Huawei drives China’s push to make its own advanced chips

Huawei is at the centre of a drive to eliminate foreign technology from China’s semiconductor supply chain by backing companies developing components for machines that can produce the most advanced chips.

The Chinese tech giant is investing across the industry behind making lithography chipmaking equipment, while helping secure deals with leading Chinese fabs such as SMIC, as it seeks to build a domestic alternative to foreign suppliers, according to multiple people familiar with the matter.
One of the most significant efforts involves Yuliangsheng, a Shanghai-based chip equipment manufacturer that has co-developed the first Chinese-made advanced deep ultraviolet lithography (DUV) machine, according to people familiar with the matter.

Yuliangsheng has been spun out from SiCarrier, a start-up that the FT has previously reported has close technical and business ties to Huawei. Huawei has denied any affiliation with SiCarrier.

The DUV machine is being tested by Chinese chipmakers including SMIC and on Huawei’s own production lines, the people said. Its makers are targeting the machine to eventually make advanced AI chips, but it is being tested on less complex semiconductors as engineers improve the device.

Lithography remains one of the biggest obstacles to China’s push for semiconductor self-sufficiency. Local chipmakers still rely heavily on the Netherlands’ ASML for the equipment needed to manufacture advanced semiconductors, while domestic alternatives lag on critical components including projection lenses and high-powered light sources.

Huawei is seeking to close those gaps by backing local suppliers and helping push their equipment into commercial fabs, where years of testing and refinement are needed before domestic machines can compete with established foreign equipment. Success would also leave China less vulnerable to western export controls.

“Huawei is playing a project management role in China’s DUV push,” said Lin Qingyuan, a semiconductor analyst at Bernstein. “Simply having a DUV prototype is not enough. You need thousands of vendors and customers to work together to push it forward and a central orchestrating power to bring this effort together.”

Yuliangsheng is set to produce 12 DUV machines by the end of this year, according to one person familiar with the matter, although the company remains a long way from competing with ASML.

The Dutch company’s machines are essential for manufacturing cutting-edge semiconductors but western export controls prevent sales of its most advanced equipment to China.

The FT previously reported that SMIC was testing a 28-nanometre Yuliangsheng machine and using so-called multi-patterning techniques to produce 7-nanometre chips, according to two people with knowledge of the development. In chipmaking, lower nanometre numbers generally denote more advanced generations of chips.

Yuliangsheng’s machines will take several years to reach their ASML equivalent’s productivity level, requiring lengthy verification and fine-tuning.

With the support of Shanghai Micro Electronics Equipment, a longstanding local lithography manufacturer, Yuliangsheng is developing multiple DUV prototypes. Some rely on critical foreign components, while others are testing local alternatives.

DUV machines contain tens of thousands of parts across roughly a dozen major component groups. Chinese suppliers lag behind foreign rivals in two of the most complex: projection lenses and light sources.

Huawei’s corporate venture arm Habo, which invests in areas where China relies on foreign technology, and another Huawei-backed fund, Shenzhen Yuanzhi Xinghuo, have both backed suppliers targeting critical equipment bottlenecks.

Yuliangsheng uses projection lenses made by Germany’s Zeiss for its DUV machines, according to two people familiar with the matter. Zeiss said it only sold its lithography optics to ASML.

Industry insiders said it was possible to secure the lenses on the secondary market in China.

Both Habo and Shenzhen Yuanzhi Xinghuo have backed Zeiss competitor Fujian Zhiqi Photonics, an ultra-precision optics manufacturer spun out of Shenzhen-listed optical materials group Castech in 2022. In 2023, Yuanzhi Xinghuo invested Rmb100mn (about $15mn) for a 37 per cent stake.

Castech, which traces its origins to a Chinese Academy of Sciences research institute, is a leading manufacturer of optical crystals used in laser systems and has previously disclosed that ASML and Huawei are among its customers.

Zhiqi is developing ultra-precision optical components, including lenses that seek to displace Zeiss and which the company said have been used in “key systems of major domestic technical equipment”.

Another major bottleneck in China’s attempt to develop domestic lithography equipment is the light source. Japanese supplier Gigaphoton and ASML subsidiary Cymer are the dominant suppliers.

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“This is a key technical hurdle for China,” said Bernstein’s Lin. “Building a light source is easy, but having one that works very stably at such high power is difficult.”

Multiple industry executives pointed to progress by Beijing RSLaser Opto-Electronics, a leading developer of the type of light source used in DUV. RSLaser has also received investment from Huawei’s Habo.

RSLaser has supplied light sources for older-generation DUV equipment made by Shanghai Micro Electronics Equipment, according to public disclosures. RSLaser is also working with SMEE on the light source for its 28nm DUV machine, Chinese media have reported.

Commercial adoption remains a problem, however. Multiple industry insiders said that while leading fabs such as SMIC have purchased and are testing Yuliangsheng’s DUV machines, they still rely on those made by ASML.

ASML’s sales in China continue to be robust and are projected to total a fifth of its revenue this year, despite significant stockpiling in recent years.

Memory-chip makers CXMT and YMTC have both stocked up enough DUVs from ASML to cover their expansion plans over the next three years, according to a person with knowledge of the matter.

“Chinese DUV capabilities have improved significantly, but they are still lacking the full support of the fabs,” said Lin. “ASML is a leader today because of its collaboration with TSMC.”

He added that US restrictions could inadvertently accelerate China’s progress by forcing domestic chipmakers to work more closely with Chinese equipment suppliers. “If the restrictions push local fabs to collaborate with local DUV suppliers, they could increase their technological capabilities much faster than expected.”