HSMC is now broke and heading for the courts. Jiemian News finds out what went wrong with China’s great hope for high-tech self-sufficiency.
Ghostly factories of HSMC stand unfinished in Wuhan and empty while 128 billion yuan has vanished in
By PENG Xin
Wuhan Hongxin Semiconductor Manufacturing Company (HSMC) was once the darling of China’s chip-making hopes. Three years later, the grand project has hit the wall. Ghostly factories stand unfinished and empty while 128 billion yuan (US$ 18.8 billion) has vanished into the mist.
CEO Chiang Shang-Yi, previously head of Taiwan Semiconductor Manufacturing Company (TSMC) was the public face of HSMC, frequently appearing with government officials. HSMC’s website boasts of a team experienced in advanced FinFET and wafer-level packaging and an expected production line making 30,000 chips per month.
The abrupt collapse is not the first blunder in China’s Pollyanna bid to become self-sufficient in high-tech chips.
Hasty commitment leads to failure, waste, and cascading problems. Research institute ICwise reckons the fate of HSMC, along with GlobalFoundries and Tacoma, should be a warning to governments on the lookout for semiconductor opportunities. The other two companies have also crashed and burned.
From the very beginning, HSCM talked a very big talk. It adopted a “communal integrated circuit” model, fashionable among Chinese semiconductor start-ups, which supposedly aligns chip designing and manufacturing with targeted markets and customers. A factory was to employ at least a thousand people to make 14-nanometer chips. China’s first 7-nanometer chip fabrication line was promised before HSCM eventually “mastered” its own chipset technology.
Early progress was reassuring. Wuhan government said the factory, then still under construction, had purchased and installed China’s first extreme ultraviolet lithography (EUV) machine to print 7 nm and smaller chips. The thrills kept coming in 2019 when HSMC onboarded Chiang Shang-Yi. Chiang had helped TSMC grow to control more than 50 percent of the contract chip manufacturing market. In his first public appearance with HSMC, he spoke of advanced wafer-level packaging, the technology used on a large scale during his time at TSMC.
“Many domestic chip developers are having a hard time chasing Moore’s law,” he said, referring to the prediction that computing power would grow exponentially as chips get smaller. “Chip-level system integration, made possible by next-generation packaging technology, can be a way out.”
Not everyone bought Chiang’s rhetoric. Analysts thought that even with the technology, the project may be unfeasible given the enormous amounts needed for research, equipment, and operations. Investors with no semiconductor background are unwilling to pour in the kind of cash needed to keep the project going.
And exactly where is the legendary EUV machine? Dutch manufacturer ASML sells them at over a hundred million dollars each. Printing tiny patterns onto nanometer wafers is considered essential in the mass production of 7 nm chips. HSMC’s purchase was a testament to its ambition to beat off all domestic competition in the race to catch up with Samsung and TSMC, the only makers of 7 nm chips.
However, HSMC’s asset sheet makes no mention of a EUV machine, just DUV (deep ultraviolet) equipment, only good for 14 nm chips. Many domestic manufacturers have this machine. But even this relatively unglamorous device was pledged as collateral to a local bank before it had a printed a single chip.
It is unclear how much of the fabled 128 billion yuan made it into the company’s coffers. Work on the first phase of the factory started in 2018. The second phase had barely started when it was suspended due to funding problems. In November 2019, a 41-million-yuan lawsuit was filed by HSMC’s subcontractors and the court froze the company’s bank account, along with 300 acres of land appropriated for the second phase. Tens of millions in unpaid bills have since been unearthed.
Although the local government later managed to free up the land, no more money has been forthcoming from the central government due to a lack of land and environmental documentation. A half-finished factory has been all but abandoned.
Further complicating the matter is the identity of the investors. Publicly disclosed information shows that 90 percent of HSMC shares are held by a Beijing-based private company, represented by two people named Li Xuanyan and Mo Sen, names unfamiliar to the semiconductor industry. Despite this, HSMC was still able to acquire “major project” status from the local government, who owns the remaining 10 percent of shares.
Before the crisis, HSMC was reported to have poached talent from TSMC and others, but insiders suspect that, if not actually fabricated, the reports were hugely optimistic. It is doubtful whether HSMC, with all its problems, would inspire any enthusiasm among veterans or fresh blood in the industry.
Chiang has acknowledged “some issues” and is rumored to be quitting. Li Xuanyan and Mo Sen, the two mysterious investors, have never been since a company event in early July.
Unless a white knight miraculously appears, HSMC will remain “the local government’s burden,” according to a semiconductor analyst. Until the miracle arrives, the unfinished factory is likely to remain at the mercy of the elements, another sobering reminder of the arduous journey to chip self-sufficiency.
