SHENZHEN, SAN FRANCISCO – Huawei Technologies’ breakthrough in making an advanced chip underscores China’s determination and capacity to fight back against US sanctions, but the efforts are likely very costly and could prompt Washington to tighten curbs, analysts said.

Huawei unexpectedly unveiled the latest Mate 60 Pro smartphone last week during United States Commerce Secretary Gina Raimondo’s visit to China, as the government readies a new US$40 billion (S$54 billion) investment fund to bolster its developing chip sector.

The Mate 60 Pro is powered by its proprietary chip, Kirin 9000s, and manufactured by the country’s top contract chipmaker SMIC using an advanced seven nanometre (nm) technology, according to a teardown by Ottawa-headquartered TechInsights.

Its findings and claims by early users about the phone’s powerful performance indicate China is making some headway into developing high-end chips, even as Washington has, over the recent years, ramped up sanctions to cut its access to advanced chipmaking tools.

It “demonstrates the technical progress China’s semiconductor industry has been able to make without EUV tools. The difficulty of this achievement also shows the resilience of the country’s chip technological ability”, said TechInsights analyst Dan Hutcheson.

EUV refers to extreme ultraviolet lithography, and is used to make 7nm or more advanced chips.

Mr Hutcheson added: “At the same time, it is a great geopolitical challenge to the countries that have sought to restrict its access to critical manufacturing technologies. The result may likely be even greater restrictions than what exist today.”

Jefferies analysts said TechInsights’ findings could trigger a probe from the US Commerce Department’s Bureau of Industry and Security, create more debate in the US about the effectiveness of sanctions, and prompt Congress to include even harsher tech sanctions in a competition Bill it is preparing against China.

“Overall, the US-China tech war is likely to escalate,” they said in a note.

A US Commerce Department representative did not immediately reply to a request for comment on Tuesday morning. 

Huawei declined to comment. SMIC and China’s State Council, which handles press queries on behalf of the Chinese government, did not immediately respond to requests for comments.

Limited achievement

The most advanced chip SMIC had previously been known for making was 14nm, as it was barred by Washington in late 2020 from obtaining an EUV machine from Dutch firm ASML.

But TechInsights in 2022 said it believed SMIC had managed to produce 7nm chips by tweaking simpler DUV (deep ultraviolet) machines it could still purchase freely from ASML.

Some analysts including those from Jefferies said there was also a possibility that Huawei had purchased the tech and equipment from SMIC to make the chip rather than doing it in collaboration.

Whoever is making the chip, Ms Tilly Zhang, an analyst at Gavekal Dragonomics, downplayed the success, citing a low yield rate which reduces the number of useable chips from each wafer and raises costs, and new export controls imposed by the Netherlands that will limit SMIC’s access to more immersion DUV machines.

“They have just demonstrated that they are willing to accept much higher costs than are normally considered worthwhile... It is only the combination of Huawei’s own large financial resources and generous government subsidies that could allow it to sell phones using these chips at normal market prices,” Ms Zhang said.

Reuters reported on Tuesday that China is set to launch a new state-backed investment fund that aims to raise about US$40 billion for its chip sector, as the country ramps up efforts to catch up with the US and other rivals.

Some research firms forecast SMIC’s 7nm process has a yield rate that is below 50 per cent, versus the industry norm of 90 per cent or more, and it would limit shipments to around two million to four million chips, not enough for Huawei to regain its former smartphone market dominance.

Jefferies analysts reckon Huawei is preparing to ship 10 million units of the Mate 60 Pro, though it may struggle to support that quantity with China-made 7nm chips.

In that case, it could turn to 10nm chips, but with an estimated 20 per cent yield, which refers to the number of working chips on each silicon wafer, Jefferies said, it would be far below the 90 per cent for most consumer devices.

“The (US) controls are imposing high costs for producing controlled technologies in China,” said Mr Doug Fuller, a chip researcher at Copenhagen Business School, adding that the Chinese government was likely footing the bill.
REUTERS