite side of the transistor; because the bitline is no longer surrounded by the capacitor, this means that more transistors can be connected to the bitline itself, improving chip density.

In order to maximize area density gains, Lam Research also applied a few state-of-the-art transistor manufacturing techniques. These include Gate-All-Around (GAA) forksheet designs, which Intel seems to be exploring for next-generation gating technologies. The redesigned DRAM architecture proposed by Lam research can then be stacked, with layers upon layers of the new DRAM cell design on top of one another in a process not unlike that of NAND.

But while NAND scaling is currently around the 232-layer mark, Lam Research estimates that the first generation of a 3D DRAM design such as its own would only leverage up to 28 stacked layers. With the architecture improvements and additional layering, Lam Research estimates that a two-node jump improvement in DRAM density can be achieved — with further improvements being possible through adding additional layers to the DRAM skyscraper. As we've seen in other fabrication technologies, the usage of a via array (the technology underpinning TSMC's TSV) is then used to interconnect individual layers.

There is however an immediate problem with the design proposed by Lam Research: There are no current manufacturing tools that can reliably fabricate the needed features. The company is quick to point out that DRAM design itself lives at the bleeding edge of today; improving and redesigning tools and processes is a common requirement. And as the company puts it, we still have time before we hit the DRAM scaling wall. Hopefully the required tools and expertise will arrive within that time-frame.

A day after Japan's new rules regarding exports of select wafer fab tools to China went into effect, the People's Republic issued a statement how frustrated it was with the move. A representative from the Chinese Foreign Ministry declared that this move appeared to be directly targeting China, and highlighted potential negative effects, including harm to businesses and disruption to the worldwide supply chain.

"China deeply regrets and is dissatisfied with the move, and it has made solemn representations to Japan at different levels," said Mao Ning, a spokesperson for the Chinese Foreign Ministry, according to a report by Nikkei. "We will closely monitor the impact of the regulatory policy and resolutely safeguard our own interests."

China urged Japan to focus on shared interests between the two nations rather than trying to restrict development of their semiconductor industry.

The statements made by the Foreign Ministry were more diplomatic than the somewhat aggressive language used by China's top envoy in the U.S. last week. The latter promised that Beijing would not hesitate to respond to further sanctions and export controls imposed by the U.S. 

"We will not provoke, but we will not back down from provocations," Ambassador Xie Feng said during a forum, adding that China would definitely react.

Japan's new export rules require manufacturers of wafer fab equipment to obtain an export license from the government before shipping any of 23 fab tools to a Chinese entity. 

The list includes all immersion lithography scanners, etching equipment, tools for chemical wafer polishing, and extreme ultraviolet (EUV) mask-testers. Manufactured by ten companies such as Lasertec, Nikon, Screen Holdings, and Tokyo Electron, these additions to the export control list align with similar restrictions enforced against China by the U.S. and the Netherlands in recent quarters. 

In particular, export rules require companies like ASML, Applied Materials, and Lam Research to obtain export licenses from their respective governments before shipping Chinese companies tools that enable them to make logic chips with non-planar transistors on nodes measuring 14nm/16nm or smaller, 3D NAND chips featuring 128 or more layers, and DRAM ICs with a half-pitch of 18nm or less.

Chen Nanxiang, the head of Chinese 3D NAND champion Yangtze Memory Technologies (YMTC) that got into the U.S. trade blacklist late last year, asked producers of wafer fab equipment to buy back tools the company cannot use. In his keynote speech at Semicon China conference he also warned that the global semiconductor industry is entering an era of turmoil and disarray due to increasing geopolitical tensions.  

Buy It Back

According to Bloomberg, Chen Nanxiang, chairman and CEO of YMTC, gave a speech in Shanghai, China, that directly addressed machine suppliers, and how they should buy back the legally purchased equipment and components if they cannot be used.

While many companies are slowing down spending on wafer fab equipment these days, makers of chip production equipment have huge backlogs, so selling off fab tools may not be a problem for YMTC, if it really wants to get rid of them.

YMTC got hit by the U.S. government twice last year. In October, YMTC was blocked from acquiring wafer fab equipment (WFE) with American technology necessary for producing 3D NAND with 128 or more layers as part of the broad sanctions imposed by the U.S. government on the Chinese semiconductor industry. The restrictions also oblige U.S. citizens to obtain a license from the U.S. Department of Commerce to support development or production of said memory devices in China. As a result, four prominent chipmaking tool companies — ASML, Applied Materials, KLA, and Lam Research — ceased their work with YMTC due to the requirement of obtaining relevant export licenses from the DoC.

In December, YMTC got into the U.S. DoC Entity List and can no longer procure equipment, software, and other technologies from U.S.-based companies (or other companies selling technologies developed in America) — unless the latter secure a special export license from the DoC. Such export licenses are reviewed with a presumption of denial.

As a result of the two hits, YMTC cannot obtain, install, and use the latest tools it acquired from WFE producers that it needed to make 232-layer 3D NAND, a type of memory that could power some of the best SSDs with a PCIe 5.0 interface. Furthermore, the company has troubles servicing its existing tools. Some analysts believe that Yangtze Memory might have to abandon production of 3D NAND and turn itself into maker of specialty 2D NAND or even a contract chipmaker.

