In recent years, the state has issued intensive policies to promote the sustainable development of the semiconductor industry. Among the eight preferential policies for semiconductors issued this year, there is only one fiscal and taxation policy-- integrated circuit production enterprises or projects that are encouraged by the state with a linewidth of less than 28 nm (including) and have been operating for more than 15 years, exemption from enterprise income tax from the first to the tenth year will be of great benefit to the relevant enterprises.

Among them, semiconductor contract manufacturing leader Semiconductor Manufacturing International Corporation (00981) is also one of the beneficiaries of policy promotion. In the third quarter of this year, the company's revenue and net profit reached an all-time high. Semiconductor Manufacturing International Corporation's share price has also risen by more than 90 per cent during the year. Today's Semiconductor Manufacturing International Corporation can be said to have reached the capacity of international leading manufacturers, but there is still a long way to go to the level of world-class wafer manufacturers.

The proportion of income from advanced process has increased rapidly.

Zhitong Financial APP learned that with the gradual recovery of downstream industries after the public health incident, Semiconductor Manufacturing International Corporation achieved revenue of US $1.083 billion in the third quarter, up 32.6% from the same period last year and 15.3% from the previous period, exceeding the previous quarter-on-month increase of 1%. The net profit of returning mother was US $256 million, up 122.7% from the same period last year, both of which reached a record high for a single quarter.

At the same time, the company's gross profit margin fell slightly to 24.2% from the second quarter, but still exceeded the previous guidance of 19% Murray 21%. By contrast, the company's home-ownership net profit margin has continued to improve since the first quarter of this year.

According to the company, the increase in sales in the third quarter was mainly driven by strong demand for orders, a rise in wafer ASP and other revenue increases. Some analysts also believe that the better performance of the company's revenue growth is driven by changes in the product mix on the one hand, and it may also be related to H customers pulling goods centrally before September. As a result, the company's annual revenue growth forecast has also been revised up to 24% to 26%, and the annual gross profit target is higher than last year.

Specifically, the company sold 1.44 million wafers in the third quarter, an increase of 9.5% over the same period last year; monthly production capacity also increased from 480000 in the second quarter to 510000; capacity utilization has been higher than 97% for five consecutive quarters, and the boom has remained high.

In terms of income structure, according to the type of service, the proportion of wafer foundry income reached 85%; according to the type of application, smartphone income accounted for 46%. Smart home income is also significantly higher than in the past, accounting for 20.5% in the third quarter, up from 16.4% in the second quarter.

Among them, the rapid improvement of the proportion of 14nm/28nm advanced technology is one of the bright spots in the company's quarterly report. By the third quarter of 2020, Semiconductor Manufacturing International Corporation's 14nm/28nm process income accounted for 14.6%, an increase of 10.3% over the same period last year.

Zhitong Financial APP learned that Semiconductor Manufacturing International Corporation 14 nano chips entered a small-scale mass production stage in the fourth quarter of 2019, accounting for 1.0% and 1.3% of the company's 14nm process revenue by the fourth quarter of 2019 and the first quarter of 2020, respectively. Since the second quarter of 2020, it has been shown in conjunction with the 28nm process, so it is not possible to determine the specific revenue share of the 14nm process.

But on the whole, the company made smooth progress in the more advanced process technology in the third quarter. From the composition of the product portfolio, the revenue share of micron products has decreased, and the proportion of sales has gradually shifted to the advanced technology side. The increase in the proportion of 14nm/28nm process is particularly significant.

According to the management, the yield of Semiconductor Manufacturing International Corporation's 14nm process chips has now reached the industry standard, which means that the yield of its chips has reached 95%.

Up to now, 14nm process is a watershed in the field of chip manufacturing, with only Taiwan Semiconductor Manufacturing Co Ltd, Intel Corp, Samsung, Groufonde, United Microelectronics Corp and Semiconductor Manufacturing International Corporation mastering 14nm process nodes. The yield of Semiconductor Manufacturing International Corporation 14nm process has reached the mass production level of the industry, and its scale is second only to Taiwan Semiconductor Manufacturing Co Ltd and United Microelectronics Corp in the global contract factory.

However, as the management of the company mentioned at the performance meeting, the company's R & D tasks are basically completed this year, and even if FinFET achieves results, there are still many gaps and ways to go compared with the level of world-class wafer factories.

Catch up with 7nm process technology

Throughout the global chip manufacturing field, the major manufacturers are not short of customers, but lack of capacity. As a semiconductor foundry, the first thing we should look at is technology, followed by revenue, and finally profit.

At present, Semiconductor Manufacturing International Corporation is one of the only six manufacturers in the world to master 14nm process nodes, and is a professional foundry manufacturer with complete and mature logic process, the first breakthrough and the only 14nm production capacity in mainland China. In the competition of 7nm process, Samsung and Taiwan Semiconductor Manufacturing Co Ltd are the only manufacturers in the world capable of providing 7nm process OEM.

