USA vs. China – Another Brick in the Wall

The technological wall continues to grow.

• The ban on software design tools will hurt China in the short term, and while the domestic industry will undoubtedly find a way around the ban, they will become cut off from all advanced semiconductor manufacturing, which will have a much more profound impact.
• A week ago, the US Department of Commerce suspended the export licences the semiconductor software tools industry (EDA – electronic design automation), meaning that no new licences can be issued to Chinese domestic companies.
• This also includes services, upgrades and updates, meaning that most of the Chinese semiconductor industry that uses tools from USA-based companies will be cut off.
• The global EDA industry is very concentrated and is essentially shared between Synopsis (30% or so), Cadence (30% or so) and Siemens EDA (used to be Mentor Graphics (15% or so).
• All of these companies are based in the USA, and so despite being owned by Siemens of Germany, its EDA business will be subject to the direction of the USA Chamber of Commerce.
• Licenses are currently suspended, and no new ones are likely to be issued while the review is ongoing.
• This is another example of the USA taking action where it has a unilateral ability to do so (like EUV), which is where USA companies control essentially all of the supply of the technology.
• Assuming that USA companies will no longer be able to sell their software tools to China, this will cause considerable short-term problems for Chinese companies who are designing their own chips.
• There is a nascent Chinese EDA design industry, but it is fairly early stage and its development has been more difficult than expected.
• This is because many of the local players were founded and staffed by ex-employees of the Chinese offices of the Western players, but these are primarily sales and distribution outlets and not product design or research and development.
• This has greatly complicated the development of the Chinese EDA industry as the know-how that it really needs is in the USA and has not been available for recruitment.
• That being said, the Chinese industry is developing, and it appears that for 7nm and above, the local tools are “usable”.
• This means that for domestic production, this restriction is unlikely to have very much long-term effect as there is a viable local alternative that is supported by the manufacturing operations in China.
• However, there is very little scope for China to manufacture semiconductors beyond 7nm because it has no access to EUV, meaning that any Chinese company wishing to manufacture advanced semiconductors will have to source manufacturing from overseas.
• However, all of the advanced foundries are set up to work with the Western tools, meaning that Chinese companies will have great difficulty in sourcing manufacturing from overseas, even if it is not restricted.
• A good example of this is Xiaomi, which has just announced XRING01, a 3nm SoC for a smartphone and the XRINGT1, a 3nm, 4 G-enabled SoC for wearables.
• This product is intended to be made at TSMC in Taiwan and will require access to the EDA tools that TSMC supports to proceed with manufacturing.
• I very much doubt that TSMC will start supporting the Chinese tools, meaning that this could have the effect of cutting all Chinese companies off from advanced semiconductor manufacturing.
• This leaves Chinese companies designing advanced chips in a difficult position as even if the Chinese EDA tools become good enough, TSMC, Samsung et al are unlikely to support them making it very hard for them to access advanced manufacturing even if it remains unrestricted.
• I suspect that this is the real intention of this restriction, as it means that the USA would have complete control over China’s ability to access and use silicon chips made on advanced nodes of 5nm and smaller.
• This would have the effect of closing a loophole where Chinese companies can design and manufacture their own advanced chips overseas for domestic consumption.
• It adds weight to the 2022 policy of keeping China as far behind as possible instead of the previous policy of “at least 2 generations behind”.
• This is all part of the ideological struggle between the West and China, where the outcome will be determined by the degree to which the West can isolate China from the rest of the world and get everyone else on its side.
• The technological wall is rapidly being buil,t and 3^rd party countries will soon have to decide on which side they wish to reside.
• Hence, it is in non-affiliated countries where the struggle will now be played out, and with Saudi Arabia, UAE and potentially Qatar pivoting towards the USA, the West wins the first round.