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Why Russia can’t replace TSMC

Asianometry 2022/03/11
 ARM
ARM

In late February 2022, Taiwan Semiconductor Manufacturing Company or TSMC announced that it would halt shipments to Russia per a new round of sanctions.

The TSMC halt ended shipments from fabless companies like Baikal, MCST, Yadro and STC Module. Intel and AMD have stopped their shipments to Russia as well.

In recent years, Russia has been looking to create their own supply of semiconductors. While there are some interesting domestic design successes, domestic capacity to manufacture those designs have been falling farther and farther behind.

We find ourselves living in strange times. In this video, we are going to do an overview of Russia's ever-worsening domestic semiconductor manufacturing industry.

Soviet Beginnings

As with many things involving Russia, we need to look back into Soviet history for context. It’s rough.

When it comes to computers and advanced electronics, the Soviet Union has long suffered from a massive technology gap with the United States. A gap that dates back to as early as the 1960s.

The reasons why are rooted in ideology, technology and geopolitics - and I promise to do an in-depth video about it in the future.

At the time of the Soviet collapse in 1991, the country was suffering painfully from a shortage of sufficiently powerful integrated circuits. The combined computing power of every computer in the country would still fall two generations short of a single American Cray supercomputer.

The collapse separated the various parts of the Soviet scientific-industrial complex. And unfortunately, Russia was left with 96% of the vacuum electronics production facilities. The most advanced semiconductor production facilities were in East Germany, Belarus, Ukraine, and so on.

Russian industrial policy in the immediate wake of the collapse exacerbated the issue by pivoting away from domestic electronics. And it has thus caused the country to become more dependent on imports.

Domestic Pivot

Today, Russia remains a consumer and net importer of integrated circuits. Comtrade says that in 2020 the majority of those integrated circuits come from Malaysia, China, Vietnam, and "Other Asia", which I guess would be Taiwan.

In 2014, a number of threatened sanctions in wake of the Crimea thing convinced the Russian government that it needed to develop its own homegrown chips.

This import substitution scheme led to the Elbrus-2SM, a 90-nanometer CPU developed by the Moscow Center of SPARC Technologies. That chip was fabbed within Russia by JSC Mikron group.

JSC Mikron Group

Mikron Group is Russia's largest domestic semiconductor manufacturing company. It is an integrated design manufacturer accounting for 54% of the country's exported technology hardware products - producing some 500 million chips each year.

The company's roots dates back to 1964 when it was founded as the Research Institute for Molecular Electronics. The corresponding plant would be the first in the country to successfully produce an integrated circuit.

Throughout the 1970s and 1980s the plant produced microprocessors for things like air defense and the Venus space programs. Mikron along with Angstrem of Russia and Integral of Belarus - both of which we will talk about later - made up the country's big three IC manufacturers.

In the 1990s, the plant converted into a joint stock company. Today it fabs RFID tickets, SIM cards, and other smart card products.

RFID appears to be the company's speciality. They produce about 30 million banking cards, biometric passports, and transport cards each year. They fab the bank chips for Russia's domestic payment card system Mir as well as the travel tickets for Moscow's transport network.

Today, Mikron employs about 1,500 people and has over 400 customers in Russia. Customers include Russia's top cell carriers, transport companies, leading banks and government agencies.

They have another 100 customers overseas - serviced by a number of sales offices in Japan, China, Germany, and more.

At about 60 rubles to a dollar, the company generated about $195 million USD in 2019 revenues and $260 million USD in 2020. Though that 2020 revenue number was bolstered by large subsidies from various Moscow government organizations. Profit figures aren't available but they pulled a net loss in 2015.

Mikron Manufacturing Technology Evaluation

Mikron's Zelenograd fab produces 100, 150 and 200 millimeter wafers. The 200 millimeter wafer production line is the most sophisticated one.

In 2007, Mikron signed a technology transfer deal with STMicroelectronics to acquire the IP for their 180 nanometer process node. In 2010, that deal expanded to the 90 nanometer node too.

The 90 nanometer production line launched in 2012 and cost 16.5 billion rubles at the time. Roughly $590 million based on 2017 exchange rates of 60 rubles per dollar.

