Two years after the US slapped tough sanctions on Huawei, the Chinese tech group’s revenues fell, it lost its leading position in network equipment and smartphones, and its founder told staff the company’s survival is at stake. in Game.
Now, China’s entire chip industry is bracing for similar pain as Washington applies time-tested tools. huawei much more widely.
Under new export controls announced on Friday that semiconductors made with US technology for use in AI, high-performance computing and supercomputers can only be sold to China with an export license, which will be very difficult to obtain.
Additionally, Washington prohibits US citizens or entities from working with Chinese chip producers except with specific approval. The package also strictly limits the export to Porcelain of chipmaking tools and technology that China could use to develop its own equipment.
“To put it mildly, [Chinese companies] they basically go back to the Stone Age,” said Szeho Ng, general manager of China Renaissance.
Paul Triolo, a China and technology expert at consultancy Albright Stonebridge, said: “There will be plenty of losers as the tsunami of change unleashed by the new rules sweeps through the semiconductor and associated industries.”
He added that the impact would be especially profound on Chinese companies that use U.S.-sourced hardware to implement AI algorithms, including for autonomous vehicles and logistics, as well as medical imaging and research centers that use AI for drug discovery and modeling of the system. climate change.
“It will take some time to clarify the full impact, but at a minimum it will slow down innovation in both China and the US, ultimately costing American consumers and businesses hundreds of millions or even billions of dollars,” he said. Triolo.
Several of the new controls work through third-country chipmakers, since nearly all semiconductors are designed with American software and most chip plants contain American machines.
“You can look at Huawei as a case study,” said Brady Wang, an analyst at technology market research house Counterpoint. While Huawei could still obtain certain supplies, he said, they were not the most advanced but rather those of an earlier era, which would limit the functionality of its products.
The new controls on semiconductor equipment are also a powerful weapon, poised to hit major manufacturers and producers of cutting-edge chips. According to Bank of America analysts, equipment restrictions will affect logic chips designed in the last four to five years and Dram chips designed after 2017. They will affect older tools and technology,” said Wayne Lam, analyst at CCS Insight. .
Chinese chip companies are even more concerned about Washington’s attempts to prevent US citizens from supporting them.
“That’s a bigger bomb than stopping us from buying equipment,” said a human resources executive at a state-backed semiconductor plant.
“We have [US passport holders] in our company, in some of the most important positions,” he said, calling them a “core weapon” for technology development. “We need to find a way to keep these people working for our company. This is very difficult. Most people are not willing to give up their US passports.”
Most of the US citizens in the Chinese chip industry are Chinese and Taiwanese returnees from the US There are no statistics on the size of this group. But a Taiwanese intelligence official estimated that as many as 200 US passport holders worked at Chinese semiconductor companies.
And the restrictions extend beyond that group. An executive at a supplier of semiconductor materials said his company would have to replace all US sales and technical support staff sent to Chinese customers.
Another threat to China’s entire tech industry is a new license requirement to export chips for use in artificial intelligence and high-performance computing.
“The whole point of the policy is to undermine China’s AI and HPC efforts, at least those related to the military, with commercial collateral damage from the US government’s point of view,” said Douglas Fuller, a expert in the Chinese semiconductor industry. at the Copenhagen Business School.
Even some of China’s biggest technology companies, such as Alibaba and Baidu, are believed to be vulnerable. “[Their] all research and development progress will slow down,” said Counterpoint’s Wang.
Experts believe that China’s dynamic breed of AI chip design companies will suffer. “If you lose the AI startups, you lose your innovation dynamics,” said a Taiwanese electronics industry executive.
With China’s semiconductor market by end-user now accounting for almost a quarter of global demand, foreign suppliers will also be affected.
US equipment maker Applied Materials got 33 percent of its sales from China last year and peer Lam Research 31 percent. Lam Research named Yangtze Memory Technologies, China’s largest memory chipmaker specifically targeted by the US under the new rules, as a major customer in its annual report, with BofA estimating 6-7 percent of Lam Research’s sales go to YMTC.
With many of Intel’s high-end processors going to Chinese supercomputers, BofA expects the restrictions could affect up to 10 percent of Intel’s sales.
But some analysts believe the measures will favor foreign chipmakers. As the main motive of the US was to stop China’s development in the most advanced semiconductor technology, major foreign chipmakers such as Taiwan Semiconductor Manufacturing Company (TSMC) o Intel would benefit, said Akira Minamikawa, a semiconductor analyst at research firm Omdia.
He said flash memory makers that compete directly with YMTC, such as Japan’s Kioxia, might “reap some benefit” from the new US measures, but the gains would likely be small.
Kim Young-woo, head of research at SK Securities, said that the fact that Washington has not imposed a blanket ban on the supply of equipment for foreign chipmakers operating in China would be a relief to Korean semiconductor companies, but the need for export licenses could still be a hassle
The bigger question is how China responds. “We are in a negative cycle where the US continues to push for restrictions, which pushes the Chinese to fight for technological independence, which in turn pushes the US towards more severe restrictions,” said one industry expert in Beijing.
But Beijing’s levers are limited. “This will prompt the Chinese to look for alternatives, but with the recognition that alternatives to US technology are decades away,” the person said.
This dire situation could lead to more intellectual property theft. Since some equipment now under export control is already used in China, Beijing could ignore intellectual property rights and reverse-engineer machinery to strengthen local equipment manufacturers, CCS’s Lam said. He added: “We may be shooting ourselves in the foot.”
Reporting by Kathrin Hille in Taipei, Qianer Liu and Eleanor Olcott in Hong Kong, Richard Waters in San Francisco, Demetri Sevastopulo in Washington, Kana Inagaki in Tokyo, and Song Jung-a in Seoul