Turmoil and Disorder

Chen stated that globalization is effectively dead, and the previously established rules, balance, and harmony have been disrupted. This shift is predicted to greatly impact the supply chain, industry practices, and business models. The head of YTMC believes that key aspects of globalization such as competition, innovation, and the free movement of talent and resources have been affected. 

According to reports via Nikkei, Chen believes that globalization is dead and that government interventions and that existing rules and past balances are now broken. Chen continues, stating that the semiconductor industry could see a period of turmoil. A period which could see a tremendous and profound impact on the supply chain and industry practices.

The chief executive and chairman of the troubled 3D NAND maker highlighted the importance of global cooperation in the semiconductor industry. He emphasized that the complex chip supply chain involves 25 countries and has indirect ties with another 23. 

Chen also indicated that semiconductor markets in China and the U.S. — which benefited from contributions from foreign investors and inventors — do not solely belong to their respective countries, but are global assets. Similarly, he brought example of NAND flash memory, which was invented by Toshiba in Japan back in the 1980s, and which is perfected by South Korea-based Samsung and SK Hynix.

Semiconductor Manufacturing International Corp., China's largest contract maker of chips, has quietly removed 14nm fabrication technology from the list of its services on its website. The company also did not talk about advanced FinFET-based technologies at its earnings call last week, reports DigiTimes.

The U.S. government's latest export control rules prohibit Chinese semiconductor manufacturers from acquiring instruments and technologies required to produce non-planar transistor logic chips with dimensions of 14nm/16nm or less, 3D NAND chips with 128 or more active layers, and DRAM ICs with a half-pitch of 18nm or below. With similar restrictions from the Netherlands, Japan, and Taiwan set to come into effect in mid-2023, Chinese companies like SMIC and YMTC will be cut off from obtaining the equipment needed for fabricating chips on their latest production nodes, including 14nm/12nm and N+1 for SMIC, as well as 128-layer and 232-layer 3D NAND for YMTC.

Without access to advanced equipment and spare parts from suppliers like ASML, Applied Materials, KLA, and Lam Research, SMIC may be unable to build chips for its customers using its latest fabrication technologies, so it is reasonable to remove its 14nm platform from the list of its technologies.

Meanwhile, the company's shuttle services page still mentions 14nm and even states that the company regularly produces shuttle wafers using this node.

"Currently, we provide shuttle services for processes from 0.18μm to 14nm on a regular basis," a statement by SMIC reads 

Furthermore, another page at SMIC's website also mentions its 14nm capability.

"SMIC is a pure-play semiconductor foundry that provides wafer fabrication of 200mm and 300mm wafers at 0.35-micron (μm) to 14-nanometer (nm)," the description of the company's foundry solutions reads. 

SMIC has been using 14nm-class production techology since the end of 2019 at its SN1 facility. One of the 14nm SoCs the company produced is Huawei's HiSilicon Kirin 710A. However, despite technically being in mass production, it looks like 14nm volumes were so limited that the company stopped disclosing the revenue attributed to this node. Instead, it combined it with the earnings from the 28nm node, which has not been a significant revenue contributor either.

Last year, Chinese state media reported that SMIC had initiated high-volume manufacturing on its 14nm-class fabrication method at its Fab SN1 fab near Shanghai, China. That report also suggested that the company is advancing with its 7nm and 5nm-class nodes, even though it is unable to acquire cutting-edge wafer fab equipment.

Update 4/26/2023: SK Hynix has contacted us to say that the company had no plans to sell off the fab shell it is building at its Dalian site in China.

“It is not true that we are seeking to sell the fab we are building in Dalian,” a spokesperson for SK Hynix said.

Original Article:

SK Hynix is reportedly delaying the completion of its second 3D NAND facility in Dalian, China. This decision comes in response to shrinking memory market demand and U.S. restrictions on exports of advanced fab tools to China, reports DigiTimes, citing South Korean media. Furthermore, due to troubles with importing wafer fab equipment to China, SK Hynix may even sell the fab shell upon completion before moving in the wafer fab tools.

SK Hynix got its Dalian site with a memory fab by taking over Intel's 3D NAND production and SSD business in 2021. In May, 2022, the company started to construct an additional fab at the site, after Intel did all the heavy lifting with infrastructure, planning, and permissions from local authorities. Typically, it takes about a year to build a fab shell. However, construction has not approached the finishing stage, and discussions regarding delivery and installation with wafer fab equipment suppliers have yet to occur, according to sources with knowledge of the matter cited by the media outlet. In the worst case scenario, SK Hynix might decide to sell off the building instead of installing expensive tools.

There are several factors that affect SK Hynix's decisions about equipping the fab. 

First, wafer fab equipment (WFE) manufacturers from the U.S. have to obtain a special export license from the U.S. Department of Commerce to export tools that can be used to make 3D NAND with 128 or more layers to China. To make the fab competitive in the long term, SK Hynix must target 3D NAND production nodes with 200 or even 300 layers.

