China may be making more advanced chips despite U.S. sanctions — but it still faces big problems
A Chinese flag next to a printed circuit board with semiconductor chips.
Florence Lo | Reuters
China’s biggest chipmaker SMIC seems to have been manufacturing advanced chips in the last few months — defying U.S. sanctions designed to slow down Beijing’s progress.
But there are still some major challenges to China’s bid to become more self-sufficient in the semiconductor industry, with questions swirling around the long-term viability of its latest advancements.
What’s the latest?
SMIC is China’s biggest contract semiconductor manufacturer. The nanometer figure refers to the size of each individual transistor on a chip. The smaller the transistor, the more of them can be packed onto a single semiconductor. Typically, a reduction in nanometer size can yield more powerful and efficient chips.
The 7 nanometer process is seen as highly advanced in the world of semiconductors, even though it isn’t the latest technology.
It was a big deal at the time. But last week, the Financial Times reported that SMIC is setting up new production lines to make 5 nanometer chips for Huawei. That would signal even further advancement for China’s biggest chipmaker.
The chips in Apple’s latest high-end iPhones are made on a 3 nanometer process.
Why is this a big deal?
How is SMIC doing this?
Without EUV tools, experts thought, SMIC would find it difficult to make 7 nanometer and smaller chips, or would at least find it expensive to do so.
So when the Huawei Mate 60 came out last year with a 7 nanometer chip, that raised a lot of eyebrows.
One expert told CNBC at the time that SMIC is likely using older chipmaking tools to make more advanced chips.
The FT reported something similar last week. The newspaper, citing two people with knowledge of the plans, reported that SMIC is aiming to use its existing stock of U.S.- and Dutch-made semiconductor equipment to produce 5 nanometer chips, an advancement on the 7 nanometer.
“SMIC is working very closely now with both domestic tool makers, leveraging its existing base of advanced lithography gear, and drawing on other outside expertise, such as from Huawei, to constantly improve yields on advanced node processes,” Paul Triolo, an associate partner at consulting firm Albright Stonebridge, told CNBC via email.
“So for now it is possible for SMIC to continue to improve capabilities and yields at 7 and soon 5 nm, for a small number of customers, mostly Huawei.”
China’s challenges
Using older equipment to make more advanced chips poses two major challenges.
The first is that it’s more expensive to produce the semiconductors than if more advanced tools and machinery were used. The second is an issue around yield — the number of usable chips that are produced and can be sold to customers. With older equipment, the yield is also lower.
The FT also reported, citing three people close to Chinese chip companies, that SMIC had to charge 40% to 50% more for products from its 5 nanometer and 7 nanometer production processes than TSMC does at the same nodes.
TSMC, or Taiwan Semiconductor Manufacturing Company, is the world’s largest and most advanced contract chip manufacturer. TSMC makes semiconductors for companies from Apple to Nvidia.
Pranay Kotasthane, chairperson of the high tech geopolitics program at the Takshashila Institution, told CNBC that SMIC and China could keep throwing money at the process, but ultimately, costs will continue to rise with each more advanced generation of chips — unless the company can get its hands on an ASML EUV machine.
“SMIC might overcome current yield issues by investing more money. This investment might even come from governments as this has become an issue of national prestige,” Kotasthane said via email.
“But the extent of underwriting higher costs will only increase with every subsequent generation of chips. The costs will keep compounding unless China finds a major alternative for EUVs.”
Technology
Trump aims to cut $6 billion from NASA budget, shifting $1 billion to Mars-focused missions
Nurphoto | Nurphoto | Getty Images
Chinese bargain retailer Temu changed its business model in the U.S. as the Trump administration’s new rules on low-value shipments took effect Friday.
In recent days, Temu has abruptly shifted its website and app to only display listings for products shipped from U.S.-based warehouses. Items shipped directly from China, which previously blanketed the site, are now labeled as out of stock.
Temu made a name for itself in the U.S. as a destination for ultra-discounted items shipped direct from China, such as $5 sneakers and $1.50 garlic presses. It’s been able to keep prices low because of the so-called de minimis rule, which has allowed items worth $800 or less to enter the country duty-free since 2016.
