Chip wars: how chiplets are emerging as a key part of China’s technology strategy

July 13 (Reuters) – The ailing Silicon Valley startup’s zGlues patent sale in 2021 was insignificant except for one detail: Its own technology, designed to slash chip manufacturing time and costs, appeared 13 months later in the patent portfolio of Chipuller, a startup in southern China’s tech hub of Shenzhen.

Chipuller has purchased what it calls chiplet technology, a cheap way to package clusters of tiny semiconductors to form a powerful brain that can power everything from data centers to home gadgets.

The previously unreported technology transfer coincides with a push for chiplet technology in China that began about two years ago, according to a Reuters analysis of hundreds of U.S. and Chinese patents and dozens of Chinese government procurement documents, research and grants, local and central government policy documents and interviews with Chinese chip executives.

Industry insiders say chiplet technology has become even more important to China since the United States denied it access to advanced machines and materials needed to make today’s most cutting-edge chips, and now widely supports the the country’s plans for self-sufficiency in semiconductor manufacturing.

“The US-China competition is on the same starting line,” Chipuller chairman Yang Meng said on chiplet technology in an interview with Reuters. “In other (chip technologies) there is a considerable gap between China and the United States, Japan, South Korea, Taiwan.”

Barely mentioned before 2021, Chinese authorities have highlighted chiplets more frequently in recent years, according to a Reuters review. At least 20 policy documents from local and central governments have listed it as part of a broader strategy to boost China’s capabilities in key and cutting-edge technologies.

“Chiplets have a very special meaning for China given the restrictions on wafer fabrication equipment,” said Charles Shi, a chip analyst for the Needham brokerage. “They can still develop 3D stacking or other chiplet technology to get around these restrictions. That’s the big strategy, and I think it could even work.”

Beijing is rapidly exploiting chiplet technology in applications as diverse as artificial intelligence to self-driving cars, with entities from tech giant Huawei Technologies to military institutions exploring its use.

More major investments in the area are on the way, according to a review of company announcements.

THE CHIPLET ADVANTAGE OF CHINA

The chiplets, or tiny shavings, can be the size of a grain of sand or larger than a thumbnail and are brought together in a process called advanced packaging.

It’s a technology that the global chip industry has increasingly adopted in recent years, as chip manufacturing costs have soared in the race to make transistors so small they’re now measured in number of atoms.

Tightly joining chiplets can help create more powerful systems without reducing transistor size since multiple chips can function like a brain.

Apple’s high-end computer lines use chiplet technology, as well as more powerful chips from Intel and AMD.

According to Dongguan Securities, about a quarter of the global chip packaging and testing market is located in China.

While some argue this gives China an edge in leveraging chiplet technology, Chipuller chairman Yang warned that the percentage of China’s packaging industry that could be considered advanced isn’t “very large.”

Under the right conditions, chiplets customized to customer needs can be completed quickly, in “three to four months, that’s China’s unique advantage,” according to Yang.

Needham’s Shi said China’s purchase of chip packaging equipment rose to $3.3 billion in 2021 from its previous high of $1.7 billion in 2018, though it fell to $2.3 billion last year as the chip market declined.

Since early 2021, research papers on chiplets have begun to emerge from researchers at the Chinese People’s Liberation Army and the universities it runs, and PLA-affiliated and state-run laboratories are trying to use chips made using chiplet technology. domestic chiplets according to six tenders published in the past three years.

Public government documents also show grants worth millions of dollars to researchers specializing in chiplet technology, while dozens of smaller companies have sprung up across China in recent years to meet domestic demand for advanced packaging solutions such as chiplets.

CHIPLET ON THE TABLE

Amid escalating US-China tension, Chinese company Chipuller has acquired 28 patents owned by zGlue or invented by people whose names are on zGlue’s patents, according to an analysis using the tech company’s Acclaim IP database of Anaqua IP management.

The acquisition came through a two-stage transfer, first through North Sea Investment Co Ltd, registered in the British Virgin Islands, according to documents seen by Reuters and confirmed by Yang.

The Committee on Foreign Investments in the United States (CFIUS), a powerful Treasury-led committee that reviews transactions for potential threats to US security, did not respond to a request by Reuters for comment on whether such sales required their approval.

CFIUS attorneys Laura Black of Akin’s Trade Group, Melissa Mannino of BakerHostetler and Perry Bechky of Berliner Corcoran & Rowe say the patent sales alone would not necessarily give CFIUS authority over the settlement, as it depends on whether the assets purchased constitute a US business.

Rep. Mike Gallagher, an influential lawmaker whose Select Committee on China has pushed the Biden administration to take tougher positions on China, told Reuters that zGlue’s case highlights “the urgent need to reform CFIUS.”

“(People’s Republic of China) entities should not be able to act with impunity to take advantage of struggling US companies to transfer their intellectual property to China,” he said in an emailed statement.

Chipuller’s Yang said zGlue’s lawyer has communicated with both CFIUS and the Department of Commerce to ensure the North Sea sale does not fail export controls.

These discussions did not include mention of Chipuller or the possibility that a Chinese entity would end up owning the patents, according to a Chipuller spokesperson.

“Everything was done very transparently and in accordance with (US) law,” Yang said.

Yang said he considers himself one of the founders of zGlue as he became an investor in the company in 2015, soon after it was formed, and later became a director and president.

CFIUS visited the offices of zGlue in 2018 to conduct an investigation because the company’s largest non-US investor, Yang, was from China, the president said.

“So we spent a lot of time communicating with CFIUS,” ​​Yang said, adding that Chipuller currently does not supply any Chinese or US-sanctioned military entities.

Chipuller isn’t the only company with chiplet technology.

Huawei, the Chinese technology and chip design giant that has been shortlisted by the United States, has been actively filing patents for chiplets.

Huawei filed more than 900 chiplet-related patent applications and grants last year in China, up from 30 in 2017, according to Shayne Phillips, director of analytics solutions at Anaquas.

Huawei declined to comment.

Reuters has identified more than a dozen announcements in the past two years for new factories or expansions of existing ones by companies using chiplet technology in manufacturing across China’s technology sector, involving a total investment of more than 40 billion yuan.

They include domestic giants TongFu Microelectronics (002156.SZ) and JCET Group (600584.SS), as well as fast-growing startups such as Beijing ESWIN Technology Group, which has spent 5.5 billion yuan on a factory for its chiplet-focused subsidiary which started operating in April.

An article published in May by an outlet run by China’s Ministry of Industry and Information Technology (MIIT) urged China’s big tech firms to use domestic packaging firms like TongFu to help build China’s self-sufficiency in power of calculation.

“Use Chiplet technology to break through the US siege on my country’s advanced process chips,” he said.

MIIT did not respond to a request for comment.

Chipuller chairman Yang puts it this way: “Chiplet technology is the main driving force for the development of domestic semiconductor industry, he said on the company’s official WeChat channel. It is our mission and duty to bring it back to China.”

($1 = 7.2205 Chinese Yuan Renminbi)

Reporting by Jane Lanhee Lee and Eduardo Baptista; Additional reports by Echo Wang and Stephen Nellis; editing by Kenneth Li, Brenda Goh and Lincoln Feast.

Our standards: the Thomson Reuters Trust Principles.