Formally, both Samsung and SK Hynix have obtained a waiver from the U.S. government to export the production equipment they need to China from October, 2022 to October, 2023. However, it's uncertain whether this period will be extended for another year or not.

Getting all the tools into China before October 2023 is impossible due to long lead times, and it is unlikely that it will be possible to get the necessary WFE before October 2024 too, the media report asserts. Furthermore, American engineers from companies like Applied Materials, KLA, and Lam Research are now barred from providing services to semiconductor facilities in China without an export license from the government, so even installing procured tools might be a problem.

Second, even if SK Hynix manages to bring in all the tools it needs to China in time and install it, it will have to run the fab, which means exporting additional components from the U.S., Europe, and Japan, and potentially hiring U.S. engineers to maintain the WFE.

Finally, due to the soft demand for 3D NAND and DRAM, SK Hynix reduced its 2023 capital expenditure budget by approximately 50% compared to 2022, necessitating a flexible adjustment to the Dalian plant's construction timeline. As a consequence, the company may simply not have enough money to invest in the Chinese fab as it is building up another massive fab in South Korea.

Consequently, some industry insiders speculate that SK Hynix may sell the new Dalian fab directly to a Chinese company without installing equipment after construction is completed.

After the U.S. government imposed sweeping sanctions against the Chinese chip sector that blocked access of the country's semiconductor champion SMIC to wafer fab equipment that could be used to make chips using 14nm nodes and below, it started to work on even stricter limitations. By now, the U.S. government is ready to expand its sanctions and this time it will make sure they are supported by Japan and the Netherlands. Once the new sanctions are imposed, the Chinese semiconductor sector will be set back by at least 10 years.

The U.S. is looking to limit access of Chinese chipmakers to wafer fab equipment that can be used to make chips on 40nm-class process technologies and below, reports DigiTimes, citing industry sources. If all the restrictions are imposed and no export licenses to sell advanced chipmaking tools to SMIC and other Chinese chipmakers are granted, this will set back the People's Republic's semiconductor industry by at least a decade. Yet, it will also hurt the wafer fab equipment (WFE) manufacturers, which could have an impact on the whole industry. 

Speaking of hurting WFE manufacturers, it looks like ASML, the world's leading maker of lithography equipment, will be hurt less than its American and Japanese counterparts. Export restrictions announced by the Dutch government last week will bar shipments of ASML's Twinscan NXT:2000i, NXT:2050i and NXT:2100i scanners, the company's most sophisticated deep ultraviolet (DUV) lithography tools, Bloomberg reports. By contrast, about 17 chipmaking tools produced by U.S.-based manufacturers require an export license from the U.S. Department of Commerce, according to Bloomberg. With new restrictions, that number will double, the report claims, which will naturally hurt businesses like Applied Materials, KLA, and Lam Research.

After the Trump administration restricted SMIC's access to fab tools that can produce chips on 10nm-class nodes and below, the company announced several new fabs that will focus on 28nm fabrication processes. SMIC recently said that because it could not obtain the necessary tools on time, one of its upcoming 300mm fabs would start high volume production one or two quarters later than expected. But if the U.S. manages to bar sales of 28nm-capable tools to SMIC, then the foundry will have to reconsider its plans for new production facilities.

Meanwhile, if China wants to make its semiconductor industry self-sufficient and adopt advanced production nodes, it will have to ensure that its fab tools producers — such as AMEC (lithography), Kingsemi (etching, deposition), and Naura (etching) — are on par with their American and European rivals. This is something that will take years, as the most advanced scanners that AMEC has can only produce ICs on a 90nm-class node, a technology used to make CPUs in the early 2000s. 

If SMIC loses its ability to produce chips on 28nm, 14nm/12nm, and more advanced fabrication processes, hundreds of Chinese chip designers will have to outsource production to companies like TSMC, UMC, GlobalFoundries, and Vanguard. This will certainly be good for these contract chip manufacturers, but it will be disastrous for SMIC in particular and for the Chinese semiconductor industry in general. And that appears to be the intent of the sanctions.

When the U.S. government imposed sweeping sanctions against Chinese semiconductor and supercomputer sectors in October, the global semiconductor industry immediately lost some $240 billion in stock valuation. As the new quarterly reports cycle kicks in, we're learning how much revenue American companies will lose because of the new rules. The numbers are staggering, but they will not kill these firms. Furthermore, according to Applied Materials, a major maker of fab tools, Chinese companies can tune their process technologies to circumvent the new rules slyly. 

"We expect some customers may decide to change their plan or change their technology, so it does not go above the threshold that is affected by the rules at this point," said Brice Hill, the chief financial officer of Applied (via SeekingAlpha).

A Way Out for Chinese Semiconductor Sector?

The latest U.S. export regulations restrict the import of American tools and technologies that can produce logic chips with non-planar transistors on 14nm/16nm nodes and below, 3D NAND with 128 or more layers and DRAM memory chips of 18nm half-pitch or less. These are all fairly advanced process technologies widely used today and require tools from U.S. companies such as Applied Materials, KLA and Lam Research.  

