Advanced! Advanced! Advanced! What About Legacy Chips?

If you watch what comes out of the Commerce Department on semiconductors – especially as it relates to CHIPS and export controls – you’ll notice an emphasis on advanced and leading edge chips. The U.S. aims to be the “premier destination” for leading edge chips and has “been intentional” about limiting China’s access to advanced chipmaking equipment. But what seems like an almost exclusive concentration on leading edge chips highlights two problems:

First, all chips matter. Advanced and leading edge chips are no doubt important, but we can’t forget about legacy chips. These critical chips are in automobiles, planes, home appliances, medical devices, military systems, and more. A new report from CSIS underscores their strategic importance: 

  • Despite the name, legacy chips are not stale technology. The connotations associated with terms like ‘mature,’ ‘older,’ and ‘legacy’ are misleading because these categories of chips are constantly being refined for new requirements and applications. … Legacy chips are destined to remain highly relevant to emerging industries and technologies far into the future.”
  • The U.S. automobile industry relies almost entirely on legacy chips, which account for 95 percent of its total semiconductor consumption. This is because chips used in the automobile industry must achieve ‘automotive-grade’ function: the chip’s ability to endure punishing environments characterized by extreme temperatures, moisture, dust, chemicals, vibration, and electronic interference. This requires far more robust and near ‘zero-defect’ performance than chips found in advanced consumer electronics.”
  • [T]he importance of legacy chips for the operation of the modern economy will only continue to grow. Maintaining a robust and resilient supply base able to make the investments and to produce and improve constantly higher node chips is essential for the nation’s competitiveness and economic security. Moreover, innovation in the higher-node chips is expected to serve as the foundation for a variety of emerging technologies, including those necessary to bring us to a greener, healthier planet.”

Second, the U.S. is making itself vulnerable to outcomes it seeks to avoid if it continues to focus its policies on advanced and leading edge chips vs. ALL chips. CSIS addresses this too:

“U.S. strategic thinkers can no longer categorize chips as ‘advanced’ or ‘less advanced’ purely in terms of the size of their components. … Given the Western embargo on advanced chip technologies to China, most of the new investments will likely be in the production of older (28 nm and above) devices. An unintended consequence of U.S. export controls on advanced chip technology to China may be a wave of state-backed investment leading to overproduction and, potentially, Chinese dominance of global legacy chip production.”

CSIS is not alone in its thinking. Martijn Rasser of CNAS and Kevin Wolf, an export control expert who was rumored for BIS Director, warned that’s “China’s dominance in this area [legacy chips] could create a huge supply chain vulnerability, which would amount to a major unintended consequence of the export controls.” Additionally, former Deputy National Security Adviser Matt Pottinger told Reuters that a China-led legacy chip market, “…would give Beijing coercive leverage over every country and industry – military or civilian – that depend on 28 nanometer chips, and that’s a big, big chunk of the chip universe.”

The writing is already on the wall with respect to SMIC. China’s largest chipmaker is posting record revenues and expanding production in the legacy chip segment. This is not surprising given that export controls on SMIC were focused on preventing leading edge capabilities. Will Commerce heed calls from the likes of Sen. Marco Rubio and Rep. Mike McCaul to “rewrite SMIC’s Entity List rule to close dangerous loopholes that appear to allow nearly all sales to SMIC to continue without restriction”? Or will we continue to overlook the strategic importance of legacy chips?