Well Bloomberg think this will scuttle Chinese ambitions but I see it as blessing in disguise from now on the Chinese cannot expect any help from the west and only spur them to developed domestic technology
The chip maker caught in US assault on China’s tech ambitions
Fujian Jinhua Integrated Circuit Co’s plan to start full-scale production at its US$6 billion plant is now in tatters after the US slammed the door on the firm’s purchase of chip manufacturing equipment
PUBLISHED : Monday, 26 November, 2018, 8:03pm
UPDATED : Monday, 26 November, 2018, 8:19pm
Bloomberg
For a sense of the damage Donald Trump can inflict on China with export controls, take a trip to the city of Jinjiang on the country’s southeastern coast.
That is where Fujian Jinhua Integrated Circuit Co built a US$6 billion plant to produce semiconductors as part of China’s goal of making the country a self-sufficient technology powerhouse. But after the US President barred exports to the company, its dream is now in tatters with consultants from American suppliers gone, the factories silent and workers rattled.
Less than a month ago, Jinhua was full-speed ahead on an enormous undertaking financed by the local government that blanketed its corner of the city with bristling power plants hulking workers’ dormitories and modern research labs. It was within months of a deadline to kick off full-scale production of some 60,000 wafers a month, a key step to giving China a competitive producer of memory chips used in smartphones.
Then the US Justice Department accused it of stealing American technology, and the Department of Commerce slammed the door on purchases of the chip manufacturing gear it needed to hit that milestone. Expansion work halted as its American and even European suppliers skipped town. Now, uncertainty shrouds a company President Xi Jinping has touted as one of three future domestic champions of chip production.
“No one here knows for sure what’s next, not even the local government officials,” one engineer told Bloomberg News on condition of anonymity. “Only Xi Jinping and Donald Trump can save us now. We only hope the government sees us as important as ZTE.”
While the Trump administration can reverse course – as it did with a similar moratorium on ZTE Corp – the case illustrates the ease with which Washington can derail China’s efforts. That may strengthen the mainland’s resolve to build its own chip capabilities so it can – once and for all – shake off a reliance on US$200 billion of annual imports.
Before the indictment, Jinhua was just getting going. In a little over two years, the company amassed a staff of about 1,000 and put together a pilot assembly line cranking out 5,000 (usable) 12-inch wafers a month, enough for millions of chips.
Taiwan’s United Microelectronics Corp (UMC) – once one of the semiconductor industry’s foremost contract producers – was Jinhua’s research and development partner for dynamic random-access memory technology under a licensing agreement.
White-frocked engineers from photolithography systems supplier ASML Holding and US-based chip process control systems provider KLA-Tencor Corp busied themselves on the workshop floor, advising their Chinese clients on the use of their equipment.
The day the US announced its ban, semiconductor manufacturing equipment company Applied Materials staff packed up and left, according to people familiar with the matter. The American company had shipped components to Jinhua as recently as September 20, according to an airway bill seen by Bloomberg.
KLA-Tencor and chip processing equipment provider Lam Research Corp also recalled their engineers, the people said. Even Dutch giant ASML – whose extreme ultraviolet lithography machines are the linchpin in next-generation chip manufacturing – pulled out within days, abandoning work on a second assembly line.
The once-smooth influx of equipment ground to a halt. On a windy afternoon in November, a giant plot of land adjoining Jinhua’s campus earmarked for its second facility stood vacant, not even a bulldozer in sight.
By then, the news had spread throughout the 274,000-square metre main fabrication plant. Worried engineers huddled during breaks or in after-work gatherings, debating their future, the people familiar with the matter said. It did not take long for managers to fan out across the complex, reassuring workers that Beijing remained committed and they could always find non-American suppliers. But they also warned them not to comment in online forums or discuss the issue publicly, one of the people said.
So rapid was the exodus that, in many cases, Jinhua employees had no inkling of the departures till they were gone, one person said. Only a smattering of the foreign-employed engineers bothered to tell their peers before catching flights to Shanghai and Taipei, the person said. “They didn’t even give us time to say goodbye,” one person said.
The angst is not just confined to China, either. On November 16, Applied Materials delivered a weak sales forecast in part because it had counted on Jinhua for “meaningful” sales. “In the absence of this export restriction, we would have been up sequentially in our semi systems business into Q1,” Applied Materials chief financial officer Daniel Durn told analysts.
KLA-Tencor and Lam Research did not respond to requests for comment. ASML spokeswoman Monique Mols declined to comment on individual customers.
Jinhua did not reply to emails seeking comment and calls were referred to its website.
From a broader perspective, the speed with which the US squashed Jinhua’s ambitions underscores the extent to which China – despite well-publicised intentions of becoming a global technology superpower by 2025 – remains reliant on American innovation.
Jinhua was to spearhead the transition for a country beholden to giants from Intel Corp to Micron Technology. It is an effort that has become critical as the rivalry between the world’s two largest economies deepens.
Indeed, It was Micron that first accused Jinhua and UMC of purloining its trade secrets, setting events in motion.
“Memory chips are cement for the entire IT industry, so China is eager to break the international monopoly and improve its own power of discourse in the world,” said Roger Sheng, an industry analyst with Gartner.
Jinhua was a key cog in a campaign to move away from chip imports – an influx that surpasses China’s annual spending on oil. Now that vision is in jeopardy. To some, it seems a matter of time till the Trump administration targets the other two designated national champions: Tsinghua Unigroup’s Yangtze River Memory and Hefei Changxin, run by the government of central Anhui province.
“The majority of market watchers believe that Hefei and Fujian Jinhua – both are central to Beijing’s ambitions to develop home-grown semiconductor behemoths – will be forced out of the market,” M S Hwang and Dexter Lee, analysts with Samsung Securities, wrote in a research note this month. “Concerns are also growing that Hefei and Tsinghua Unigroup might be the next to be slapped with US sanctions.”
Founded in February 2016, Jinhua was in some ways the most prominent of that trio – the only one that could claim a world-class chip firm as a partner in UMC. Jinhua makes no bones about its pedigree: the firm employs some 130 Communist Party members and those who have committed to investing include such stalwarts of the state as the Agricultural Bank of China. The Fujian provincial government’s investment arm, Jinhua’s main backer, has put out more than a score of press releases over the past year extolling the project’s progress, from loans secured to its first Communist Party meeting.