This project was jointly financed by Rusnano, a government fund dedicated to promoting domestic nanotechnologies.

This node first reached commercial production in 2003, so at this point Russia is about 9 years behind the leading edge.

A key part of technology transfer industrial development policy is the indigenous development of new nodes. The next node down would be the 65 nanometer node. Mikron felt that it would be able to craft that one itself.

Thus in 2014 - the same year it announced the aforementioned Elbrus-2SM on 90 nm - Mikron also announced the successful achievement of the 65 nanometer node at a volume of 500 200-millimeter wafers a month. All the headlines called this proof of Russian technology independence.

But it appears that this announcement had been made a bit hasty. The process was more a working science experiment than a real shipping offering.

Without better lithography scanners - almost all of which have to be imported from the West or Japan - a 65 nanometer line is not commercially viable.

The Mikron website claims that the company is capable of producing 65 nanometer chips - which would make it the only such fab in Russia.

But then adds an asterisk saying that its 65 nanometer production line remains "under development - production qualification and implementation". More likely than not, it’s not ready.

Fujitsu, Toshiba, and TSMC started shipping their commercial 65 nanometer nodes in 2005. So this means that Russia's gap with the leading edge has grown from 9 years to 15+.

The lack of progress must have been grinding. In 2016 Mikron replaced their management team with a new one headed by Gulnara Khasyanova.

The new team announced that they would invest in expanding the factory to produce more chip types and even LEDs to achieve 30 billion rubles of revenue by 2020. Which is … ambitious.

This plan included a 28 nanometer-capable factory in 2018, which I have not heard much about recently. The company eventually missed this 30 billion ruble 2020 target by 15 billion rubles.

Sitronics

Sitronics is a sister company to Mikron. In 2007 - about the same time Mikron was acquiring its 180 nanometer process technology from STMicroelectronics - Sitronics applied for a subsidy to develop a chip manufacturing fab at the 65 and 45 nanometer process nodes on 300 millimeter wafers.

The proposed project - jointly financed with the Russian government - would cost about $2.3 billion at the time. That is a lot of money considering that Sitronics only made about half that amount in total revenues in 2012.

Chip production was scheduled to begin in 2009. But it appears that the sheer capital intensity of the project has caused Sitronics to pull back a little. I don’t think they ever moved ahead - especially considering there weren’t any technology partners.

Right now the company website notes that they offer servers, IT software, and smart watches. No chips.

Angstrem

Angstrem - I have seen it spelled with an “o” too - is another one of Russia's leading microelectronics fabs. The company is currently headquartered in Zelenograd along with Mikron.

Angstrem dates back to 1963 when it had been founded as the Research Institute of Precision Technology. The plant had been known for having developed and produced the Electronics NTs-8010, the Soviet Union's first completely domestic computer.

Currently, the foundry offers the 130 nanometer and 90 nanometer process nodes on 200 millimeter sized wafers. Their capacity is about 180,000 wafers a year - a far cry from a TSMC Giga-fab, which makes that equivalent number in a single month.

This lack of scale was probably why Angstrem filed for bankruptcy some time in 2018 or 2019 - the exact year is uncertain. In 2008, the company borrowed nearly a billion dollars from the state development bank VEB to purchase some old 110 and 130 nanometer chipmaking equipment from AMD.

The plan was to start producing 90 nanometer smart card microchips by 2010 while simultaneously upgrading to the 65 nanometer node. But the company totally failed to hit this mark, as chips didn't start rolling off the line until 2016. And as I mentioned their 65 nanometer process isn’t yet available.

Shortly thereafter, Angstrem was hit by US sanctions - likely due to its involvement in the Russian military and nuclear industries. This prevented it from building an export business. And that combined with the debt subsequently pushed it into insolvency.

In 2021, VEB founded a subsidiary called NM-Tech which then purchased Angstrem's assets for 8.4 billion rubles. They remarked they have a 10-year plan that would see them convert into a pure-play foundry and put them on the road to 10 nanometer production. So there’s that.

Fabless

Due to the domestic industry's lagging capabilities on the leading edge, more sophisticated semiconductor design ventures have to go abroad to fab their chips.

