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.”
An attendee wearing a Super Mario costume uses a Nintendo Switch 2 game console while playing a video game during the Nintendo Switch 2 Experience at the ExCeL London international exhibition and convention centre in London, Britain, April 11, 2025.
Isabel Infantes | Reuters
Nintendo on Friday announced that retail preorder for its Nintendo Switch 2 gaming system will begin on April 24 starting at $449.99.
Preorders for the hotly anticipated console were initially slated for April 9, but Nintendo delayed the date to assess the impact of the far-reaching, aggressive “reciprocal” tariffs that President Donald Trump announced earlier this month.
Most electronics companies, including Nintendo, manufacture their products in Asia. Nintendo’s Switch 1 consoles were made in China and Vietnam, Reuters reported in 2019. Trump has imposed a 145% tariff rate on China and a 10% rate on Vietnam. The latter is down from 46%, after he instituted a 90-day pause to allow for negotiations.
Nintendo said Friday that the Switch 2 will cost $449.99 in the U.S., which is the same price the company first announced on April 2.
“We apologize for the retail pre-order delay, and hope this reduces some of the uncertainty our consumers may be experiencing,” Nintendo said in a statement. “We thank our customers for their patience, and we share their excitement to experience Nintendo Switch 2 starting June 5, 2025.”
The Nintendo Switch 2 and “Mario Kart World“ bundle will cost $499.99, the digital version “Mario Kart World” will cost $79.99 and the digital version of “Donkey Kong Bananza” will cost $69.99, Nintendo said. All of those prices remain unchanged from the company’s initial announcement.
However, accessories for the Nintendo Switch 2 will “experience price adjustments,” the company said, and other future changes in costs are possible for “any Nintendo product.”
It will cost gamers $10 more to by the dock set, $1 more to buy the controller strap and $5 more to buy most other accessories, for instance.
WATCH: Nintendo has ‘a lot of work to do’ to convince casual users to upgrade to Switch 2: Kantan Games
An employee walks past a quilt displaying Etsy Inc. signage at the company’s headquarters in the Brooklyn.
Victor J. Blue/Bloomberg via Getty Images
Etsy is trying to make it easier for shoppers to purchase products from local merchants and avoid the extra cost of imports as President Donald Trump’s sweeping tariffs raise concerns about soaring prices.
In a post to Etsy’s website on Thursday, CEO Josh Silverman said the company is “surfacing new ways for buyers to discover businesses in their countries” via shopping pages and by featuring local sellers on its website and app.
“While we continue to nurture and enable cross-border trade on Etsy, we understand that people are increasingly interested in shopping domestically,” Silverman said.
Etsy operates an online marketplace that connects buyers and sellers with mostly artisanal and handcrafted goods. The site, which had 5.6 million active sellers as of the end of December, competes with e-commerce juggernaut Amazon, as well as newer entrants that have ties to China like Temu, Shein and TikTok Shop.
By highlighting local sellers, Etsy could relieve some shoppers from having to pay higher prices induced by President Trump’s widespread tariffs on trade partners. Trump has imposed tariffs on most foreign countries, with China facing a rate of 145%, and other nations facing 10% rates after he instituted a 90-day pause to allow for negotiations. Trump also signed an executive order that will end the de minimis provision, a loophole for low-value shipments often used by online businesses, on May 2.
Temu and Shein have already announced they plan to raise prices late next week in response to the tariffs. Sellers on Amazon’s third-party marketplace, many of whom source their products from China, have said they’re considering raising prices.
Silverman said Etsy has provided guidance for its sellers to help them “run their businesses with as little disruption as possible” in the wake of tariffs and changes to the de minimis exemption.
Before Trump’s “Liberation Day” tariffs took effect, Silverman said on the company’s fourth-quarter earnings call in late February that he expects Etsy to benefit from the tariffs and de minimis restrictions because it “has much less dependence on products coming in from China.”
“We’re doing whatever work we can do to anticipate and prepare for come what may,” Silverman said at the time. “In general, though, I think Etsy will be more resilient than many of our competitors in these situations.”
Still, American shoppers may face higher prices on Etsy as U.S. businesses that source their products or components from China pass some of those costs on to consumers.
Etsy shares are down 17% this year, slightly more than the Nasdaq.
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