To ship wafer fab equipment (WFE) that falls under the new rules, U.S. fab tools producers, as well as companies that produce equipment containing American technology, must obtain an export license from the U.S. DoC. License applications are set to be reviewed with a presumption of denial, so when companies like Applied reveal the 'impact numbers,' they presume that the DoC will not approve any shipments to Chinese companies like SMIC and YMTC. 

Applied Materials stresses that some of its customers might adjust their process technologies to avoid the new regulations. For example, while Applied does not explicitly say it, we could speculate that SMIC could possibly come up with a 17nm fabrication process, whereas YMTC could reduce the number of active 3D NAND layers in its chips.  

"There are some customers that we are trying to clarify that we can apply for licenses for or we can get authorizations for once they establish that their technology is within the guidelines," said the CFO of Applied during the company's recent conference call. "On the other side, we expect some customers may decide to change their plan or change their technology, so it does not go above the threshold that is affected by the rules at this point." 

However, the development of such nodes and validation/qualification by customers will take some time, so do not expect this avenue to work in the short term future. 

For example, going from 14nm to 17nm will require SMIC's customers to change their existing designs significantly to hit specific performance and power targets on a thicker node. Furthermore, lower transistor density will mean bigger die sizes, which affects costs, yields and even packaging dimensions. Therefore, we expect SMIC's current clients with 14nm-class designs to continue using the node and the company's services while the foundry can provide them. Meanwhile, a hypothetical 17nm node (assuming it makes financial sense) might be used for entirely different designs. Of course, all the assumptions about SMIC's hypothetical 17nm node are merely speculative. 

For 3D NAND maker YMTC, things are also extremely complicated. The company's 128-layer 3D NAND devices correspond to a very specific 3D TLC or 3D QLC capacity, So just switching some layers off will affect the economic feasibility of these devices. While 3D NAND makers have some freedom with the number of active layers and capacity, their devices are qualified 'as is' by developers of SSD controllers and actual drives. Adoption of devices configured differently is a lengthy process, so, again, YMTC will keep supplying components that it can produce while it can. 

All in all, while many things are theoretically possible (as at the end of the day, neither SMIC nor YMTC wants to write off billions of dollars worth of equipment), they are costly, and they cannot be implemented overnight.

10% of Revenue

Applied Materials, a major producer of wafer fab equipment, this week said that the U.S. sanctions against the Chinese semiconductor industry that prohibit it from supplying its advanced tools to its clients in China would cost it $2.5 billion of revenue in fiscal 2023, or 10% of the company's revenue of $25.79 billion in FY2022. The company will keep trying to get appropriate export licenses from the U.S. Department of Commerce. 

"We currently expect that the unmitigated revenue impact of the new rules could be up to $2.5 billion in fiscal 2023," said Brice Hill, the chief financial officer of Applied. "We continue to work through the regulatory requirements, including seeking licenses and approvals where appropriate. We hope to reduce the revenue impact by between $500 million and $1 billion to a net impact of $1.5 to $2 billion."

Impact Already Hits

Applied's results for the fourth quarter of fiscal 2022, which ended on October 31, have already been impacted by the new regulations. 

"In Q4, the new rules reduced our Semi Systems and AGS revenue by approximately $280 million, which was in the range of our expectation on October 12th," said Hill. "In Q1, we expect the new rules to reduce Semi Systems and AGS revenue by approximately $490 million combined and reduce our gross margin by around one percentage point – both on an unmitigated basis."

KLA Assesses the Impact

KLA, another major WFE producer from the U.S., said in late October that its earnings would be impacted by the new U.S. export rules. 

"Specific to KLA, while a meaningful amount of our business in China is focused on legacy node investment, which is not the focus of the recent export restrictions, our systems and service revenue will be adversely impacted going forward as we are unable to provide systems and support to certain customers for certain end uses," a statement by KLA reads. "We are assessing the broader implications and engaging collaboratively with the U.S. government to provide the necessary information about our products and services to fully determine the impact on our business operations moving forward."

Four leading makers of chip production equipment have ceased sales of new tools and provide support services of installed tools to China-based Yangtze Memory Technologies Co. (YMTC) due to new export rules that came into effect on Wednesday. To sell new equipment to YMTC and support existing machinery, the toolmakers must get a technology export license from the Department of Commerce’s Bureau of Industry and Security (BIS). 

U.S.-based Applied Materials, KLA, and Lam Research have ceased supplying equipment to produce 3D NAND memory with 128-layers or more to YMTC under the latest export rules that impose new license requirements for semiconductor production equipment destined for China starting October 12. However, they will continue to supply new equipment and tools to multinational corporations that produce chips in China — Samsung, SK Hynix, and TSMC — for a year without a license. Yet, all export license applications to supply tools to Tsinghua Unigroup-controlled YMTC require review with a presumption of denial. Tsinghua Unigroup is a government-controlled organization.

For the same reason, ASML, which is in the Netherlands, told its U.S. employees to stop ‘servicing, shipping or providing support to any customers in China until further notice,’ according to a Bloomberg report. 

While Applied, KLA, and Lam Research ship metrology, etching, deposition, inspection, and die sorting tools to Yangtze Memory, ASML sells the Chinese 3D NAND maker crucially important lithographic scanners. While formally, lithography tools used by YMTC are not as advanced as tools used by logic or dynamic random access memory (DRAM) producers and theoretically should not fall under the new licensing requirements, ASML prefers to assess the new export rules and ensure that it complies with the new regulations. 

