SMIC's 5nm Push Threatens Samsung Foundry Despite US Sanctions

The US high-intensity sanctions net has been breached. SMIC, China's largest foundry company, has entered mass production of 5-nanometer process technology, defying market logic. The company's survival strategy—running toward the political goal of "technological self-reliance" while thoroughly ignoring profitability—is now pointing its blade at Samsung Electronics' (005930.KS) throat, analysts say.

According to semiconductor industry sources and foreign media reports on January 17, SMIC's revenue this year is expected to surge more than 27% year-on-year to a record $8.03 billion (approximately 11.48 trillion won). Net profit, however, is projected to plunge about 45%. The company is growing larger while producing hollow results—a deformed earnings structure. Analysts say this is the product of China's "semiconductor rise" strategy, which prioritizes market share expansion and technology accumulation over profits.

**Navigating US Sanctions: 'Brute Force' Without EUV, Costs Surge 50% but 'Just Produce First'**

SMIC shows technological progress, but its approach defies market logic. Unable to obtain ASML's cutting-edge extreme ultraviolet (EUV) equipment from the Netherlands, SMIC has deployed Self-Aligned Quadruple Patterning (SAQP) technology, pushing existing deep ultraviolet (DUV) equipment to its limits. Industry insiders describe this as painting a detailed picture by applying four layers of brushstrokes. While theoretically capable of achieving fine circuit patterns, the process becomes more complex and defect rates inevitably soar.

Yields are reported to be dismal. According to analysis firms including TechInsights, SMIC's 5nm process yield is estimated at around 40%, far below the commercial threshold. This contrasts sharply with TSMC and Samsung Electronics, whose equivalent processes exceed 90% yield. More process steps mean higher costs. Per-wafer production costs are reportedly about 50% higher than TSMC's. A normal company would face certain bankruptcy, but SMIC's fabs continue operating thanks to Huawei as a guaranteed domestic customer and government subsidies covering losses. This is why some call it a "zombie factory"—one that cannot run without Chinese government support.

**Samsung Veteran CEO Liang Mong-song's Magic: Achieving 5nm with DUV Despite US Sanctions**

The man who completed this audacious challenge is co-CEO Liang Mong-song. Originally from Taiwan, he worked at both TSMC and Samsung Electronics' foundry division, where he reportedly led the development of 14nm FinFET process technology. He designed a technology roadmap to achieve not just 7nm but 5nm using only DUV equipment under conditions where advanced equipment imports were blocked.

The Chinese government considers him an irreplaceable asset. When Liang submitted his resignation during a management dispute in 2020, the board famously retained him by offering a dramatic salary increase and full authority. SMIC is now assessed to be operating under a wartime footing. Following the roadmap designed by Liang, the technical mastermind, the focus is on "whether we can make it" rather than "how much profit we can generate."

**Communist Party's 65 Trillion Won 'Big Fund' Shields SMIC, Samsung Foundry Loses Legacy Process Customers**

Behind SMIC stands the massive backing of the Chinese Communist Party. In May this year, the Chinese government launched the National Integrated Circuit Industry Investment Fund Phase III (Big Fund), worth a record 344 billion yuan (approximately 65 trillion won) since the party's founding. This money, poured in by China's Ministry of Finance and six major state-owned banks, is mostly directed toward SMIC's facility investment and equipment localization.

"SMIC is a listed company in name only—in reality, it's a state-owned factory executing national strategy," an industry official said. "That's why they don't stop investing regardless of losses."

SMIC is actively adopting products from domestic equipment makers such as Naura, positioning itself as a testbed for a "de-Americanized supply chain."

The problem is that the fallout is hitting Korean semiconductors, particularly Samsung Electronics. While Samsung has slowed investment due to yield and profitability issues in advanced processes, SMIC is aggressively expanding legacy processes such as 28nm. Combined with the "patriotic consumption" (guochao) trend in China, the proportion of local fabless companies choosing SMIC over Samsung has reportedly surged. Samsung's "sandwich crisis"—losing advanced processes to TSMC while being battered by SMIC's volume offensive in legacy processes—is becoming reality, analysts say.

*"Gap World" is a column by reporter Seo Jong-gap that digs into the gaps in the flood of news during this era of technology hegemony competition. Check "Gap World" for the core issues and outlook on cutting-edge technology and semiconductor topics.*