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IDC on China’s semiconductor technology ambitions

Although China is spending billions on building its domestic semiconductor sector, it is still a while away from achieving the necessary opportunities to produce cutting-edge chips, an analyst said Wednesday.

Semiconductors are used in everything from smartphones and computers to cars as well as household appliances.

"I still believe in that [China is] probably three or four generations later, what is considered to be leading, "Mario Morales, group director of enabling technologies and semiconductors at International Data Corporation, told CNBC's" Squawk Box Asia. "

"So if you look at the forefront, we're talking about 16 nanometers or 14 nanometers and below. Most of it comes primarily from Taiwan and Korea, and to some extent in the United States, with Intel," Morales added.

Chips are made using a process called lithography, in which very complex and expensive machines shine very narrow light beams on silicon wafers that have been treated with "photoresist" chemicals to create intricate patterns.

Employees work on the production line of silicon wafers at a factory at GalaxyCore Inc. May 25, 2021 in Jiashan County, Jiaxing City, Zhejiang Province, China.

Guo Junfeng | Visual China Group | Getty Images

China's need for self-sufficiency

For several years now, China has been talking about doing more - like spending more money on research and development - to gain confidence in science and frontier technologies, including semiconductors and artificial intelligence.

Beijing stepped up its efforts as the United States targeted Chinese technology companies such as Huawei and SMIC with sanctions amid escalating tensions between the two superpowers.

China's technology giants Alibaba, Tencent, Baidu and Meituan have all started investing in chip development.

IDC's Morales explained that despite large investments from China, the country still needs to access both the software and equipment needed to produce high-end chips.

Analysts said earlier that Chinese semiconductor companies focusing on older, long-tailed technologies are expected to perform well. These companies essentially produce a range of less advanced chips for areas such as power management, microcontrollers, sensors and other consumer-related segments to meet the growing local demand. These chips are still considered to be very important for the overall supply chain.

"This is where you get to see some of the Chinese ecosystem thrive and grow and start taking market share," IDC's Morales told CNBC. "But it's going to take China some time, it could take them more than a decade before they can actually become more competitive, at least on the cutting edge."

He pointed to SMIC, which is China's largest and most important chip manufacturer.

"They have the capacity to support 28-nanometers, and they've started some 14-nanometer sampling," Morales said. "But the reality is that they need customers to really scale that capacity, and a large part of the Chinese ecosystem just does not use that technology."

"So they need US partners and customers or European customers, or even Taiwanese customers, to be able to increase that technology effectively so that they can reduce the cost structure they need," he added.

- CNBC's Sam Shead contributed to this report.


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