YMTC attempted to procure all equipment and spare parts it could from its American partners in China in the recent weeks and days to keep producing 3D NAND without disruptions to meet the demands of its clients, which reportedly include Apple. While it probably acquired all manufacturing equipment and spare parts it could (although nobody has confirmed or denied this), its main challenge now is to install and deploy new tools and parts. The new export restrictions imposed by the U.S. government also include services. As a result, ASML, Applied Materials, KLA, and Lam Research employees cannot assist YMTC, as well as other Chinese chipmakers, which means that they cannot install new tools or replace faulty components. 

Whether YMTC’s engineers at its fab are qualified to service equipment produced by companies from the U.S. and the Netherlands is unknown. However, for now, the 3D NAND bit supply from YMTC is secure, according to DigiTimes. 

Meanwhile, if YMTC’s employees cannot deploy new tools and fix production tools, sooner or later, YMTC will have to scale down or even cease production of 3D NAND memory. The latter is unlikely to happen as the company will struggle to survive. Still, without support from toolmakers, it will get much harder to maintain YMTC’s production facilities. 

It is noteworthy that YMTC was getting ready to ramp up its next-generation family of six-plane 3D NAND chips featuring the company’s Xtacking 3.0 architecture with ~200 layers and a 2400 MT/s interface speed. These chips could eventually enable some of the best SSDs, but we are not sure whether YMTC will be able to get the right tools to produce such memory devices.

The U.S. administration is trying to restrict China's military potential by denying access to government-controlled entities leading processor designs, chip development, and production capabilities, according to Bloomberg. As a result, it wipes billions of dollars from the semiconductor industry's global market value. Some U.S. companies are already restricting access to certain China-based companies to their products and services, whereas others are waiting before the U.S. government makes its restrictions official.

Being the world's second-largest economy and the global factory, China unsurprisingly consumes loads of semiconductors and produces loads of chips in the country. China must adopt the latest technologies designed in the country and elsewhere to support its economic and humanitarian development. Still, those technologies could also help advance Chinese military potential, something that nobody in the region and outside of it likes. Advanced weapons will boost China's influence on the economy and geopolitics, which poses risks not only to U.S. allies like Japan, South Korea, and Taiwan but also to the U.S.

To crack down on advancements in China's military development or at least slow it down tangibly, the U.S. has been gradually imposing restrictions on the Chinese chip industry for several years. Still, the Biden administration is ready to impose even more severe sanctions against China's chip sector in the coming weeks or months. In particular, it looks like the current government wants Chinese contract chipmaker Semiconductor Manufacturing International Co. (SMIC) to stop making chips using its 14nm-class fabrication technology (and thinner) nodes as well as Yangtze Memory Technologies Co. (YMTC) to cease advancing its 3D NAND memory.

The U.S. authorities plan to impose stricter rules on exports of advanced U.S.-originated semiconductor technologies to China. But because the chip industry is global, decisions of the U.S. administration will impact the whole semiconductor supply chain. Capitalizations of large chip companies have been decreasing for a while now as investors have been expecting slowing demand for chips (and it is here). With more restrictions from the U.S., more semiconductor companies will suffer. As a result, the Philadelphia Stock Exchange Semiconductor Index — a modified market capitalization-weighted index composed of semiconductor companies — hit its low this week.

Semiconductor Companies Set to Suffer

Several types of semiconductor industry companies will suffer from the U.S. attempting to crack down Chinese high-tech industry to prevent the development of the country's military potential.

Chip development begins with intellectual property and electronic design automation (EDA) tools. Companies like Ansys, Cadence, Keysight, and Synopsys sell plenty of software and IP blocks to Chinese chip designers. Approximately 13% of Cadence's and Synopsys' 2021 revenue came from China, and that does not count the various chip designs developed elsewhere with China in mind. There are other providers of EDA and similar tools from other countries, and while Cadency and Synopsys are market leaders, usage of software from Siemens EDA (Germany), Zuken (Japan), or Primarius Technologies (China) for chip designs is possible.

We are not sure whether the American government has the power to restrict licensing of Arm chip designs to customers in China. Still, potentially it could confine licensing of certain portions of designs developed in the U.S. Also, the U.S. administration can restrict the usage of American chip development tools to create chips for certain Chinese entities by contract chip designers like Alchip.

Foundries. Hundreds of chip designers in China develop chips requiring sub-14nm/16nm process technologies. At least a dozen companies could use leading-edge production nodes like TSMC's N4/N5 or Samsung's 3GAE/5LPP. If they are prohibited from using advanced manufacturing processes (including relatively mainstream 14nm/16nm-class nodes), contract makers of chips will lose revenue and profits.

Makers of semiconductor production equipment. China is not exactly a leading nation in chip production. Still, with thousands of chip developers in the country (most working on ICs for emerging applications like Internet-of-Things, smart homes, smart cities, etc.), it needs loads of semiconductor production capacity in the country. As a result, China is one of the largest markets for companies like ASML, Applied Materials, KLA, and Lam Research.