I won't go too much into these companies. It is beyond the scope of this video. But probably the two most interesting efforts are the aforementioned Elbrus microprocessors by the Moscow Center of SPARC Technologies and the Baikal CPUs by Baikal Electronics.

That Elbrus 2SM was the first completely Russian microprocessor, and its creation in 2014 was declared by local media to be the year's number one technology achievement. Even ahead of other things like the creation of Mir - the domestic financial payment card network.

That being said, this 90 nanometer processor was likely more for PR purposes than real use. The processor was originally made using a TSMC 90 nanometer node. And that iteration - despite being 3 years older - seems to perform much better than the Mikron version.

Can't be sure though until you run some benchmarks on them - like Crysis.

Friend of the channel Ian Cutress - and creator of the great TechTechPotato YouTube channel - wrote about the latest iteration of this chip: the Elbrus 8CB chip fabbed on a TSMC 28 nanometer process. I’ll link to it in the description.

Baikal Electronics is taking another approach, using modern practices and EDA tools like Synopsys to develop an ARM-based chip. Their latest offering is the Baikal M-series, an 8-core system-on-chip fabbed on a TSMC 28-nanometer process. A RISC-V version is also being explored.

Sales seems to have been doing well. In November 2020, Baikal announced that they planned to order over 200,000 pieces from TSMC in the first quarter of 2021. Though the company ran into some issues getting enough fab capacity due to the automaker chip shortages.

In June 2021, Baikal was acquired by the Varton Group - an electronics conglomerate that also makes Russia's domestic OS Astra Linux.

This Linux is frequently used within the Russian government, including its military.

Baikal then announced a plan to invest 23 billion rubles to push deeper into the server space, develop a 6-nanometer chip, and sell over half a million Baikal chips. Mostly to government organizations looking to meet Russian import substitution policies.

Alternatives

Considering the circumstances, I am doubtful that the Russian semiconductor manufacturing industry will advance past 65 nanometers in the foreseeable future. Let’s take a look at a couple of possible alternatives in friendly countries capable of replacing this missing capacity.

As I briefly mentioned earlier in this video, a significant portion of Soviet integrated circuit production was located in Belarus. And Belarus is very close to Russia right now.

Integral was the third of the big three Soviet semiconductor manufacturers.

Launched in 1962, the company is an integrated design manufacturer producing a variety of electronics products.

A 2017 sales document notes that Integral's most sophisticated node is a 350 nanometer process. This node first hit the market in 1993 and was used for the Nintendo 64. It is not a viable alternative to a TSMC 28 nanometer node.

The Chinese semiconductor foundries on the other hand might be a capable TSMC replacement. Shanghai-based SMIC's most advanced node is a 14 nanometer process that is rumored to have very good yields, though it's not a big part of their overall business.

The company recently turned out a very good 2021 and they are investing $9 billion into a new fab. Considering the current warm relations between Russia and China right now, SMIC might make a lot of sense.

Or maybe not. SMIC heavily relies on chip making equipment imports from the Netherlands and Japan.

Conclusion

The reality is that in the short and medium term, this halt won’t do much. Russia has large stockpiles of raw product. Contingency plans have been drawn up. And guns don’t need a 7-nanometer chip.

That being said, it will put what remains of the country’s industries even further behind its competitors. Even Russia's biggest industries chronically lag their Western peers when it comes to digitization and modernization.

Russia has 23 times fewer industrial robots per 10,000 employees than the world average.

Its share of computer numerical control machines or CNC machines in the industry is 10%.

And only 1% of the data generated by its installed sensors are used.

These sanctions make it that much harder for Russian businesses and the ordinary people they employ to make ground.

Late in the regime, the Soviet Communist Party’s inability to close the ever-widening technology gap with the West contributed to a broad loss of confidence in its competency. Of course, times today are different. But maybe not.

Watch more insights from Asianometry

TAGS: mdi-pound TSMC
About the Author
Asianometry
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The Asianometry YouTube channel covers technology, economics, and history through the context of Asia. Recent videos have covered semiconductors, EV batteries, and development economics.

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