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This paper reports on an in-depth research on the etching-process induced current degradation in AlGaN/GaN heterostructures by experimental research and theoretical calculations. The channel current degrades by 60% after the etching process and recovers to 90% after thermal annealing at 400 °C. It is found that fluorine is incorporated into the heterostructures of both AlGaN and GaN layers during the etching process. The degradation and recovery of the current is accompanied by the change in the concentration of fluorine in both AlGaN and GaN layers during the experiment. First-principles defect calculations of fluorine in GaN indicate that the dominant defect configuration of F is negatively charged interstitial ( F i − ) with the lowest formation energy. The accompanied technology computer-aided design simulation of the energy bands reveals that F i − raises the conduction band minimum of GaN and, thus, decreases the density of the two-dimensional electron gas, causing degradation of the channel current. This result leads to the post-etching recovery treatment without a high temperature process and ohmic contact degradation. [ABSTRACT FROM AUTHOR]