World's largest contract chip maker joins American chip coalition (China won't like this)

Have you read anything about the ongoing efforts by China to create its own independent supply chain for computer chips? This effort is aimed at limiting America’s ability to sanction and thereby limit China’s access to chips made by American companies or companies aligned with America. One of the most visible battles in the chip wars has been the one over Huawei, the Chinese telecommunications giant.

In May 2020, Trump’s administration banned Taiwanese chip giant, the Taiwan Semiconductor Manufacturing Corporation, from supplying Huawei with semiconductor chips. In August, the U.S. Department of Commerce went further, saying that any chip manufacturer globally would have to apply for a license from the U.S. in order to continue supplying Huawei with chips.

The U.S. has the power to dictate which companies supply Huawei with semiconductors because virtually all chipmakers rely, at least in part, on American technology to produce their products.

TSMC, the Taiwanese company that the Trump administration banned from selling chips to Huawei just joined an American chip coalition designed to strengthen the connection among major players in the American-led industry.

Taiwan Semiconductor Manufacturing Company Co (TSMC), the world’s biggest chip foundry, has joined a new lobbying group dominated by top American chip developers and users, in a move that may make it harder for China to wean itself off a US-led global semiconductor supply chain.

The Semiconductors in America Coalition (SIAC), which includes 65 major players along the semiconductor value chain, announced its formation on Tuesday with the immediate purpose of pushing the American government to provide subsidies for chip manufacturing on US soil.

It is dominated by American tech firms such as Apple, Microsoft, Google, and Intel, but also includes a number of Asian and European heavyweights in the semiconductor supply chain, such as TSMC and MediaTek from Taiwan, Samsung Electronics and SK Hynix from South Korea as well as Holland’s ASML, the only supplier of the advanced photolithography equipment used to make high-end chips…

Randall added that the new coalition could help the US and its allies “to maintain a lead over China for longer”.

That last paragraph is particularly important because it turns out that one company in Holland manufactures all of the high-end lithography equipment used by TSMC, Intel and others. And that’s another area where American influence has limited China’s ability to adopt the latest technology. Last year Reuters reported that the Trump administration had leaned hard on ASML to convince them not to sell the high-end tech to China’s largest chipmaker, SMIC, which is partially state-owned.

The U.S. campaign began in 2018, after the Dutch government gave semiconductor equipment company ASML, the global leader in a critical chip-making process known as lithography, a license to sell its most advanced machine to a Chinese customer, two sources familiar with the matter told Reuters.

Over the following months, U.S officials examined whether they could block the sale outright and held at least four rounds of talks with Dutch officials, three sources told Reuters.

The effort culminated in the White House on July 18 when Deputy National Security Advisor Charles Kupperman raised the issue with Dutch officials during the visit of Netherlands Prime Minister Mark Rutte, who was given an intelligence report on the potential repercussions of China acquiring ASML’s technology, according to a former U.S. government official familiar with the matter.

ASML did eventually agree to sell some tech to SMIC but not the high end stuff which is currently used to manufacture the latest Apple iPhone chips. Instead, China will get “mature technology” that is several steps behind.

ASML has reputedly assured Amsterdam and Washington that only deep ultraviolet lithography technology, or DUV, used in making less-speedy processors, will be sold to the partially state-owned SMIC under the deal.

Higher stakes are attached to ASML’s proprietary extreme ultraviolet lithography, or EUV, used in making more advanced chips. The technology is accessible only to a handful of manufacturers including TSMC to make refined chips like the ones used to power Apple’s latest flagship handsets and laptops.

China, meanwhile, is doing its best to create a chip supply chain that is completely independent from the US and Europe, essentially setting funding companies that clone all of those functions performed by American oriented companies. There’s a graphic here which lists the Chinese rivals in every sector of the chip making process.

China may eventually be able to catch up but it will take them quite a while and by that time the American and European leaders will be on to something else. That’s a good thing given the uses that China is likely to come up with for its advanced technology. One of the things the Trump administration did well was directly challenging China’s efforts to gain an upper-hand in technology. The new chip coalition seems like a positive step.