The Economist - UK (2022-04-30)

60 Business TheEconomistApril30th 2022

Chipmaking

Crossing the chokepoint

M

aking chipsis complex work. Semi­

conductor manufacturers such as In­

tel, Samsung and tsmcthemselves rely on

machine  tools  built  by  an  array  of  firms

that  are  far  from  household  names.  The

equipment  sold  by  Applied  Materials,  To­

kyo Electron, asml, klaand Lam Research

is  irreplaceable  in  the  manufacture  of  the

microscopic  calculating  machines  that

power  the  digital  economy.  A  supply

crunch, coming after years of ructions be­

tween  America  and  China  over  control  of

technology,  has  made  governments

around the world more aware of the strate­

gic importance of chipmaking. The signifi­

cance of the kit used to make chips is now

being recognised, too.

Such tools handle the complex process­

es of scratching billions of electric circuits

into a silicon wafer. Those circuits shuttle

electrons  to  do  the  calculations  that  dis­

play this article on a screen, plot your route

across  town  or  allow  your  fingerprint  to

unlock your phone. They must be perfect.

klamakes  measurement  tools  which  are

essentially  electron  microscopes  on  ste­

roids, scanning each part of a finished chip

automatically for defects and errors. Some

Lam  Research  tools  are  designed  to  etch

patterns in a silicon wafer by firing beams

of individual atoms at its surface. Applied

Materials  builds  machines  which  can  de­

posit  films  of  material  that  are  merely  a

few atoms thick.

The Chinese government’s efforts to de­

velop a large and advanced semiconductor

industry  at  home  using  these  mind­bog­

gling technologies have led to a rapid shift

in the source of the revenues for the firms

making  it  over  the  past  five  years.  In  2014

the  five  main  toolmakers  sold  gear  worth

$3.3bn, 10% of the global market, to China.

Today the country is their largest market by

a significant margin, making up a quarter

of global revenues (see chart). Of the $23bn

in  sales  for  Applied  Materials,  the  largest

equipment­maker,  during  its  latest  fiscal

year, $7.5bn came from China. It accounts

for over a third of Lam Research’s revenues

of $14.6bn, the largest share of any big tool­

maker  (though  the  firm  notes  that  some

portion of Chinese sales are made to multi­

nationalfirmsthatoperatethere).

Thisnewreliancehascreatedpolitical

andcommercialproblems,particularlyfor

thetrioofAmericantoolmakers:Applied

Materials,klaandLamResearch.TheChi­

nesegovernmenthasthrownhundredsof

billionsofdollarsatdomesticchipmakers.

BecauseeachoftheAmericantrioisdomi­

nantata differentstepoftheprocess,the

unavoidableconclusionisthatAmerica’s

most advancedtechnology is furthering

China’seconomicgoals.Thereisstrongbi­

partisan agreement in Washington that

thisisunacceptable.

America’sgovernmenthaslongsought

solutionstothisuncomfortableproblem.

InDecember 2020 itplacedsmic, China’s

leadingchipmaker,onanexportblacklist.

Any American companywishing to sell

productstosmichadtoapplyfora licence.

ButtoolshavekeptflowingtotheChinese

firm,inpartbecauseAmericaactedalone.

TheChinesegovernment’slavishsubsidies

haveinsteadstartedfindingtheirwayto

non­Americancompetitors.AppliedMate­

rialsnotedthatthismighthelpotherfirms

as,ineffect,shuttingit outofChina“could

resultinourlosingtechnologyleadership

relative to our international competitors”. 

The  problem  is  becoming  more  acute.

semi,  the  global  semiconductor­tooling

trade  body,  announced  on  April  12th  that

worldwide  industry  revenues  from  China

grew by 58% in 2021, to $29.6bn, cementing

its place as the world’s largest market. Po­

litical pressure is rising. In March two Re­

publican  lawmakers  wrote  to  America’s

Department  of  Commerce  demanding  a

tightening of export controls on chip tech­

nology  going  to  China,  specifically  men­

tioning chipmaking equipment.

China’s appetite for chipmaking tools is

also  causing  commercial  difficulties  for

non­Chinese  chipmakers,  depriving  them

of  equipment  and  hence  the  capacity  to

manufacture chips. On April 14th C.C. Wei,

the boss of tsmc, said the Taiwanese firm

had  encountered  an  unexpected  “tool  de­

livery  problem”  that  threatened  its  ability

to make enough chips. Though he did not

blame China, chip­industry insiders say it

is the likely cause. tsmc has warned Apple

and Qualcomm, two of its largest custom­

ers, that it may not be able to meet their de­

mand  in  2023  and  2024,  according  to  two

independent sources.

Over  the  past  four  months  the  Ameri­

can toolmakers have started working with

the  government,  through  Akin  Gump,  a

firm  of  lawyers  and  lobbyists  based  in

Washington,  dc,  to  find  a  way  round  the

problem.  The  toolmakers  formed  the  Co­

alition  of  Semiconductor  Equipment

Manufacturers late last year to further that

aim, using Akin Gump to represent them.

Lawyers  have  been  poring  over  the  pro­

ducts  of  Applied  Materials,  Lam  Research

and klain an attempt to identify workable

WASHINGTON, DC

America has a plan to gut China’s chipmakingecosystem

Bagging the chips

Selected semiconductor-equipment

manufacturers, revenues from China

% of total

Source:Bloomberg

40

30

20

10

0

212019181716152014

Financialyears

ASML

Tokyo Electron

KLA

Lam Research

Applied Materials

Keep this to yourself