Russian microchip maker eyes Taiwan exit in response to sanctions - DefenseNews.com

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A Russian microchip maker is considering leaving Taiwan in response to economic sanctions targeting Moscow over its invasion of Ukraine, Defense News has confirmed.

Russian relations with Taiwan worsened soon after the former launched its invasion on Feb. 24. In March, the Kremlin included Taiwan on a list of unfriendly nations, and Deputy Trade Minister Vasili Shpak said Taiwan had stopped shipping microchips to Russia.

The Russian-based company MCST, which produces Elbrus microchips, said in early June that it could move its production line from Taiwan, the world-leading producer of semiconductors, to the Micron plant based in Zelenograd, a city near Moscow. Russian media reported the potential move, citing MCST officials, and Defense News confirmed the information through a source with knowledge of its business dealings.

Micron is jointly controlled by AFK Sistema and Rostec, two Russian industrial conglomerates, and produces microchips for both military and civilian use.

Defense and commercial companies in Russia rely heavily on foreign-made microchips. While Russian engineers provide the design specifications, the technology is assembled by Taiwan Semiconductor Manufacturing Company, or TSMC. Following the Feb. 24 invasion of Ukraine, TSMS ceased production of Russian-designed Baikal and Elbrus microchips.

The Russian military uses Taiwanese-assembled processors in its computer systems as well as microchips for weapons and equipment made by Angstrem, another Zelenograd-based company. Angstrem makes a wide range of products, from discrete transistors to microprocessors, according to its website, and produces 600-nanometer microchips for military use.

Localizing manufacturing

Shpak, has described the potential decision to leave Taiwan as “not a tragedy.” And the departure would likely benefit Rostec, which has long lobbied to create a domestic microchip-industrial base.

In 2020, the company said it would be able to modernize the country’s microchip industry with 800 billion rubles (U.S. $13 billion), but other industry players anticipated such an undertaking would require more then 1 trillion rubles.

Experts and industry members have also warned that localizing semiconductor production will prove a difficult task because Russia lacks the technology to produce sophisticated microchips. “Locally we can produce chips for travel cards — not much [else],” a former government official told Defense News.

In 2019, Deputy Prime Minister Yuri Borisov said it is “stupid” to think Russia has an effective microchip-industrial base. At the time, he blamed government bureaucracy for a lack of coordination.

MCST previously encouraged Russian companies to only use domestically made microchips for the sake of national security. In January 2022, the Russian company’s CEO, Alexander Kim, wrote a letter to government officials protesting an effort to relax rules around a goal for domestic companies to solely use Russian-made microchips starting in 2023. The change in regulation would allow companies to use foreign-made motherboards, which contain foreign-made microchips, Kim explained in the letter, as reported by business daily RBC Russian.

The Russian Defense Ministry hasn’t disclosed the percentage of foreign-made semiconductors it uses. But its media outlet Krasnaya Zvezda, or Red Star, reported in 2018 that the ministry that year purchased more than 500 working stations that use Elbrus processors in a deal exceeding 400 million rubles.

In October 2020, the ministry launched another tender for Elbrus-based computers worth more than 191 million rubles.

But in January 2022, the Interior Ministry complained about the production capacity of Elbrus processors. MCST said at that time it was looking into the problem.

A Russian analyst involved in state-backed work, speaking to Defense News on the condition of anonymity, said Micron will be able to sustain the local defense sector alone, but that microchip quality will see a decline after the move from Taiwan.

Industry members anticipate Micron will be able to produce 90-nanometer chips at best, whereas Taiwan has the capacity to create smaller, more efficient chips — down to 5 nanometers.

In March, several Russian companies locally producing semiconductors appealed to the government to include their businesses in its list of so-called backbone enterprises, which would allow them to set up facilities in China with government support. For its part, China has invested heavily in the production of semiconductors and also buys from Taiwan.

Despite strong Sino-Russo military cooperation, Moscow is reluctant to share sensitive defense information with its ally. During the past few years, several Russians were jailed after being accused of spying for China.

Ruslan Pukhov, who leads the Moscow-based Centre for Analysis of Strategies and Technologies think tank, said reliance on China might not be much better than the current situation, suggesting the best way to boost domestic microchip production is through tax relief for manufacturers.

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Russian microchip maker eyes Taiwan exit in response to sanctions - DefenseNews.com
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