Even without the U.S. administration announcing stricter restraints against China's memory and logic production companies, KLA on Tuesday stopped sales of specific tools to Chinese companies that can produce 3D NAND with 128 layers or more, DRAM chips at an 18nm node or thinner, and advanced logic chips, according to Reuters. Despite expectations, KLA stopped shipments to companies like SMIC and YMTC and companies like SK Hynix that produce memory in China.

Chip designers like AMD, Nvidia, and Intel also sell boatloads of advanced chips to various Chinese companies. However, recently the U.S. government barred sales of AMD's, and Nvidia's high-performance compute GPUs to any customers in China, including cloud companies like Alibaba and Baidu, which could have lowered Nvidia's quarterly revenue by up to $400 million if the government did not allow the company to fulfill existing orders and continue to work with Chinese manufacturing partners for a while.

In particular, the U.S. government does not want American companies to sell Chinese entities supercomputing-grade hardware that could allow building machines with the performance of over 100 FP64 PetaFLOPS or over 200 FP32 PetaFLOPS within 41,600 cubic feet (1178 cubic meters), according to China Renaissance.

Some say that the decision by the U.S. administration will speed up the development of high-end compute GPUs by Chinese companies like Biren Technologies; others note that Nvidia is years ahead of any China-based firm regarding software stack for artificial intelligence and high-performance computing. But in any case, China is a large market for high-performance CPUs and GPUs, so the crackdown will inevitably hurt companies like AMD, Nvidia, and Intel.

Will it send Chinese cloud giants back or contain the development of new military capabilities is up for debate. On the one hand, it will hurt companies like Alibaba, Baidu, and Tencent. But on the other hand, they will still be able to buy less capable hardware from AMD and Nvidia, so they will not lose access to American technologies overnight. Still, they will have to spend more on electricity, data center space, and maintenance.

Will It Work?

The U.S. sanctions against China's high-tech sector aim to control what the country gets and restrict some of the technologies to the People's Republic, not wholly destroying its high-technology and economic potential. Therefore, the appropriate U.S. organizations approved 88% of tech exports to China in 2021.

But if the percentage of approvals gets dramatically lower, Chinese semiconductor companies will suffer (and the whole industry with it). China will take years and hundreds of billions of dollars to replace all technologies with U.S. origins.

On the chip production side of matters, the good news for China is that Japan-based chip tools companies like Nikon, Canon, Tokyo Electron, and several others will suffer from the U.S. crackdown and will likely attempt to develop equipment that does not use technology designed in the USA. However, assuming that they succeed and China-based makers will make progress in tools, Chinese SMIC and YMTC will be able to continue advancing their chip technologies (assuming that the U.S. government does not try to curb the production of chips using trailing nodes).

On the chip design side of matters, things are considerably more complex. Local chip developers barely have experience with the design of ultra-large supercomputer-grade chips. While some items may be mitigated by exploiting a modern chiplet-based design approach, there are not enough engineers or senior managers in China to address all large-scale semiconductor projects that the country might need to replace things like Nvidia's A100/H100 compute GPUs, according to China Renaissance. Meanwhile, Taiwan and the U.S. now restrict the hiring of chip specialists by Chinese companies, so getting the right talent will be harder for Chinese companies.

While severe restrictions for the Chinese semiconductor industry might have a drastic effect on local chipmakers, the U.S. government has not entirely restricted access of Chinese companies to American technologies, which has enabled companies like Biren to develop their world-class chips. However, if this happens, the effect will be far-reaching. It will take years for China to replace technologies that originated in the U.S., which will dramatically affect the country's economic development.

But so far, investors' worries about a significant chip demand slump and fears about the future of the global semiconductor industry if the U.S. decides to impose stricter sanctions against the Chinese chip sector have erased more capitalization than any concrete actions by the U.S. administration.

In recent years the U.S. government has taken steps to crackdown on Chinese production of logic chips using advanced fabrication processes. In a bid to prevent the country from advancing its military capabilities. In addition to logic chips, U.S. officials are now mulling a crackdown on China's 3D NAND production industry. The biggest issue is that in addition to domestic makers, such restrictions will affect Samsung and SK Hynix. 

The U.S. government is considering banning shipments of American 3D NAND production equipment to manufacturers of flash memory with more than 128 layers in China, which will affect Yangtze Memory Technologies Co. (YMTC), China's only domestic 3D NAND maker, reports Reuters citing sources familiar with the matter. But in addition, such a move will also hurt Samsung and SK Hynix, which produce 3D NAND memory in China too. 

At present China's YMTC commands about 5% of global 3D NAND production, whereas Samsung, SK Hynix, and YMTC produce about 23% of the global 3D NAND output in China, according to Yole Intelligence cited by Reuters. 

Previously the U.S. government restricted shipments of advanced chip production tools to China citing national security concerns. By contrast, 3D NAND hardly poses any threat to national security. Meanwhile, 3D NAND made in China competes against 3D NAND produced by American companies — Micron Technology and Western Digital. Protecting them from cheap flash memory produced in China will improve their market positions, but will naturally upset South Korea-based Samsung and SK Hynix. 

