In the fourth quarter of 2018, Zhongxin International reported sales of $787.6 million, which was slightly lower than the third quarter due to the cooling of the semiconductor market. However, Zhongxin International has made breakthroughs in the development of advanced technology. The first generation of FinFET 14nm technology has entered the stage of customer verification, or will be mass-produced in June this year. Meanwhile, for the first time, Zhongxin International has revealed that the development of more advanced processes such as 12NM is also in full swing. With the development of 14nm and 12NM technology, Zhongxin International is expected to narrow the gap in advanced technology with the first-line wafer manufacturers such as Taiji and Samsung.

14 nm ahead of schedule

Recently, Zhongxin International announced its unaudited performance for three months up to December 31, 2018, focusing on its achievements in advanced process development. According to the introduction of Liang Mengsong, the chief executive officer of CIMC International, the first generation of FinFET 14nm technology of CIMC International has entered the stage of customer verification, and the reliability and yield of products have been further improved.

In this regard, Haitong Electronics in the research report pointed out that compared with 28 nm HKC+, 14 nm FinFET process speed increased by 60%, power consumption reduced by 70%, area reduced by 50%. In August 2018, after the first announcement of 14 nm FinFET process progress by Zhongxin International, the company originally planned to risk trial production in the first half of 2019 and contribute revenue in the second half of 2019. We believe that the company's R&D progress on this process node has accelerated by 0.5 to 1 year, which is an important leap forward in the company's technology roadmap.

Zhongxin International also disclosed for the first time that it is developing more advanced processes such as 12nm. According to Liang Mengsong, the first generation FinFET provided by MCI also includes 12 nm. Compared with 14 nm transistor, the size of the transistor is further reduced, the power consumption is reduced by 20%, the performance is improved by 10%, and the error rate is reduced by 20%. At present, Zhongxin International is cooperating with the same group of 14nm customers on 12nm. Zhao said that at present, Zhongxin International is still focusing on 14 and 12 nm mass production, after which it will try its best to meet the needs of customers and move forward to more advanced nodes.

In the middle of last year, Zhongxin International ordered an EUV extreme ultraviolet lithography machine with a unit price of 120 million US dollars from ASML in the Netherlands, which is expected to be delivered at the beginning of this year. The equipment can be used in the manufacture and development of 7Nm process.

Technological level enters the second camp

At present, the most advanced production technology in the world is 7nm. Among them, the production time of TSMC is about 7 nm in the second quarter of 2018. However, only a few key technology layers are used by TSMC EUV extreme ultraviolet lithography technology, and the main body still uses the first generation DUV (deep ultraviolet) technology. The second generation of 7Nm using EUV will be mass produced as soon as March this year. Samsung produced a small-scale 7Nm process based on EUV technology in the second half of 2018, which is expected to promote the expansion of production scale this year.

Although the most advanced technology has been advanced to 7nm, the mainstream chips are not all manufactured by 7Nm technology. 14nm technology still has a large user base. In addition, only TSMC and Samsung currently have 7-nm process, while MCI's 14-nm process is not backward.

As for wafer manufacturers with 14nm technology, besides TSMC and Samsung, there are two companies, Grofford and Unicom. At present, the global market share of semiconductor wafer OEM ranks first in TSMC, followed by Samsung and Grofford and Unicom. In 2018, Grofford announced that the FinFET process will be improved at 14nm and 12NM for injection frequency, embedded memory and low power customized products in the future. In addition, Grofford plans to focus on 22DFX and 12FDX processes to cater for low power, low cost and high performance RF/analog/hybrid signal design. Uninterrupted also announced the abandonment of the tracking of more advanced processes, currently the most advanced technology for mass production in 2017 to achieve 14 nm. Therefore, with the production of 14nm by Zhongxin International, it will enter the second-line camp in the advanced technology level.

Guoxin Securities pointed out in a research paper that the development of advanced technology is becoming more difficult, and opportunities for catchers like Zhongxin International are emerging. On the one hand, the cost of IC design for advanced technology is getting higher and higher, and the cost of intergenerational design is also increasing. The cost of 7Nm chip design is more than 300 million US dollars. On the other hand, the marginal effect of investing in advanced technology is declining, which makes Grofford and Unicom abandon advanced technology such as 7nm. From these two perspectives, Moore's law is no longer valid, and the speed of research and development of advanced technology in large factories has slowed down, leaving enough time for followers like Zhongxin International to catch up.

Another important significance of Zhongxin International's 14-nm production is that it is expected to advance the 16-nm process of Nanjing Jitou Power Plant. However, the process of TSMC in mainland China is 16 nanometers. The latest technology of Xiamen Union Core is 28nm. Grofford planned to build a 22 nm FD-SOI process line in Chengdu, and it will take a long time to see the results. Then, if Zhongxin International's 14nm/12nm can achieve mass production quickly, it will become the most advanced production line in China mainland, thus having a certain competitive advantage.

Challenges remain in expanding revenue share

Can CIMC turn this competitive advantage into a market growth point? Guojun Electronics released a report that 14nm is an important ticket for CIMC in FinFET process, indicating that the follow-up R&D will proceed smoothly. At the same time, from the perspective of profitability, customer structure and capacity planning, 14nm/12nm has the possibility of supermarket expectations. TSMC imported 16 nm in the second half of 2015 and 12 nm in 2018, so it is still within the depreciation cycle of equipment, and there is no significant trend of price reduction. At present, the price of 14 nm wafer is about $6,000, and it is expected to slightly decline in 2019 (but