Poking Back?
With the US pointing a double barrel shotgun at China’s semiconductor industry, the $280b CHIPS Act and an ever-increasing number of trade sanctions relative to semiconductor manufacturing, China has little choice but to respond, and leaks about the potential for the Chinese government to be readying a semiconductor investment package of its own are starting to circulate. While details will likely be given early next year, thus far the supposition is that a $143b 5 year package containing subsidies and tax breaks will be announced, to offset the increasing pressure from the US.
Current thinking is that the focus will be on China’s semiconductor equipment industry, where 20% equipment purchase subsidies will be offered, as China is already unable to purchase EUV tools from ASML (ASML), allowing them to move from more mature nodes to 7nm and below. China’s largest semiconductor foundry SMIC (688981.CH) recently surprised the industry by announcing it had begun production at the 7nm node, without EUV, but it seems that their process, which uses DUV requires 4 passes against the EUV process, which requires one, and is therefore more costly to produce. That said, the US government has been in negotiations with the Norwegian government over a potential ban on DUV tools to China, which would further constrict China’s ability to produce more advanced node silicon.
China’s typical brute force approach entering global markets is a bit less effective in the semiconductor space, where years of accumulated semiconductor process technology resides with Taiwanese, South Korean, and Japanese foundries, but the same was said in the display space when Chinese LCD panel producers began a government sponsored capacity expansion only a few years back, and are now the dominant force in the large panel LCD space. While some might say that the display industry has already moved past LCD technology, making China’s dominance a moot point, it does go to show that their government funded expansion can be an industry mover, even if it comes a bit late, and while the semiconductor space is a bit more complex, the constant ‘poking’ by the US government will eventually result in China stepping up its desire to become more semiconductor independent and developing a more sophisticated semiconductor equipment industry of its own. It might not be as technically advanced as tools from ASML, Canon (7751.JP), or Nikon (7731.JP), but if they get the job done, China will squeeze the more generic semiconductor market, as it has done in display and the LED market and will leave others to compete only at the top tier of the semiconductor market. Sometimes the bear wins or at least does some significant damage…
Current thinking is that the focus will be on China’s semiconductor equipment industry, where 20% equipment purchase subsidies will be offered, as China is already unable to purchase EUV tools from ASML (ASML), allowing them to move from more mature nodes to 7nm and below. China’s largest semiconductor foundry SMIC (688981.CH) recently surprised the industry by announcing it had begun production at the 7nm node, without EUV, but it seems that their process, which uses DUV requires 4 passes against the EUV process, which requires one, and is therefore more costly to produce. That said, the US government has been in negotiations with the Norwegian government over a potential ban on DUV tools to China, which would further constrict China’s ability to produce more advanced node silicon.
China’s typical brute force approach entering global markets is a bit less effective in the semiconductor space, where years of accumulated semiconductor process technology resides with Taiwanese, South Korean, and Japanese foundries, but the same was said in the display space when Chinese LCD panel producers began a government sponsored capacity expansion only a few years back, and are now the dominant force in the large panel LCD space. While some might say that the display industry has already moved past LCD technology, making China’s dominance a moot point, it does go to show that their government funded expansion can be an industry mover, even if it comes a bit late, and while the semiconductor space is a bit more complex, the constant ‘poking’ by the US government will eventually result in China stepping up its desire to become more semiconductor independent and developing a more sophisticated semiconductor equipment industry of its own. It might not be as technically advanced as tools from ASML, Canon (7751.JP), or Nikon (7731.JP), but if they get the job done, China will squeeze the more generic semiconductor market, as it has done in display and the LED market and will leave others to compete only at the top tier of the semiconductor market. Sometimes the bear wins or at least does some significant damage…
Wild bear steals weapon from hunter - Source: Tribune.com/News 365
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