SMIC to build $2.5B wafer fab with government funding

SMIC requests trade licensee to resume selling semiconductors to Huawei
Image: SMIC

Semiconductor Manufacturing International Corporation (SMIC) recently revealed plans to establish a $2.5 billion 28nm wafer fab in Shenzhen, China. The East Asian nation’s largest contract chipmaker will begin construction on the factory in 2022.

The firm noted Shenzhen’s government would provide financial support to help get the facility built.

In February, Beijing announced it would step up its efforts to bolster its domestic electronic components sector. The nation’s leaders intend to raise the local chip ecosystem’s market value to $327 billion within two years.

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Why SMIC is Setting Up a New Fab in Shenzhen

Last week, SMIC outlined the need for it to rapidly production capacity expansion amid the global semiconductor shortage. The firm is presently running its manufacturing facilities at 95.5 percent utilization because of demand for its silicon. Because the crisis is expected to persist into 2022, the company is pushing to set up a new plant as quickly as possible.

The pure-play foundry’s new fab will make 40,000 12-inch silicon wafer starts per month once it becomes operational. Currently, the contract chipmaker’s fabrication processes are several generations behind rivals TSMC and Samsung. However, its older technology is still highly sought after by automakers and personal electronics vendors in China, the U.S., and Europe.

The corporation recently prioritized building out its production resources, but its trade status has stymied its efforts.

Last December, the U.S. Department of Commerce placed the corporation on its Entity List, which prevents it from acquiring certain semiconductor technologies from American vendors. Earlier this month, several of the firm’s former partners applied for licenses to resume their business relationships, but no approvals have been announced.

However, SMIC did renew its multibillion-dollar supply contract with ASML Holdings, a Dutch chip-making equipment manufacturer, through year’s end. That deal will enable the company to continue installing high-performance deep ultraviolet (DUV) lithography component etching tools in its facilities.

Why Shenzhen is Financially Supporting SMIC

Shenzhen has three good reasons for supporting SMIC’s latest production capacity expansion.

One, the Chinese federal government has made national semiconductor independence a key part of its current five-year plan. Beijing’s initiative involves developing its domestic chip design and manufacturing capabilities. In fact, the foundry secured $12 billion in capital to build a different fab from state-backed investment funds in February.

By pouring funds into SMIC, the city’s leaders will help further that important project.

Two, Shenzhen is one of China’s foremost technology hubs, so its leaders want local providers to have a consistent supply of 28nm wafers.

And three, the city will own 23 percent of the plant because of its contribution. The chipmaker will hold a 56 percent share of the factory. Third-party investors in the 28nm fab will claim the remaining 21 percent.

Because of the value of its output and its operator’s large market presence, Shenzhen’s officials are making a solid bet.

SMIC encountered significant headwinds as a result of landing on Washington’s blacklist. But the firm’s ability to secure massive capital infusions from private and public sources to help increase its production capacity speaks well of its prospects.