What are the “three mountains” restricting the development of China’s semiconductors? How did Zhongwei go over mountains and mountains?

In 2004, Dr. Yin Zhiyao, who had climbed to the “peak of Silicon Valley”, returned to China to start a business. Except for 18 senior engineers with the same ideals, he did not bring back any materials.

The reason why he chose to return empty-handed is because Dr. Yin Zhiyao had predicted from the very beginning that this venture would be “extremely dangerous”, and he would return to China to establish his own etching machine company in China. At that time, the Chinese etching machine industry was still blank. If you want to achieve zero breakthroughs, you will inevitably be suppressed. If you are not careful, you will be locked by “patents”.

Thanks to the elite team configuration, Zhongwei Company, founded by Dr. Yin Zhiyao, soon launched its first etching machine in 2007, and won the approval of customers. However, shortly after the launch of China Micro’s first product, the company was faced with several “patent lawsuits”. Fortunately, Dr. Yin Zhiyao had made adequate preparations before helping China Micro to win three patent lawsuits in a row.

Today, China Micro’s etching machine products have broken through the 5nm process, and successfully entered the list of suppliers of TSMC, the world’s largest semiconductor company, and jointly developed the next-generation technology with it.

In the second quarter of 2020, the top ten semiconductor chip foundries in the world had a combined market share of 95.6%, showing a highly concentrated trend. Among the top ten companies, China Micro won seven companies, with a combined market share of 73.9%.

Although China Micro is not the only supplier of these companies, being able to enter the supplier list of so many chip foundries is enough to demonstrate the core technical strength of China Micro.

At a time when the semiconductor industry chain is frequently “stuck in the neck”, China Micro Corporation has entered the international front-line camp with its completely independent technology. The story behind this is worth pondering.

By reviewing the rise of micro-etching machines, we found that there are currently “three mountains” in China’s semiconductor industry. What are the “three mountains” that restrict the development of China’s semiconductors for a long time? How did the completely autonomous China Microelectronics go over the mountains?

/ 01 /

The first mountain: the talent siphon effect

The semiconductor industry is a high-end manufacturing industry and is highly dependent on professional talents. China’s semiconductors have been unable to break through, and the core reason is the shortage of talents, which is also the “first mountain” that suppresses the development of China’s semiconductors.

The lack of talent is not because the Chinese are not good enough, but because our professionals are not used by us. The United States is the country with the most perfect scientific research system in the world today, and it has unparalleled advantages in terms of “scientific research atmosphere” and “personal treatment”. Scientists all over the world aim to integrate into the American scientific community. It is this “talent siphon effect” that makes the top talents cultivated in my country often unavailable for their own use.

In an interview, Dr. Yin Zhiyao confided to reporters that when he was working at Intel, almost all the leaders and colleagues in charge of scientific research were Chinese, and there was never a shortage of Chinese in the most cutting-edge research groups in the United States.

How to recall the talents cultivated in our country’s colleges and universities for our own use has become the key to the development of my country’s semiconductor technology.

It is precisely because he deeply understands the importance of talents that Dr. Yin Zhiyao brought back a group of engineers full of ideals without bringing any property back, and talents have become the key to China Micro’s breakthrough.

Among the engineers brought back by Dr. Yin Zhiyao in the early days, 15 followed the entrepreneurship, and they constituted the core research framework of Zhongwei Company. Almost all of the major scientific research projects undertaken by China Micro are led by the 15 core engineers brought back in the early days.

The semiconductor industry is extremely complex, involving multiple links such as project planning, product design, and process development. It not only needs to understand industry experts, but also needs to be proficient in plasma physics, radio frequency and microwave science, structural chemistry, microscopic molecular dynamics, spectroscopy and energy spectroscopy. , vacuum mechanical transmission and other related disciplines professionals.

In order to attract semiconductor equipment experts from all over the world, China Microelectronics pioneered the adoption of “full shareholding” for A-shares, which effectively enhanced the loyalty and sense of belonging of key technical personnel and minimized the reduction of key technical personnel. risk of churn.

