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Investing.com -- U.S. restrictions on advanced semiconductors mean that even if Chinese companies design competitive AI chips, TSMC (TW:2340) and Samsung (KS:005930) can only manufacture them under sharply limited conditions, Jefferies said.
While firms like Huawei, Alibaba (NYSE:BABA) and Baidu (NASDAQ:BIDU) have rolled out new chip plans, the bottleneck is not design capabilities but manufacturing constraints, with domestic foundry SMIC (HK:0981) hampered by U.S. export controls.
One potential route would be to outsource production to TSMC or Samsung. However, U.S. rules introduced in January under the “Advanced AI Chips Due Diligence” framework sharply limit what those foundries can build for Chinese firms.
The guidelines cap production at 16/14nm and below 30 billion transistors if high-bandwidth memory (HBM) is used, or 35 billion without HBM.
Jefferies analysts note that this threshold is far below Nvidia’s (NASDAQ:NVDA) most advanced GPUs, such as the H100 with 80 billion transistors and the A100 with 54 billion.
“Having <30bn transistor count will unlikely make Chinese AI chips competitive, vs NVDA’s H20 or if the local chips could be made by SMIC’s 7nm process,” analysts led by Edison Lee wrote.
SMIC, despite being China’s only foundry capable of 7nm mass production, cannot meet the industry’s needs either. Its reliance on DUV lithography and limited access to advanced deposition, etching, and ion implantation tools means yields remain poor.
Analysts added that capacity constraints make it unlikely SMIC can allocate enough resources to all Chinese AI chip design houses, with Huawei the most likely to secure priority.
They pointed out that Huawei’s attempt to introduce a 5nm Ascend chip last year stalled, with the company forced to repackage existing 7nm dies instead.
This bottleneck suggests that unless U.S. restrictions ease, Chinese design houses will struggle to match global leaders. Jefferies flagged trade negotiations as a possible swing factor, noting that China’s leverage lies in rare earths.
“If there is any U.S.-China trade deal, it could involve potential easing of export restrictions on wafer fabrication equipment (WFE), or potential easing of the Advanced Chip Due Diligence requirements,” the analysts said.
For now, China’s progress in AI chip design remains constrained by the manufacturing gap, leaving its firms at a disadvantage compared with Nvidia and other global players.