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SMIC aims high with Beijing fab

Posted: 12 Mar 2004 ?? ?Print Version ?Bookmark and Share

Keywords:smic? semiconductor? ic? cellphone? computer?

Semiconductor Manufacturing Int. Corp.'s massive 300mm (12-inch) semiconductor fab now under construction here may well be one of the most controversial - and celebrated - China development projects since Emperor Qin Shi Huang laid the foundation for the Great Wall of China in 214 B.C.

While China boasts over 30 working chip fabs, few are capable of producing wafers yielding the high performance, fine-line geometry ICs required for today's advanced cellphones, computers and consumer electronic devices.

SMIC's Beijing fab is meant to change that. It represents a bold gambit to alter the balance of power in the global semiconductor foundry market, a business that heretofore has been largely dominate by mostly Taiwan and Singapore suppliers.

At once a highly visible source of Chinese national pride, SMIC is also betting that the current ramp up in demand for foundry services in China, Asia and the rest of the world is a sustained boom that will prove SMIC right while allowing it to accelerate China's entry into the elite club of leading-edge chipmakers.

As SMIC's latest SEC F-1 filing points out, it's not a strategy without extremely high risks.

Perhaps the most complex calculus in SMIC's risk management algorithm was its choice of the Chinese capital as the site of the nation's first 300mm fab. Shanghai, Shenzhen and a dozen other cities scattered through out China are far closer to the epicenter of China's chip-consuming electronics manufacturing centers. But a state-of-the-art fab in Beijing, just like the Beijing Olympics in 2008, can potentially yield as much political capital and prestige as it can finished 300mm wafers.

Therein lies the rub.

To get a better perspective on SMIC's Beijing fab gambit, EE Times took a recent tour by car out of noisy, crowded Beijing, along the Tianjin Expressway, out beyond the fifth ring road of western Beijing, for a first-hand look at what SMIC CEO Richard Chang has wrought. The construction site is hard by the shadows of the Great Wall and a short drive from the legendary Forbidden City and Tiananmen Square.

Located in the central district of the Beijing Economic and Technology Development Area, Beijing's oldest and largest Silicon Valley-like development zone, the first thing one notices is the massive, out-sized scale of the SMIC plant, which looms over the horizon. With a huge plant footprint that takes up less than one-fourth of the actual steel-gated site area, there is plenty of room for expansion.

Rising high above the flat plain, the largely sheathed and scaffolded skeleton of SMIC's multibillion Sino dream factory is taking shape. From several perspectives, the only part of the project that looks complete are the pure water, cooling and specialty-gas feed facilities on the western edge of the site. The complex structure housing the plant's wafer fabrication facilities are still shrouded in scaffolding and central administration and office facilities are still under construction.

On March 6, 2004, cranes on the north (opposite) side of the plant were moving a massive, unidentified, aluminum foil-wrapped module into the upper stories of the fab portion of the plant.

When completed, the Beijing fab will have a total floor space of 179,858m2, 17,998m2 of which will consist of cleanroom production areas. SMIC plans to begin production at Fab 4 later this year, with wafer fabrication capacity of 45,000 8-inch wafer equivalents by the end of 2005. It plans to plans to begin production at Fab 6C in late 2005 and at Fab 5 as early as 2006. SMIC plans to use proceeds from its IPO to fund continuing construction of the Beijing and several other China facilities now under construction.

Construction on the Beijing fab began in October 2002 and controversy has swirled around the project ever since. For starters, signatories to the 39-member Wassenaar Arrangement on high-tech export controls are dedicated to preventing China from acquiring and developing the most advanced chip production processes and equipment for both strategic commercial and military reasons.

The U.S. Semiconductor Industry Association has spelled out in excruciating detail a litany of WTO, trade and intellectual property complaints against China in a 221-page white paper titled, "China's Emerging Semiconductor Industry: The Impact of China's Preferential Value-Added Tax on Current Investment Trends."

The report singles out SMIC - and the 300mm Beijing fab in particular - as representing everything that is wrong with China's aggressive and preferential policies geared toward developing a state-of-the-art domestic semiconductor manufacturing industry. Furthermore, the new 300mm fab - and more than a score of smaller low-tech fabs recently built in China by SMIC, Grace Semiconductor, ASMC and others - are a reminder of the fact that imported chips are subject to a 17 percent value-added tax. Domestically produced chips have only a 6 percent VAT, one of several factors fueling China's boom in fab construction. The 17 percent VAT is slated to be reduced in the next three to four years as China adheres to World Trade Organization rules governing international commerce. But today domestic foundries are taking advantage of this tax differential.

China's success in bringing a state-of-the-art semiconductor manufacturing plant here is also celebrated in both business and Communist Party circles as a major coup. Color-schemed blue and white (no red in sight), the Beijing fab's "China" genealogy is sufficiently ideologically suspect to cause Mao Zedong to turn over in his nearby Tiananmen Square tomb.

Chang's influence

It also strays wildly from reformist Deng Xiao Ping's China-first ideology. On close inspection, it seems more like an international technology consortium than it does a "China fab." Consider SMIC CEO Chang. Born in Nanking, his family fled the mainland for Taiwan when he was a child. A devout Christian, Chang worked at Texas Instruments for many years - building fabs. He founded Taiwan-based World Semiconductor Manufacturing Corp., a business that was later swallowed by Taiwan-based industry leader Taiwan Semiconductor Manufacturing Co. Ltd.

