Where SMIC's 28-nm process technologies stand. Source: SMIC

• Story Highlights:
• The deal marks a big win for SMIC
• Advantages for Qualcomm are less clear
• Growth of China's semiconductor industry offers opportunities for multinational companies

Semiconductor Manufacturing International Corp. (SMIC), China’s largest foundry, and Qualcomm, the world's most dominant baseband cellular processor company, revealed Thursday, July 3 that they are collaborating on 28-nm wafer production in China.

Under the agreement, Qualcomm will offer support to accelerate SMIC's 28-nm process maturity, while SMIC will make Qualcomm's latest Snapdragon processors on 28-nm node, both PolySiON (PS) and high-K dielectrics metal gate.

With its future growth dependent on the advancement of its 28-nm technologies, the deal marks a big win for SMIC.

Less clear is what advantages this deal will give to Qualcomm, other than mending the company's relationship with the Chinese government.

SMIC isn't exactly known for cutting-edge process technologies, compared to other foundry giants.

In an exclusive interview with EE Times last March, Tzu-Yin Chiu, SMIC's CEO, acknowledged a broadening technology gap with Taiwan Semiconductor Manufacturing Co. (TSMC). At a time when leading fab owners are busy talking about a 14-nm process node, SMIC's CEO then said that its 28-nm process node is "now frozen," allowing potential customers to test and verify SMIC's newest node.

Antitrust investigation in China

Since China’s launch of an antitrust probe into Qualcomm late last year, speculation has abound that Chinese authorities are probing ways to coerce Qualcomm into collaborating with their electronics industry.

Qualcomm reportedly faces penalties that may exceed US$1 billion. The National Development and Reform Commission (NDRC), China's main planning body, raided Qualcomm's Beijing and Shanghai offices last year.

The NDRC has used the anti-monopoly law to target technology companies for practices that could lead to what it calls "unreasonably" high prices. In February, the Chinese regulator said it suspects Qualcomm of overcharging and abusing its market position.

When asked where the NDRC's antitrust investigation stands today, Christine Trimble, Qualcomm's vice president of public affairs, told EE Times, "We continue to fully cooperate with the NDRC and have no further comment."

Qualcomm is also saying very little about the deal with SMIC. Asked about which Snapdragon processors SMIC will make and when Qualcomm expects production to start, the company spokesman said, "We're not disclosing any details."

When questioned why Qualcomm decided to pick SMIC as its foundry partner in China, the spokesman said in boilerplate: "Qualcomm has been collaborating with SMIC for several years and this announcement represents an extension of this relationship to the 28-nm technology node."

In contrast, SMIC is much more willing to disclose the company's future plan with Qualcomm.

SMIC noted in a press release that this isn't its first date with Qualcomm. "Previously, SMIC has supported Qualcomm on power management, wireless and connectivity related IC products at various process nodes."

With the new agreement, SMIC said it will work with Qualcomm on 28-nm design-ins and products for the growing mobile communication industry. Further, the company said, "SMIC will also extend its technology offerings on 3DIC and RF front-end wafer manufacturing in support of Qualcomm as its Snapdragon product portfolio continues to expand."

While SMIC has been riding the wave of Chinese fabless growth, Qualcomm remains undeniably the most dominant cellphone chip supplier in China and the rest of the world.

It's been often pointed out that only a small portion of semiconductors consumed in China are actually produced in China.

In her recent blog post on EE Times, Jin Zhang, senior director of marketing and general manager for Asia Pacific at Oski Technology, pointed out China's IC consumption and production gap, including an alarmingly widening gap projected for 2015 and beyond.

In the eyes of many Chinese industry sources, that's a hot button issue.

As Zhang noted, "Most of the ICs consumed in China are provided by semiconductor giants such as Intel, Samsung, TI, Freescale and Qualcomm. Hence, the growth of China's semiconductor industry offered tremendous opportunities and rewards for multinational companies in the semiconductor industry."

In that context, Qualcomm working with SMIC on 28-nm process technology and wafer manufacturing services is likely viewed as a step in the right direction for China.

This article, written by Junko Yoshida, was originally published on EE Times.

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