Chip War Despatch

Misunderestimating China, again.

If the controls are successful, they could handicap China for a generation; if they fail, they may backfire spectacularly, hastening the very future the United States is trying desperately to avoid. Alex W. Palmer, NYT. 

The Chinese cannot understand why we fight with “Fists of Seven Injuries” (七伤拳), inflicting as much harm on ourselves as on our target. The sanctions hit our high-tech companies hard, as they lose not only their biggest market, but also important partners in their supply chain. Qualcomm’s profits fell 23%. Samsung’s dropped 95% . Louise Low. Face-off on the Grand Chessboard.

The year of living vulnerably: 2015

By 2015, when President Xi warned of China’s vulnerability to a chip embargo his team, led by the redoubtable Liu He, had spent two years preparing to create an indigenous chip industry. By 2022, the first fabs were producing commodity chips in high volumes at low cost and China spent $300 billion importing high-end chips.

The first breakthrough came when Huawei quietly released its 7 nm. Kirin 9000 chipsets, and its Mate 60 phone sales quickly surpassed Apple’s – as they were doing when the US embargoed Huawei. While the Kirin CPU was a remarkable achievement, professionals were more impressed by Huawei’s indigenous communications chips, like cellular modems, previously a Qualcomm semi-monopoly.

Three months later, YMTC shipped its 232-layer 3D TLC NAND memory chips. Their huge capacity and speedy 12 GB/s I/O make bleeding-edge drives possible.

But the sexiest market right now is insulated gate bipolar transistors, IGBTs. They’re the CPU ‘brains’ that conduct the orchestra of sensors and inputs and reduce EVs’ power loss and improve reliability. They’re expensive: 7% - 10% of an EVs’ final cost. Back in 2020, BYD supplied IGBTs for 20% of Chinese EVs’ and Infineon supplied 58%. The IGBT market has grown from $5.27 billion then to $8.42 billion this year and expects CAGR of 15.7% for some years.

There’s also money to be made in less sexy chips, like microcontrollers, says TP Huang. “Has anyone heard of Zhixin’s chips? You’ll find SMIC's 40nm auto grade processor in Zhixin's MCU microcontroller – domestically designed, fabbed and packaged entirely in China. This has huge implications for STMicro, Texas Instruments, Infineon and TSMC. Few automotive applications will ever need processes beyond 28 or 40nm, which is SMIC’s mass production sweet spot. Why wouldn't Chinese automakers buy domestically? I bet Wall Street analysts covering TI have never looked into new Chinese competitors and considered what that entails. SMIC will be a monster soon enough”.

A cautionary tale

Engineering scuttlebutt says that, back in 2010, Elon ruled out LIDAR for Tesla’s Full Self Driving