China narrows HBM gap with Korea, technology lead down to 3 years

China is rapidly closing the high bandwidth memory (HBM) technology gap with Korea, with soaring DRAM profits expected to accelerate its push.

The technology gap between Korea and China in memory chips has narrowed to three years in HBM, two years in DRAM and one year in NAND flash, according to the Korea Semiconductor Industry Association on Sunday. A gap once estimated at more than five years has narrowed to one technology generation or less in memory chips.

Signs of that progress are already emerging. China's CXMT is testing its fifth-generation HBM, HBM3E, with local fabless chip companies including T-Head, an Alibaba subsidiary. CXMT plans to launch information technology products using the chips as early as next year. HBM3E is just one generation behind HBM4, which is being produced by Samsung Electronics, SK hynix and U.S.-based Micron.

“China is catching up in semiconductor technology at a pace that defies conventional expectations," Baek Seo-in, a professor of Chinese studies and robotics at Hanyang University's Erica Campus, said. "It is effectively squeezing two or three years of progress into a year. Government support, a vast domestic market and a strong research ecosystem are working together to rapidly accelerate technological development.”

China's advance in HBM is particularly concerning because the growth has come despite U.S. restrictions.

Extreme ultraviolet (EUV) lithography equipment, used to create extremely fine circuit patterns for advanced chips, is essential for manufacturing advanced HBM. But China has been unable to acquire EUV equipment under U.S. restrictions on exports of advanced chipmaking technology to the country.

China has instead turned to back-end processes, particularly advanced packaging and heterogeneous integration, which involve stacking and connecting chips. Advanced packaging combines multiple chips in a single package to improve performance and efficiency, while heterogeneous integration connects different types of chips into one system.

CXMT has incorporated X-Stacking, a 3-D NAND flash bonding technology developed by China's YMTC, into its HBM design, Taiwanese tech publication DigiTimes reported. The technology directly bonds two wafers to shorten the distance between circuits, allowing greater bandwidth and lower heat generation without EUV equipment.

CXMT is also joining forces with major Chinese back-end companies. Wuhan Xinxin Semiconductor Manufacturing handles wafer packaging, while Tongfu Microelectronics handles assembly and testing for HBM production.

Huawei, meanwhile, has laid out a goal of achieving a 1.4-nanometer-class process without EUV by 2031 using a “logic folding” approach, which folds memory in half rather than stacking it.

Samsung Electronics and SK hynix's focus on high-margin advanced products such as HBM and server memory may have ironically opened the door for their Chinese rivals. Chinese companies have begun generating cash from the mainstream memory market and reinvesting it in next-generation production capacity and HBM research and development, creating a virtuous cycle.

A worsening shortage of mainstream DRAM, including double-data rate 5 (DDR5) used in PCs and smartphones worldwide, sent prices soaring 98 percent in the first quarter from the previous quarter. CXMT and YMTC have moved quickly to fill the supply gap and expand their shares of the mainstream memory market.

CXMT accounted for 10 percent of the global DRAM market in the second quarter, more than double its 4 percent share a year earlier. That put it in fourth place behind Samsung Electronics at 38 percent, SK hynix at 25 percent and Micron at 24 percent, according to market tracker Counterpoint Research.

YMTC's share of the NAND flash market stood at 14 percent in the second quarter, up from 9 percent a year earlier. Samsung Electronics came first with a 28 percent share, followed by SK hynix at 19 percent and Micron at 15 percent.

YMTC is aiming even higher. The company told investors and stakeholders that "it wants to take the global NAND crown by as soon as the end of 2027" at a recent initial public offering preparation meeting, Financial Times reported on Aug. 26.

The gains in market share have also translated into a surge in earnings.

CXMT's revenue surged 873.6 percent on year to 150.31 billion yuan ($22.4 billion) in the first half. Of that, 95.8 billion yuan, or 64 percent of its revenue, came from outside mainland China, which indicates that the company has already established a significant presence in the global supply chain.

CXMT also swung to a net profit of 77.6 billion yuan in the first half from a net loss of 2.33 billion yuan a year earlier.

Its profitability has also surged. CXMT posted an operating margin of 82 percent in the second quarter, topping SK hynix's 76 percent and the 70 percent posted by Samsung Electronics' semiconductor business. The figures suggest Chinese chipmakers are no longer relying on the low-margin, high-volume strategy that characterized their earlier expansion.

Chinese semiconductor companies that spent years producing chips despite losses are now benefiting from the semiconductor supercycle, turning profitable after a decade and amassing cash to fund further research and development.

“Chinese companies are countering U.S. export restrictions on advanced chips and equipment by finding alternative ways to source key components and developing their own technologies,” Kim Yong-seok, chair professor at Gachon University's College of Semiconductor, said. “With China’s HBM push gaining momentum on the back of its vast domestic market and growing financial resources, Korea’s chip industry needs to step up its response.”

The bigger threat may still lie ahead. CXMT, which recently raised more than 13 trillion won ($9.66 billion) through its listing on the Shanghai Stock Exchange, is accelerating the expansion of its production bases in Hefei and Shanghai.

Apple has reportedly tested CXMT memory for use in products exported from China, the Wall Street Journal and other outlets reported. CXMT has also filed a lawsuit against the U.S. Defense Department seeking removal from its list of Chinese military companies as it works to lower barriers to entering the global supply chain.

BY KIM KYUNG-MI [[email protected]]