China’s greatest chipmaker SMIC appears to have been manufacturing superior chips in the previous couple of months — defying U.S. sanctions designed to decelerate Beijing’s progress.

However there are nonetheless some main challenges to China’s bid to grow to be extra self-sufficient within the semiconductor trade, with questions swirling across the long-term viability of its newest developments.

SMIC is China’s greatest contract semiconductor producer. The nanometer determine refers back to the measurement of every particular person transistor on a chip. The smaller the transistor, the extra of them might be packed onto a single semiconductor. Sometimes, a discount in nanometer measurement can yield extra highly effective and environment friendly chips.

The 7 nanometer course of is seen as extremely superior on the earth of semiconductors, despite the fact that it is not the newest know-how.

It was a giant deal on the time. However final week, the Monetary Occasions reported that SMIC is organising new manufacturing traces to make 5 nanometer chips for Huawei. That will sign even additional development for China’s greatest chipmaker.

The chips in Apple’s newest high-end iPhones are made on a 3 nanometer course of.

With out EUV instruments, consultants thought, SMIC would discover it troublesome to make 7 nanometer and smaller chips, or would at the very least discover it costly to take action.

So when the Huawei Mate 60 got here out final yr with a 7 nanometer chip, that raised quite a lot of eyebrows.

One knowledgeable advised CNBC on the time that SMIC is probably going utilizing older chipmaking instruments to make extra superior chips.

The FT reported one thing comparable final week. The newspaper, citing two folks with data of the plans, reported that SMIC is aiming to make use of its current inventory of U.S.- and Dutch-made semiconductor gear to provide 5 nanometer chips, an development on the 7 nanometer.

“SMIC is working very intently now with each home instrument makers, leveraging its current base of superior lithography gear, and drawing on different exterior experience, equivalent to from Huawei, to consistently enhance yields on superior node processes,” Paul Triolo, an affiliate associate at consulting agency Albright Stonebridge, advised CNBC by way of e mail.

“So for now it’s potential for SMIC to proceed to enhance capabilities and yields at 7 and shortly 5 nm, for a small variety of prospects, principally Huawei.”

Utilizing older gear to make extra superior chips poses two main challenges.

The primary is that it is dearer to provide the semiconductors than if extra superior instruments and equipment had been used. The second is a matter round yield — the variety of usable chips which might be produced and might be bought to prospects. With older gear, the yield can be decrease.

The FT additionally reported, citing three folks near Chinese language chip corporations, that SMIC needed to cost 40% to 50% extra for merchandise from its 5 nanometer and seven nanometer manufacturing processes than TSMC does on the identical nodes.

TSMC, or Taiwan Semiconductor Manufacturing Firm, is the world’s largest and most superior contract chip producer. TSMC makes semiconductors for corporations from Apple to Nvidia.

Pranay Kotasthane, chairperson of the excessive tech geopolitics program on the Takshashila Establishment, advised CNBC that SMIC and China may preserve throwing cash on the course of, however finally, prices will proceed to rise with every extra superior era of chips — except the corporate can get its arms on an ASML EUV machine.

“SMIC may overcome present yield points by investing more cash. This funding may even come from governments as this has grow to be a problem of nationwide status,” Kotasthane mentioned by way of e mail.

“However the extent of underwriting increased prices will solely improve with each subsequent era of chips. The prices will preserve compounding except China finds a serious different for EUVs.”