Ban Rumors
The US government has made it extremely difficult for Chinese semiconductor companies to develop advanced process nodes by banning the sale of such equipment if it contains any US software, components, or hardware, but it has allowed equipment used in more mature nodes to bypass those restrictions, with the idea that Chinese semiconductor fabs will only be able to produce the more ‘common’ parts that are needed around the globe, including in the US. Without the equipment for advanced nodes, China’s semiconductor producers are unable to compete with semiconductor technology leaders such as Samsung and Taiwan Semiconductor (TSM), with ASML (ASML) the only source for the EUV tools needed for such advanced nodes, honoring the US ban.
It seems that the US Department of Commerce is evaluating the impact of even more stringent rules that would ban the sale of equipment used for the mature nodes that have previously been excepted, as a way to push China toward acknowledging sanctions against Russia for its invasion of Ukraine. While the Chinese government has been making a concerted effort to aid the development of a homegrown semiconductor equipment industry that would not rely on the US for any parts or equipment, no matter how much money is thrown at the development of such tools, much depends on the experience and expertise of the engineers who design those tools, and it has proven to be a slow process for Chinese engineers to develop such expertise.
While we expect there would be the usual hue and cry from the Chinese government should the US expand the existing semiconductor trade restrictions, it will have a devastating effect on the Chinese semiconductor industry and stagnate China’s advancement as a global semiconductor supplier, and even a domestic one. It would be difficult for the Chinese government to publicly censure Russia or reverse its existing stance, but if the US tightens the semiconductor noose further, China will have to find a way to satisfy the US while not seeming to acquiesce to it demands or face even slower growth from it semiconductor fabs during a period when the profitability of same should be at its peak.
If the US decides to go further with trade sanctions against China, it will also have to contend with US equipment suppliers, particularly Applied Materials (AMAT), LAM Research (LRCX), and KLA (KLAC), all of whom have significant sales in China. While political pressure continues to push the administration toward tighter rules, US companies will bear the brunt of those restrictions, along with Japan’s Tokyo Electron (8035.JP). Finding a path that will not penalize the US and Japanese semiconductor equipment business yet will exert additional pressure on China toward the US agenda with Russia is an almost impossible task and even if a solution is found, that does not guarantee that all countries will honor it despite the political pressure the US might exert, and if it is successful politically will the outcome, both financially and technologically worth the price?
It seems that the US Department of Commerce is evaluating the impact of even more stringent rules that would ban the sale of equipment used for the mature nodes that have previously been excepted, as a way to push China toward acknowledging sanctions against Russia for its invasion of Ukraine. While the Chinese government has been making a concerted effort to aid the development of a homegrown semiconductor equipment industry that would not rely on the US for any parts or equipment, no matter how much money is thrown at the development of such tools, much depends on the experience and expertise of the engineers who design those tools, and it has proven to be a slow process for Chinese engineers to develop such expertise.
While we expect there would be the usual hue and cry from the Chinese government should the US expand the existing semiconductor trade restrictions, it will have a devastating effect on the Chinese semiconductor industry and stagnate China’s advancement as a global semiconductor supplier, and even a domestic one. It would be difficult for the Chinese government to publicly censure Russia or reverse its existing stance, but if the US tightens the semiconductor noose further, China will have to find a way to satisfy the US while not seeming to acquiesce to it demands or face even slower growth from it semiconductor fabs during a period when the profitability of same should be at its peak.
If the US decides to go further with trade sanctions against China, it will also have to contend with US equipment suppliers, particularly Applied Materials (AMAT), LAM Research (LRCX), and KLA (KLAC), all of whom have significant sales in China. While political pressure continues to push the administration toward tighter rules, US companies will bear the brunt of those restrictions, along with Japan’s Tokyo Electron (8035.JP). Finding a path that will not penalize the US and Japanese semiconductor equipment business yet will exert additional pressure on China toward the US agenda with Russia is an almost impossible task and even if a solution is found, that does not guarantee that all countries will honor it despite the political pressure the US might exert, and if it is successful politically will the outcome, both financially and technologically worth the price?
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