Among them, in the advanced process, Taiwan Semiconductor Manufacturing Co Ltd undoubtedly maintained the most leading edge in technology. At present, both Taiwan Semiconductor Manufacturing Co Ltd and Samsung can mass produce 5nm chips, but Samsung's yield is not as high as Taiwan Semiconductor Manufacturing Co Ltd. In addition, Taiwan Semiconductor Manufacturing Co Ltd 4nm chip is expected to start mass production in 2021, 3nm will be trial production in 2021, mass production in 2022, and 2nm chip is expected to be mass production in 2024. It is reported that Apple Inc, Intel Corp and others have given the chip order of 3nm to Taiwan Semiconductor Manufacturing Co Ltd in advance.

In terms of production equipment, according to ASML financial reports, 35 EUV lithography machines are expected to be delivered in 2020 and 45 to 50 in 2021. Considering the impact of public health events, the maximum annual output of EUV equipment is only about 30. EUV lithography machines as indispensable equipment for the production of chips below 7nm, Taiwan Semiconductor Manufacturing Co Ltd has confirmed orders with ASML for 2020-2021, and issued orders for about 15-16 units and 16-17 sets of equipment in 2020 and 2021 respectively, that is, he won more than 30 EUV lithography machines in two years and invested about 24 billion yuan. Judging from the current situation, Taiwan Semiconductor Manufacturing Co Ltd is the main purchaser of lithography equipment, followed by Samsung and Intel Corp.

At present, in order to achieve technological breakthroughs, Semiconductor Manufacturing International Corporation has carried out Nylon 1 and Nylon 2 process strategies to catch up with 7nm processes. Among them, Numb1 process has entered the customer import product certification stage, has been a small trial production, compared with 14nm performance can be improved by 20%, mainly for low-power applications. This process is already ahead of Grid Core's 12nm and United Microelectronics Corp's 14nm.

After that, Semiconductor Manufacturing International Corporation is also expected to launch Ninten2 in 2021, targeting high-performance applications. According to Dr. Liang Mengsong, CEO of the company, Semiconductor Manufacturing International Corporation will not use the EUV process in the current environment, and only after the equipment is ready will the process change to the EUV lithography process.

Thus it can be seen that under the existing R & D process of Semiconductor Manufacturing International Corporation, the company is moving towards the third contract manufacturer to master 7nm technology. However, in addition to the time required for the advanced process to iterate, the company's entry into the real 7nm process stage is also limited by production equipment. And this may be the gap between the performance of management and the level of "world-class fab".

There is still one lithography machine short of the "world-class" level.

Zhitong Financial APP learned that in the current types of lithography machines, deep ultraviolet lithography (DUV) uses the light source wavelength of 193nm, usually can only use the 25nm process. The light source wavelength of extreme Ultraviolet Lithography (EUV) is 13.5nm, which is a necessary tool to break through the process node of 7nm chip.

As early as early 2018, Semiconductor Manufacturing International Corporation entered into a purchase order for the first EUV lithography machine with ASML in the Netherlands, worth about US $120 million. Delivery was originally scheduled for the end of 2019, but it was delayed due to the absence of a new export licence.

Judging from the equipment composition of the EUV lithography machine, its lens is supplied by Zeiss in Germany, a large number of patented technology comes from Hynix in South Korea, high-power light source is provided by the United States, and nearly 85% of the parts are provided by suppliers around the world. Although affected by the external environment, ASML itself does not want to give up the Chinese market.

At the third Expo, ASML took the initiative to participate in the exhibition and showed the infiltrating DUV lithography machine which can produce 7nm process chips. After multiple exposures, the infiltrating DUV can also reach the threshold of 7 nm process, or even further. Moreover, the export of the infiltrating DUV lithography machine does not need to apply for an export license.

Liang Mengsong, CEO of Semiconductor Manufacturing International Corporation, also introduced that in the development of 7nm process, N7 + process just began to use EUV process, and the number of mask layers is less. Only on the 5nm node, the EUV lithography process is fully utilized, and the 14-layer EUV mask is achieved.

The infiltrating DUV lithography machine shown by ASML, even if it can break through the 7nm threshold, also needs to undergo multiple exposures, which will greatly increase the cost. Industry insiders have pointed out that the use of DUV lithography machine to produce 7nm chips requires at least four times the number of exposures of EUV.

Prior to this, Taiwan Semiconductor Manufacturing Co Ltd used DUV lithography in 7nm research and development, and then gradually converted to EUV lithography. Thus it can be seen that ASML's DUV lithography is not a very advanced technology. Semiconductor Manufacturing International Corporation still needs the help of more advanced lithography equipment if he wants to further reach the threshold below 7nm.

However, the 7nm process is still an area where few companies have made breakthroughs in chip manufacturing, with the exception of Taiwan Semiconductor Manufacturing Co Ltd, Samsung and Intel Corp, who are catching up, other competitors have given up because of excessive resource consumption. Semiconductor Manufacturing International Corporation has been in the forefront of the world in the research and development of Nylon 1 and 2 technology, and has the ability to surpass the second-tier international manufacturers.

At present, most of the chips used in the fast-growing industries such as the Internet of things, loT and automobile are 12/14nm process technology. In the 5G era, optics, power devices and RF devices with the highest demand for semiconductors also use 28/40nm process, which accounts for a large part of the profits of the industry. 7nm and 5nm are currently mainly used in high-end mobile phones and computers.

From this, it can be said that Semiconductor Manufacturing International Corporation is one of the few pursuers who are striding forward to the international front-line manufacturers.