According to the prospectus of China Micro Company, at the time of listing, a total of 845 employees of China Micro Company directly or indirectly held about 18.25% of the company’s shares. Among them, the start-up team including founder Yin Zhiyao holds 3.25% of the shares, and the employee shareholding platforms Nanchang Zhiwei, Zhongwei Asia, Grenade, Bootes, Liwei Investment, and Penghui Investment hold a total of 15% of the company’s shares.

For a long time to come, the “talent siphon effect” will be a stumbling block restricting the development of China’s semiconductor industry. China Micro Company has increased its attractiveness to talents to a certain extent by holding shares of all employees, but this does not solve this problem.

“Scientific research atmosphere” is a very illusory word, it does not have a substantive representation, but a virtual feeling. How to increase the “scientific research atmosphere” in our country is bound to break the “ivory tower” of the campus, so that academics can truly enter the grassroots enterprises, and then the true knowledge can be obtained in practice. This is also the only way for China’s industry to catch up with world powers.

/ 02 /

The Second Mountain: The Shackles of Patents

China’s semiconductor industry is not without manufacturing capabilities, but is limited by patents and cannot be legally produced. From Huawei to SMIC, all of them are “stuck” by patented technology.

Just like the vast majority of Chinese companies, after China Micro launched its first CCP etching machine in 2007, it was sued by American Applied Materials.

The reason why Applied Materials sued Zhongwei is very simple, because Dr. Yin Zhiyao was the vice president of the head office in Applied Materials, leading and developing more than half of the world’s etching machine products. Applied Materials takes it for granted that China Micro is using their technology.

But in fact, when he returned to China, Dr. Yin Zhiyao and his team made plans to tackle the tough problems of patents. Not only did they not use any technical patents for applied materials, but even the technical ideas were re-studied. As a matter of course, Zhongwei won the lawsuit with Applied Materials, and the two sides finally reached a settlement in 2010.

However, the patent litigation of Applied Materials is only the beginning. In 2009 and 2017, China Microelectronics was sued by Fanlin Semiconductor and Weike respectively, but in the end, China Microelectronics ended in victory.

The victory of the three patent battles is enough to witness the gold content of China Micro’s hard power, and it also reflects the situation of China’s semiconductor industry from the side. Whenever our company makes a breakthrough in the industry, it will be suppressed by patents from European and American countries, regardless of whether it is infringed.

Knowing the importance of patented technology, China Micro has put technology first since its inception. As of June 30, 2021, China Micro has applied for a total of 1,870 patents, including 1,613 invention patents, and has been granted 1,106 patents, including 945 invention patents. The main products including CCP etching machine, ICP etching machine and MOCVD equipment have independent patent protection.

The reason why China Micro was able to cross the “second mountain” was due to the adequate preparation of the early start-up team. But semiconductor is a cluster industry in the final analysis, and it is not enough to rely on a medium and micro company.

Today, the capital market focuses too much on the profitability of companies and ignores their accumulation of intellectual property. Throughout the situation that Chinese companies have been stuck in their necks several times, all of them are due to intellectual property rights.

For technology companies, intellectual property should be particularly valued, and intellectual property is likely to become one of the main lines of semiconductor investment in the future.

/ 03 /

The Third Mountain: The Capital Paradox

People’s lives are inseparable from semiconductors, but the development of semiconductor equipment is a very expensive thing.

For listed companies, making dividends is the responsibility of shareholders; but at the same time, China’s semiconductor industry needs a lot of capital investment, otherwise it can only be controlled by others. If you do not engage in R&D, you will fall behind, and if you engage in R&D, you will burn money. There has been an unavoidable “capital paradox” between profit pressure and R&D investment, which has become the “third mountain” that suppresses the development of China’s semiconductors.

Yin Zhiyao once revealed to the media that China Micro has spent more than 2 billion yuan in the 16 years since its establishment. However, the R&D investment of the world’s leading applied materials in fiscal year 2020 exceeded 2.2 billion US dollars (about 14.1 billion yuan), It is almost 7 times the total investment of Zhongwei Company in the past.