Financing for SMIC's China fab - nearly $3 billion invested to date - comes from multiple sources, including Wall Steet-based Goldman Sachs, Motorola, H&Q Asia-Pacific and the Shanghai municipal government, SMIC's China headquarters and Beijing's archrival.

The 300mm Beijing fab isn't exactly a showcase for China's semiconductor process prowess, either. Fabs 4 and 5, the two wafer production modules that will soon be housed in the massive plant, will run a 0.11?m CMOS DRAM trench technology. Process modules and production know how will be provided by German partner Infineon Technologies AG.

Fabs 4 and 5 will be process twins to SMIC's Fab 1, 2, and 3B in Shanghai. A third metal interconnect process line, Fab 6C will occupy the balance of space in the Beijing fab, and will be dedicated to back-end wafer manufacturing. In addition to technology and process partnerships with Infineon, SMIC gets a 200mm, 0.18?m process from Singapore's Chartered Semiconductor, a 0.21?m and a 0.15?m process from Japan's Toshiba, a 0.20?m and a 0.16?m FCRAM process from Fujitsu.

SMIC's customer list includes few China buyers, but is heavily weighted by companies like South Korea's Samsung, Fujitsu of Japan, Texas Instruments and Silicon Valley's Broadcom, Europe's STMicroelectronics and, of course, Infineon. Technology partners include Aplus Flash Technology, Inc., ARM Ltd, Artisan Components Inc., Elpida Memory Inc., IMEC, Motorola, VeriSilicon Holdings Ltd, and Virage Logic Corp.

All fabs, and especially the 300mm variety, live or die on the purity of two key ingredients, pure air and pure water. SMIC has addressed both of these risk factors for the Beijing fab. According to SMIC's SEC IPO disclosure document (F-1), the latest version of which was filed the day before EE Times visited the site, "our new Beijing fabs will be located in an area that is susceptible to seasonal dust storms, which could create impurities in the production process at these facilities and require us to spend additional capital to further insulate these fabs from dust, thereby adversely affecting our business and operating results."

As anyone who has watched hotel doormen and valets in downtown Beijing can attest, Beijing is "The Dusty City." Located due east of the largest desert in the world, the Gobi, constant thin-films of fine yellow dust fill Beijing's air most days.

Furthermore, the filing notes that "although we are constructing precautionary filtration systems, these may not adequately insulate the fabs against dust contamination. If dust were to affect production in the Beijing fabs, we could experience quality control problems, losses of products in process and delays in shipping products to our customers. In addition, we may have to spend additional capital to further insulate the Beijing fabs from dust if our current precautionary measures are insufficient. The occurrence of any of these events could adversely affect our business and operating results."

SMIC's SEC filing spells out even further the precautions it is taking against the dust storms that are the bane of Beijing and notes that "twelve-inch wafers have a surface area that is 2.25 times larger than the current industry standard 8-inch wafers, thereby enabling us to manufacture more integrated circuits on each wafer with lower per die costs. Fab 6C is being situated between the two wafer fabs, Fab 4 and Fab 5, and will provide the metal interconnects for the wafers produced by both of these fabs. This design is intended to prevent metal line contamination to the wafer fabrication processes while achieving greater flexibility in production. Our fab layout in Beijing is more compact than in Shanghai, which helps to reduce the risk of dust contamination."

In a city where not even the hardiest tourist would brave a drink of raw Beijing tap water, water supply and purity is no small matter. SMIC has noted that its source of fresh water for its Beijing fabs will come from Beijing Waterworks Group Co. Ltd., adding" because Beijing [and Tianjin] are subject to potential water shortages in the summer. Beijing and Tianjin are equipped with back-up reservoirs. We have taken steps to reduce fresh-water consumption in our fabs and capture rainwater for use at our Beijing facilities, and our water recycling systems in each of our fabs allow us to recycle 40 percent to 70 percent of the water used during the manufacturing process."

SMIC's ambitious and aggressive capacity-ramp plans for the Beijing fab are also revealed in the SEC document filing and include plans to "commence pilot and commercial production at Fab 4 in 2004."

Fab 4 is expected to have a total capacity of 6,750 8-inch wafer equivalents per month by the end of 2004 and 45,000 8-inch wafer equivalents per month by the end of 2005. SMIC plans to commence commercial production at Fab 5 in 2006 or thereafter. It plans to commence commercial production at Fab 6C, which will include a copper interconnects line, in late 2005.

In addition, it will increase the aggregate wafer fabrication capacity of its Shanghai fabs to 89,000 8-inch wafers per month by the end of 2004. Moreover, "we intend to increase the aggregate wafer fabrication capacity of our Shanghai fabs, Beijing fabs and Tianjin fab to 90,000 8-inch wafers per month, 45,000 8-inch wafer equivalents per month and 35,000 8-inch wafers per month, respectively, by the end of 2005," SMIC said.

Emperor Qin Shi Huang's Great Wall was also a risky and massive challenge, but it has stood the test of time. What's more, history has more often than not been on China's side. Once a mighty fortress that served as the first line of defense from invading hordes to the north, the Great Wall has more recently become a huge tourism magnet and cash cow.

Richard Chang is hoping for SMIC's and the Beijing fab's sake that he has hedged all his bets and calculated all of the risks carefully - and that history, more than the exigencies of the semiconductor industry's notorious business cycle, are on his side. If so, China's first 300mm fab in Beijing might prosper and achieve cash-cow status.

- Richard Wallace

EE Times

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