Morgan Stanley, a prominent investment bank, has significantly reduced its projections for Artificial Intelligence Graphic Processing Unit (AIGPU) revenues in China by a staggering fifty percent. This reduction comes in light of the yield issues plaguing the Semiconductor Manufacturing International Corporation (SMIC), China’s foremost chip production company. The ongoing U.S sanctions have drastically impeded SMIC’s capabilities to create cutting-edge chips via the latest lithographic tools, resulting in a decline in yields.
Therefore, SMIC now grapples with lower yield volumes, an issue comprehensively addressed in Morgan Stanley’s report. By 2027, SMIC’s best-case scenario appears to be an estimated monthly production of 18,000 AI chip wafers. The report further projects that the GPU yields for SMIC would dip to 30% by the end of the year.
In chip fabrication, the term ‘yield’ refers to the proportion of potentially usable chips each wafer can generate. Essentially, higher yield rates result in decreased costs for a company, allowing it to maximize revenue per wafer without bearing the financial brunt of chips that fail to meet quality standards.
The report from Morgan Stanley indicates that this domestic Chinese chip builder is on track to manufacture around 7,000 wafers per month within the current year. These wafers are planned to be primarily allocated for Huawei’s series of Ascend AI chips. For the time being, the production focus would primarily be on the Ascend 910B model, with plans to switch over to the 910C variant by 2026.
The Ascend 910C chip from Huawei is essentially a combination of two 910B dies. According to data from Morgan Stanley, a single 12-inch wafer from SMIC can contain 78 units of the 910B die or 39 units of the 910C die. Notably, some reports underline a crucial limitation of SMIC’s production capabilities, referring to its current capacity to manufacture chips of no smaller than 7-nanometers.
Entrapped within restrictions, SMIC has been unable to acquire the latest Extreme Ultraviolet Lithography (EUV) chip manufacturing equipment from ASML, an international supplier of photolithography systems. The EUV lithography proficiency enables the creation of considerably smaller circuits on silicon wafers compared to the traditional Deep Ultraviolet (DUV) lithography.
In reaction to this deficiency, SMIC has been compelled to employ patterning as a workaround solution. In the context of chip fabrication, patterning involves the division of a mask into segments, which allows circuits to be printed in a piece-by-piece manner.
Though it is theoretically possible to manufacture 7-nanometer chips using DUV chip tools, EUV tools offer advantages in terms of reduced production steps and improved cost-effectiveness and yields. Owing to these constraints, the cost of producing chips has increased for Huawei, as stated in the Morgan Stanley report.
As per the report, Huawei’s single 910B chip is expected to be priced at RMB50,000 for this year, whereas the 910C variant will be priced at RMB110,000. The elevated cost of the latter seemingly includes both the packaging expense and the price for two 910B dies.
Utilizing the estimated prices and output numbers, Morgan Stanley conjectures that for the years 2025, 2026, and 2027, SMIC’s potential revenues could reach RMB58.5 million, RMB94 million, and RMB136 million, respectively.
Moreover, the report reveals the low yield struggle persisting at SMIC. For the Ascend 910B in the present year, the yield rate rests at a low 30%, though Morgan Stanley optimistically predicts this rate to push to 70% by the year 2027.
Supplemental information also implies that these low yield rates have influenced the aforementioned revenue estimates for SMIC. In conclusion, this unraveling situation speaks to the severe impact international sanctions can have on a nation’s internal industry and technological progress.
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