Although China Micro’s etching machine has been squeezed into the international ranks, it will have to face the impact from international giant competitors in the future. The gap of dozens of times of research and development costs still prevents China Micro Company from relaxing.

From the perspective of business analysis, there are still differences between China Micro and Applied Materials. The R&D investment of Applied Materials is not only for one segment of the etching machine, but for the overall layout of the semiconductor frontier except for the lithography machine and the antenna development machine. Road equipment industry chain.

In China, NAURA, which was listed in 2010, adopts a development strategy similar to that of Applied Materials, and also focuses on the front-end equipment industry chain outside the lithography machine. Although it was listed earlier, the research and development expenses of North Huachuang in 2020 are only 670 million yuan, which is less than 5% of the research and development expenses of Applied Materials.

No matter it was the first listed company, North China Creation, or the later China-Micro Corporation, they all encountered the same problem, that is, they were lagging behind in technology, and their R&D spending was far behind their rivals, and they were always catching up. , and this is also a common problem in China’s semiconductor industry.

Different from the whole industry chain layout of North Huachuang, Zhongwei only focuses on etching machines and MOCVD equipment. Although business focus limits the scale growth of Zhongwei, a more focused R&D can narrow the gap between its R&D spending and its international competitors.

There are two technical routes for the etching process, namely wet etching and dry etching. At present, wet etching is less used due to its poor anisotropy, and dry etching has become the mainstream technology in the semiconductor industry. Dry etching is divided into two main routes: capacitively coupled plasma etching (CCP) and inductively coupled plasma etching (ICP).

In the early days, Zhongwei only took CCP technology as a breakthrough point. After the CCP etching machine reached the international first-class level, it gradually deepened the research on ICP and MOCVD. CCP and ICP are not in the relationship of substitution, but exist in the front-end process of semiconductors at the same time, so the entry of ICP is expected to deepen the business scale of Zhongwei Company.

Many investors don’t care about the backward technology. Since the technology is backward, we will invest more! But is it really that easy?

Not to mention the probability of failure in R&D itself, simply increasing R&D investment is likely to break the company’s expenditure balance and make the company fall into losses, which is precisely the last thing domestic investors want to see.

This worry about losses is entirely due to the lack of confidence of capital in China’s semiconductor industry. At the beginning of the establishment of Zhongwei Company, in fact, Dr. Yin Zhiyao encountered the problem of insufficient funds. Until he finally got the investment from China Development Bank, Zhongwei Company did not “die prematurely”.

Looking back, China Development Bank’s investment in China Micro is extremely successful. Now China Micro is not only among the first-tier manufacturers of international etching machines, but also has a market value of more than 92.8 billion yuan, but today’s success is based on past losses. among.

According to this analysis, the capital market alone is not enough to solve the backwardness of Chinese semiconductor companies. The development of China’s semiconductor industry still needs the support of large funds. The establishment of the Semiconductor Fund in 2019 has eased the financial pressure on the semiconductor industry, but to completely solve the funding problem, more financing channels still need to be improved.

In addition, investors also need to change their thinking, from focusing solely on profitability to focusing on the technological value of the company.

/ 04 /

Conclusion: The Enlightenment of Zhongwei

Looking at the entire semiconductor front-end equipment industry chain, etching machines, lithography machines and thin film deposition equipment are the three major segments with a high market share, accounting for 25%, 22% and 22% of the entire market respectively.

As the market segment with the largest market size in semiconductor front-end equipment, etching machines were once the focus blocked by the Wassenaar Agreement, just like lithography machines. However, with the breakthrough of China Micro Company, the “Wassenaar Agreement” has now lifted the blockade of the etching machine, so that the Chinese etching machine is no longer controlled by others.

Behind the breakthrough of China Micro Company, the three elements of talents, patents and capital are indispensable. For China’s semiconductor industry, the success of China Micro Corporation is of great reference. Only when the right people do the right things and get the right capital support can Chinese semiconductors take the international stage.

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