The Peter Zeihan Podcast Series - Why Huawei's 7nm Chip Isn't a Big Chinese Breakthrough || Peter Zeihan

Episode Date: September 13, 2023

The Chinese telecom firm Huawei (the same firm that was caught modifying equipment on behalf of the Chinese government) has released a new phone with a seven-nanometer chip.Full Newsletter: https://mailchi.mp/zeihan/why-huaweis-7nm-chip-isnt-a-big-chinese-breakthrough

Everybody, Peter Zine here, coming to you from Phoenix where it's 180 billion degrees outside, so we're going to do this one from inside. A lot of you have written in, and honestly, I was pretty curious myself about something that's going on in China with the telecommunications from Huawei. Now, that is a firm that stands accused, or guilty really, of trying to modify wireless equipment and cellular equipment for the wider world so that the Chinese government can have a cheap and easy insight into everyone's communications. They got discovered by the Australian, The Australians basically alerted everybody else. And now we're dealing with widespread sanctions by, led by the Americans, but participating

by every major country in the world that does the production of cellular equipment. And it's kind of crushed their business model. Now, in the last month, they have released a new phone, which is their first in a while, because it took them a while to do anything without the ability to import equipment from anywhere else. And it has a seven nanometer chip in it. And for those of you have been watching me for a while, I've said that there's not a lot that the Chinese can do that's better than 90.

nanometers. That's what they can do themselves without external help. And 28 nanometers, because of sanctions, is about the best they can hope for. So seven, obviously, potentially a very big deal. So we took a little bit of time. We dug into the details. And the short version is I'm not as worried as I was when this first came out. And it has to do with what the Chinese have access to. There are two types of chip making styles. The first uses something called deep ultraviolet, and that's what was used for this chip. Now, this is an older technology. that has a number of drawbacks. You basically have to customize your equipment

and modify your equipment for each individual chip design. So every time you have a new design, you have to kind of overhaul your factory and your lithography system from the ground up. And the way that the Chinese have done this is basically pirating design details from TSM in Taiwan and then hiring just a huge number of people to do some technology transfer.

They basically, especially when sanctions kicked in, in just basically were told they have a bottomless budget to go out and build a sub 10 nanometer chip. And they did. And it cost them five times as much as it should have. And the chip that they end up making wasn't that great because they couldn't do the design. That information, those people, they weren't able to hire away. So it's basically a crypto mining chip made with a little bit smaller etching, which means that for a phone is really not a great option. More importantly, probably from the Dutch point of view, the Dutch are the ones who make this equipment is that this theft started well before the sanctions run, but the sanctions have only

been in place for two, maybe three years now. This started five years ago. So it is the pedultimate expression of what the Chinese can do with a bottomless supply of money and absolutely no business ethics and the ability to hire anyone they want, all of which is, you know, an under threat in the sanctions regime now. So, you know, kudos for being able to get something sub seven, but it's only about as good as your average smarts phone from maybe 2017, which is not nothing, but it's certainly not the breakthrough that some people seem to think it is. The second sort of technology is called extreme ultraviolet, and that is what you do to do all the good chips and the leaving its chips now, especially the three and the five nanometers that most smartphone

folks are wanting to put in their machines. This system is much more modular, and you don't have to redesign everything from the ground up. So when it finally did come online, which is just like four, maybe, you know, about four years ago, everyone was really excited because all of a sudden the time to target for bringing a design to production could be shrunk. It's still talking months to years, but you don't have to refabricate everything within your facility every time you have a new chip designed. And so far, it seems to be performing to snuff. And it's this sort of equipment that the Chinese can't get at all. In fact, don't have any of at all in the country. So, the DUV, they were able to use the stuff that they had and buy stuff that was no longer restricted,

or that wasn't restricted yet, combined with a huge amount of subsidies, combined with a lot of poaching, and they were able to cobble together a phone that does use something that is technically a sub 10 nanometer, even though it doesn't perform anywhere like that for a phone. The EUV is simply off the market for them, and everyone else is moving forward. So, from my point of view, this is really instructive. think of it like this way. Think of it like I had said that the Chinese couldn't build a television. And I'm thinking of like those OLEDs that you hang on the wall that weigh like 20 pounds, have a slight curve in the deep black and blah, blah, blah, blah.

And the Chinese like, oh, we can totally build a TV. And they came out with like a 48 inch tube TV. It's technically a TV. Technically, I was wrong. But in terms of the technologies, it's not something that really takes them forward. If anything, this is a one-off because they can't use the stuff to advance because they don't know how to make the better chips. And the reason that DUV was ultimately abandoned is by the time we got to about 15 nanometers, it was really skirting the edge of what you can do with physics,

because the wavelength for the light is wider than what you need to etch on the chip. And they basically had to tweak the hosophysics to get down to seven. And that's the upper threshold. But even doing something a little bit dumber than that, it's not clear that the Chinese have the ability because they no longer have access to the expertise of the Dutch. So this is really, really, really, illuminating to me for how far the Chinese are willing to go in order to say that they broke the sanctions. But they really didn't. There's nothing about this that is homegrown. There's nothing about this that is replicable. In fact, there's a possibility that may kind of fall into that category of stupid things that they've been doing lately in that you've got a number of people in the

American Congress who are not interested in doing a week of research to figure out the details. Or is just like, oh, always breaking sanctions. Well, we'll show them. We'll just put in a front of the president, a bill that says that all technological transfers and sales to Huawei are now illegal. So not just the top of stuff, everything. It's Congress, who knows how that's ultimately going to shake out. But the Chinese are finding more and more ways to sacrifice their position on the altar of ego. And it looks like this might be one more. All right, everyone take care.