If the action is approved, this will not only disrupt production of 3D NAND in China and leave the market without crucially important commodity memory, but will also hurt U.S.-based companies like Applied Materials, KLA, and Lam Research, which sell large amounts of equipment to China.  

While American companies produce crucially important fab tools, there are companies from Japan, South Korea, and even Taiwan that may substitute some of the equipment made in the U.S. As a result, it is unclear whether the U.S. ban will have a desired effect on Chinese 3D NAND production industry in the long term. 

Earlier this week the U.S. government imposed new export rules under which American companies will have to apply for an export license if they sell semiconductor production tools capable of producing chips using 14nm-class and thinner nodes.

The U.S. government is ready to turn the screws on China when it comes to its aspirations in the chipmaking industry. According to comments made by Tim Archer, CEO of Lam Research Corp, the U.S. is extending its ban on chipmaking equipment produced by domestic firms that are sold to Chinese companies. 

If you recall, the U.S. government already banned the sale of tools that produce chips at 10nm or smaller. However, that ban has extended to tools necessary for manufacturing chips smaller than 14nm. This latest restriction could further erode China’s efforts to become a chipmaking powerhouse to rival competition from TSMC and Samsung, and to a lesser extent, Intel. 

“That’s the change, I think, people have been thinking might be coming and we’re prepared to fully comply,” Archer explained in comments to Bloomberg. “We’re working with the U.S. government.” Archer added that the new export licensing requirements appear to only apply to logic chips and have no bearing on memory chips.

The bulk of new processors manufactured now from the likes of Intel, AMD, Nvidia, and others use 10nm or lower nodes, leaving China generations behind the best from the United States. But why does the U.S. need to handicap China further with mature nodes smaller than 14nm?

“The Biden Administration is focused on impairing PRC efforts to manufacture advanced semiconductors to address significant national security risks to the United States,” said an official representing the U.S. Commerce Department. 

These new restrictions could significantly affect companies with a chip manufacturing presence in China, including TSMC and SMIC. U.S. companies that provide chipmaking equipment to China that are potentially affected include KLA Corporation and the aforementioned Lam Research. However, KLA CEO Rick Wallace said his company doesn’t expect any significant impact from the new guidance.

Interestingly, the U.S. government’s increased limitations on China come at a time when the U.S. Senate and House passed the CHIPS Act with $52 billion earmarked for bolstering domestic chip companies. The CHIPS Act is designed “to strengthen semiconductor advanced test, assembly, and packaging capability in the domestic ecosystem.” 

Intel CEO Pat Gelsinger, unsurprisingly, has been a huge proponent of the bill, going so far as to say that his company would pull out of its planned Ohio “mega fab” in favor of Europe if the CHIPS Act did not pass.

When the U.S. Department of Commerce (DOC) restricted access of China's largest contract chipmaker Semiconductor Manufacturing International Corp. (SMIC) to fab equipment used to make10nm-class chips, it was considered a tough but not too severe move. Now the U.S. government is mulling restricting China from producing logic chips using a 14nm-class fabrication process. 

The DOC is examining the possibility of prohibiting the exportation of chipmaking tools to companies in China that can make logic chips using 14nm-class manufacturing nodes and thinner, according to a Reuters report that cites five people familiar with the matter. The only company in China currently producing chips using its 14nm fabrication process is SMIC, which has been doing so since late 2019. 

What is not completely clear from the report is whether the DOC wants to ban SMIC from getting tools used to make semiconductors on its 14nm node and thinner, or if it wants to ban SMIC from getting any tools at all because it is capable of making chips using its 14nm technology. 

Currently, American companies can sell equipment good enough to build 14nm chips to SMIC without any export licenses from the DOC and other agencies. If the U.S. government decides to restrict SMIC's access to advanced chipmaking tools, companies like Applied Materials and Lam Research will have to apply for an export license every time they deal with SMIC. The application will be reviewed with a presumption of denial.

An official for the U.S. DOC did not confirm that the department was discussing 14nm-related export restrictions for SMIC but confirmed that it was continuously reviewing the ongoing situation. 

"With respect to semiconductor-related export license applications in particular, (Commerce) and the other reviewing agencies ... consider a variety of factors in making licensing decisions, including the technology node for the proposed export," the spokesperson for the Department of Commerce is reported to have said. 

Because SMIC could not access extreme ultraviolet (EUV) lithography tools due to the Wassenaar Arrangement, the firm began the development of its 12nm, N+1, and N+2 process technologies that relied purely on deep ultraviolet (DUV) lithography and were aimed primarily at inexpensive chips that did not require a high transistor density. Now, both N+1 and N+2 nodes are considered sub-10nm fabrication processes, so SMIC had to cancel their development. 

When SMIC was barred from manufacturing tools advanced enough to make chips using its 10nm-class (and sub-10nm-class) nodes in late 2020, the company said it would focus on developing advanced packaging technologies to make sophisticated multi-chiplet designs out of tiles produced on 14nm and thicker nodes. That would enable Chinese chip designers to build sophisticated and capable processors with tens of billions of transistors even without using an advanced process technology. In addition, the company announced multi-billion dollar expansion plans that would triple the output of chips made on advanced nodes.