The loophole expired Friday at 12:01 a.m. EDT as a result of an executive order signed by President Donald Trump in April. Trump briefly suspended the de minimis rule in February before reinstating the provision days later as customs officials struggled to process and collect tariffs on a mountain of low-value packages.
The end of de minimis, as well as Trump’s new 145% tariffs on China, has forced Temu to raise prices, suspend its aggressive online advertising push and now alter the selection of goods available to American shoppers to circumvent higher levies.
A Temu spokesperson confirmed to CNBC that all sales in the U.S. are now handled by local sellers and said they are fulfilled “from within the country.” Temu said pricing for U.S. shoppers “remains unchanged.”
“Temu has been actively recruiting U.S. sellers to join the platform,” the spokesperson said. “The move is designed to help local merchants reach more customers and grow their businesses.”
Before the change, shoppers who attempted to purchase Temu products shipped from China were confronted with “import charges” of between 130% and 150%. The fees often cost more than the individual item and more than doubled the price of many orders.
Temu advertises that local products have “no import charges” and “no extra charges upon delivery.”
The company, which is owned by Chinese e-commerce giant PDD Holdings, has gradually built up its inventory in the U.S. over the past year in anticipation of escalating trade tensions and the removal of de minimis.
Shein, which has also benefited from the loophole, moved to raise prices last week. The fast-fashion retailer added a banner at checkout that says, “Tariffs are included in the price you pay. You’ll never have to pay extra at delivery.”
Many third-party sellers on Amazon rely on Chinese manufacturers to source or assemble their products. The company’s Temu competitor, called Amazon Haul, has relied on de minimis to ship products priced at $20 or less directly from China to the U.S.
Amazon said Tuesday following a dustup with the White House that had it considered showing tariff-related costs on Haul products ahead of the de minimis cutoff but that it has since scrapped those plans.
Prior to Trump’s second term in office, the Biden administration had also looked to curtail the provision. Critics of the de minimis provision argue that it harms American businesses and that it facilitates shipments of fentanyl and other illicit substances because, they say, the packages are less likely to be inspected by customs agents.
— CNBC’s Gabrielle Fonrouge contributed to this report.
WATCH: Trump tariffs mean higher prices, big losses for Amazon sellers
Jeff Bezos, founder and executive chairman of Amazon and owner of The Washington Post, takes the stage during The New York Times’ annual DealBook Summit, at Jazz at Lincoln Center in New York City, Dec. 4, 2024.
Michael M. Santiago | Getty Images
Amazon founder Jeff Bezos plans to sell up to 25 million shares in the company over the next year, according to a financial filing on Friday.
Bezos, who stepped down as CEO in 2021 but remains Amazon’s top shareholder, is selling the shares as part of a trading plan adopted on March 4, the filing states. The stake would be worth about $4.8 billion at the current price.
The disclosure follows Amazon’s first-quarter earnings report late Thursday. While profit and revenue topped estimates, the company’s forecast for operating income in the current quarter came in below Wall Street’s expectations.
The results show that Amazon is bracing for uncertainty related to President Donald Trump’s sweeping new tariffs. The company landed in the crosshairs of the White House this week over a report that Amazon planned to show shoppers the cost of the tariffs. Trump personally called Bezos to complain, and Amazon clarified that no such change was coming.
Bezos previously offloaded about $13.5 billion worth of Amazon shares last year, marking his first sale of company stock since 2021.
Since handing over the Amazon CEO role to Andy Jassy, Bezos has spent more of his time on his space exploration company, Blue Origin, and his $10 billion climate and biodiversity fund. He’s used Amazon share sales to help fund Blue Origin, as well as the Day One Fund, which he launched in September 2018 to provide education in low-income communities and combat homelessness.
-
Sports3 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports1 year agoStory injured on diving stop, exits Red Sox game
-
Sports2 years agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports4 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike
-
Business3 years agoBank of England’s extraordinary response to government policy is almost unthinkable | Ed Conway