On Monday, investors were alarmed by new US export control measures intended to halt Beijing’s technical and military advancements. Shares of chipmakers as well as the two largest Chinese Internet companies, Alibaba Group and Tencent, both saw steep declines.
On Friday, the Biden administration unveiled a comprehensive set of export regulations, including a rule that would prevent China from obtaining certain semiconductors produced anywhere in the globe using US machinery.
The slew of measures—some of which go into effect right away—could represent the largest change in US policy towards technology exports to China since the 1990s.
According to experts, the new regulations will have a significant effect, slowing China’s efforts to build its own chip industry and advance commercial and government research into data centres, military weapons, artificial intelligence, and other fields that depend on supercomputers and expensive chips.
The new regulations also come at a time when the global chip industry has already warned of weak revenue due to declining demand in PCs, cellphones, and other electronic devices after COVID.
Chinese chipmakers are expected to see the most short-term effects, they claimed.
The new rules forbid US businesses from supplying Chinese chipmakers with machinery capable of making relatively sophisticated chips, such as logic chips with a minimum size of 16 nanometers (nm), DRAM chips with a minimum size of 18 nm, and NAND chips with a minimum of 28 layers, unless they first obtain a licence.
Leading memory chip manufacturers Yangtze Memory Technologies Co Ltd (YMTC) and Changxin Memory Technologies, as well as China’s top contract chip manufacturers Semiconductor Manufacturing International Corp (SMIC) and Hua Hong Semiconductor Ltd, who are supported by the government, will be impacted by this (CXMT).
According to Danni Hewson, an analyst at AJ Bell, “the sanctions will hamper the Chinese chip business, thwart several expansion ambitions, and maybe slow down innovation in both the East and the West.”
Over the next few days, many boardrooms will conduct important meetings to discuss the effects of US export restrictions.
Chinese foundries control roughly 70% of the local market, which highlights Beijing’s aim to increase chip self-sufficiency. Chinese foundries only account for a small portion of the global contract chip industry, which is dominated by Taiwan’s TSMC.
Industry observers have identified YMTC and CXMT as China’s biggest chances to enter the global memory chip market, competing head-to-head with major competitors like Samsung Electronics and Micron Technology.
According to experts, the new laws would now present the two Chinese memory chipmakers with significant obstacles.
Gu Wenjun, who oversees research at Shanghai-based consultancy ICWise, stated in a research note that “the progress of memory will be constrained since there is no possibility to upgrade process equipment, no opportunity to grow production, and the market would be lost.”
Analysts warned that the disruption of equipment supply for high-end chip manufacture might have a cascade effect on less complex processors.
For NAND chips, the same machinery used to make 128-layer NAND can also produce more straightforward 64-layer NAND, according to Stewart Randall, who monitors China’s semiconductor industry for Shanghai-based consultant Intralink.
Mao Ning, a spokeswoman for China’s foreign ministry, described the action as a misuse of trade sanctions meant to strengthen American “technology hegemony” on Saturday.
KLA Corp, Lam Research Corp, and Applied Materials Inc. are among the US tool manufacturers that must immediately suspend supplies to plants making sophisticated logic circuits that are entirely controlled by China.
Nvidia Corp. and Sophisticated Micro Devices Inc. are two of the principal suppliers of advanced AI processors to China.
According to Susannah Streeter, an analyst at Hargreaves Lansdown, “this could scarcely come at a worse moment for Nvidia given that it’s already endured a tremendously trying period due to supply chain snarl-ups and falling demand for gaming consoles.”