To a large degree, advanced packaging technologies could be SMIC's way to work around the U.S. export restrictions. As a result, China would gain access to advanced computing capabilities that could be used for military purposes.

The U.S. administration certainly understands SMIC's options and risks that it brings to America and its allies, so it wants to further crackdown China's access to sophisticated chipmaking tools.

The U.S. government officials are working with their counterparts from the Netherlands to ban sales of virtually all lithography tools produced in the country to companies in China. If the American politicians succeed, this will significantly blow Chinese efforts to become a world-class semiconductor producer and will thwart the country's Made in China 2025 plan. 

ASML is the world's largest maker of lithography tools used to make all kinds of chips. However, the company cannot sell its extreme ultraviolet (EUV) lithography equipment to its Chinese clients. Still, U.S. politicians propose restrictions under which ASML will not be able to sell its mainstream deep ultraviolet (DUV) lithography tools to Chinese customers as well, reports Bloomberg. DUV is used to make the vast majority of widely used chips that power client PCs, servers, mobile electronics, autonomous vehicles, and robots.  

Persuading the Dutch government to ban sales of virtually all lithography scanners to Chinese customers will not be easy. Chinese fabs run by local companies like Hua Hong,  Semiconductor Manufacturing International Co. (SMIC), and YMTC, or global players like TSMC, Samsung, and SK Hynix accounted for about 16% of ASML's revenue in 2021 (which reached $18.6 billion), and that is a lot of money. 

ASML argues that it is not the world's only maker of DUV scanners (albeit the largest one), and similar machinery is available from Canon and Nikon. Yet, if the U.S. manages to leave China without ASML's tools, other companies will not be able to replace them soon. Furthermore, American politicians argue that advancements in modern chip packaging technologies allow Chinese companies to design and produce pretty sophisticated chips that can advance Chinese supercomputing and, ultimately, military technologies. 

The U.S. has banned several Chinese companies from accessing technologies developed by USA-based companies, nearly driving Huawei's chip arm HiSilicon out of business. In addition, prohibiting sales of ASML's lithography tools to China will devastate the local semiconductor industry.  

Meanwhile, banning ASML's scanners to Chinese companies is not the only way the U.S. can thwart the local chip industry. Semiconductor fabs use hundreds of tools produced by numerous American companies, such as Applied Materials, KLA, and Lam Research. Forbidding them to work with China will have a devastating effect on Tianxia's semiconductor efforts. Moreover, some of their tools cannot be sold to China due to national security concerns. 

But leaving companies from China without semiconductor fabrication tools will impact the rest of the world. For example, a substantial part of DRAM and 3D NAND memory production is in China. Leaving companies like Samsung, SK Hynix, and YMTC without their Chinese fabs will affect the global chip and electronics supply chain. Furthermore, TSMC, SMIC, and Hua Hong produce loads of chips for their international clients; if they wind down production, this will also affect American chip designers.

Samsung on Friday demonstrated the industry's first chip made using its 3 nm-class process technology featuring gate-all-around type transistors to Joe Biden and Yoon Suk-yeol, presidents of the U.S. and South Korea. The company is on track to start high-volume manufacturing of chips using its 3GAE technology in Q2 2022. 

On Friday, Joe Biden arrived at the U.S. Osan Air Base in South Korea and immediately headed to Samsung's flagship semiconductor manufacturing facility near Pyeongtaek, which is currently the world's only fab that can produce chips using the company's 3 nm-class process technology. South Korean president Yoon Suk-yeol joined President Biden at the chip plant, reports The Korea Economic Daily. 

There is no word which 3nm chip was shown to the U.S. leader and whether it was a live demonstration or a static showcase. Keeping in mind that Samsung Foundry is about to start HVM using its 3GAE node this quarter, it probably has working samples of its 3nm system-on-chip(s), though details of the demo are unknown. 

"I have just seen how this plant makes the most advanced semiconductor chips in the world," said Biden. "They are a wonder of innovation and design, precision and manufacturing. "[…] When it comes to the most advanced chips, like the ones made here at Samsung — it is only one of only three companies in the world that makes these chips. It is an incredible — an incredible achievement." 

One important aspect of the fab near Pyeongtaek is that it represents a great example of international collaboration in leading-edge semiconductor manufacturing. The fab uses extreme ultraviolet (EUV) lithography tools developed and built in the Netherlands that rely on light sources designed and made in the United States. The fab also heavily uses leading-edge equipment produced by U.S.-based companies Applied Materials, KLA, and LAM Research as well as many tools built in South Korea. Meanwhile, most electronic design automation tools used to design chips produced at gigafabs like the one near Pyeongtaek also originate from the United States.

"This plant also reflects the close bonds in innovation between our countries," said President Biden. "Much of the technology and machinery that is used to make these chips was designed and produced in the United States. By uniting our skills and our technological know-how, it allows the production of chips that are critical to both our countries and are essential sectors of our global economy." 

Samsung claims that its 3GAE process will enable a 30% performance boost or a 50% power consumption reduction along with an up to 80% higher transistor density increase (including a mix of logic and SRAM transistors) compared to its 7LPP fabrication technology.