Navigating Geopolitical Risk: A Multi- Objective Optimization Framework for Dual-Source Procurement of Advanced Lithography Equipment at SMIC

Abstract

Because the U.S. and its allies are tightening export controls on semiconductor equipment, Chinese chip foundries now face huge challenges in getting lithography tools. This study uses SMIC as a case example to analyze the situation. This paper aims to question a common purchasing strategy used by many foundries, which focuses too much on short-term cost savings but ignores the importance of having a backup plan to protect against supply shocks. In 2024, SMIC’s net profit dropped by half, mostly because the costs of equipment depreciation went up sharply. This financial drop clearly shows the high risk of depending on just one supply channel. To solve this problem, a multi-objective stochastic programming model is built in this study. This model can help SMIC find a better balance between older, imported equipment and new domestic alternatives. Hopefully, this balance can help the company push its monthly output past one million 8-inch equivalent wafers in 2025. The model tries to reach four goals at the same time: making more profit, protecting supply chain security, ensuring new machines work well with current production lines, and helping domestic equipment improve. By finding the Pareto-optimal frontier, the study calculates the best ratio between the two types of equipment. Through this method, a new purchasing system is created to balance financial profits with supply safety, while still keeping costs low and production smooth.