China’s Semiconductor Industry: Autonomy Through Design?

China's chip design relies on foreign design tools and manufacturing 

Underlying the success in designing world-class chips, China's capability to design chips, particularly high-end digital logic processors, is dependent on design tools from foreign companies. Just three companies share 80% of the €8 billion global market for such design tools: Synopsis, Cadence, and Mentor. There are no indigenous companies in China that enable full end-to-end design and verification. Only a handful of small companies create design tools, and those focus on niche specialties, such as control circuits for flat-panel televisions, rather than full design suites that enable designing processors. 

Prior to 2019, China's reliance on foreign design tool software was not remarkable. The semiconductor industry has a complex global supply chain, with multiple layers of interdependencies. However, when Huawei was placed on the U.S. Entity List in May 2019, U.S.-based Synopsis and Cadence were prohibited from providing new software or updates to Huawei or HiSilicon as a consequence of more restrictive export licensing. Design tools are software that could still be used after the updates were prohibited, and can be hacked despite built-in security. The consequences of losing access to the updated software will take time to become visible in diminishing the capacity to design new chips. While China will prioritize supporting indigenous design tools going forward, these design tools are complex and the result of decades' worth of industry consolidation and international collaboration, which will make duplicating a full-flow design tool difficult. 

Huawei has publicly stated that its Fall 2020 shipment of smartphones may be the last with the new Kirin processor, and sales may dramatically fall off thereafter if Huawei is unable to continue accessing a leading edge processor for its phones. More time is needed to understand if the U.S. restrictions will actually undermine Huawei, or if it will navigate forward with alternative foreign suppliers. 

Even as the design capability in a number of China-based companies has dramatically increased, the inability to fabricate leading edge designs within China remains an Achilles' Heel. This is the case despite the fact that such dependence is not unique to China; fabless design companies all over the world share this dependence, which is usually seen as merely a consequence of specialization with no particularly alarming national security implications.

Emerging commercial trends might contribute to accelerating China's advancement 

Even though China's semiconductor industry is likely to lag the capabilities of the world leaders in chip manufacturing for the foreseeable future, there are emerging opportunities that might accelerate how quickly the design segment of the PRC's semiconductor industry develops. The vertical integration in the tech giants presents the mostly likely path to enhance self-sufficiency in design. This would not address the dependence on foreign manufacturing, but it could mitigate dependence on foreign design tools and foreign intellectual property. 

Instead of playing catch-up, China may eventually lead in the design of new types of processor chips. These companies can use vertical integration to serve their existing business while simultaneously developing technology for the emerging markets that China has designated as strategically important. 

If China develops clout as a hub for emerging processor designs, it could develop a route to influencing the design software as well. The recent emergence of an open source model for a processor's instruction set architecture, combined with the rise of chip design in vertically integrated companies, may define that route. The present model for processor designs is either a proprietary design sold by vendors as a stand-alone chip (e.g. Intel), or the license of intellectual property that can be combined with a chip designer's own innovations and fabricated through contract manufacturing. The license business model is currently dominated by Arm Holdings (which Nvidia recently agreed to acquire, and maintain the U.K. intellectual property). Arm sells its processor designs to nearly all smartphone suppliers. 

An open source paradigm for processors has emerged recently as a challenge to the current dominance of Arm's processor. The RISC-V open source architecture was originally developed at the University of California at Berkeley to facilitate teaching microprocessor design, and is based on a reduced instruction set computing architecture useful where power efficiency is prioritized, such as smartphones. The open source paradigm removes the large barrier-to-entry expenses that companies otherwise face when licensing and, more significant to companies in China, also avoids being subject to export restrictions. China's first major RISC-V design was revealed in July 2019 when Alibaba Pingtouge announced its Xuantie 910, a processor designed for workloads found in edge servers, networking and autonomous vehicles. 

CRVA explicitly educates its members on export restrictions, and promotes RISC-V as a possible route to national self-sufficiency in design. If China's tech giants become dominant in new classes of processor design, they may have the market power to set the ecosystem of the design tools as well. This is a space that industry and national security technology specialists alike will need to monitor closely. 

Conclusion 

Recent U.S. export restrictions on Huawei highlight that China's semiconductor industry does not currently have the domestic capability to serve its own companies. The design segment of the industry is capable of globally competitive chip design, but its leading edge is reliant on foreign suppliers for manufacturing, software design tools, and licensed intellectual property. In the short term, China is unlikely to reach parity with leading edge capabilities, or achieve self-sufficiency. But as the global industry evolves with new political incentives and constraints, structural changes that were not intended may well begin to emerge, such as a shift to open source processor architectures that are not subject to export restrictions.

Copyright : STR / AFP