When the US first banned the sale of certain tech products to Chinese tech firm Huawei three years ago, it crippled a once proud national champion and sent waves to the US semiconductor industry. In the quarters following the May 2019 export ban, leading American chipmakers reported a 4% to 9% decline in their average revenue.
The Biden administration’s cutting-edge controls threaten to accelerate these losses, throwing the global semiconductor industry into disarray. And the Chinese companies targeted by the new regulations won’t be the only ones feeling the pain.
“If China really wants to be as aggressive as the US and retaliate, there could be a lot of implications for other companies in the US,” Race Capital Managing Partner Edith Yeung said in an interview with Yahoo Finance Live (video above). “This is beyond the revenue impact for Intel (INTC) or Qualcomm (QCOM) or NVIDIA (NVDA).”
The USA has long been a global leader in semiconductors, with roughly 45% to 50% market share. However, this leadership has been built on global demand for its products, with China consuming roughly 75% of semiconductors sold globally.
Chinese device manufacturers alone accounted for roughly a quarter of global semiconductor demand in 2018. according to a research By Boston Consulting Group (BCG).
‘More than a preventative tool’
This cycle of innovation risks shattering the Biden administration with sweeping technology controls aimed at freezing China’s semiconductor development and significantly limiting exports of critical technology from the US.
“Technology export controls can be more than just a preventative tool,” National Security Advisor Jake Sullivan said before the administration’s statements. “If robust, durable and implemented comprehensively, it could become a new strategic asset in the US and allied toolkit, placing costs on enemies and even reducing their battlefield capabilities over time.”
‘A change of the sea’ in politics
Specifically, the new measures prevent the sale of semiconductors critical to the development of artificial intelligence, supercomputers and other advanced technologies, unless companies receive exemptions. It also expands an existing ban for selling advanced chip-making equipment to Chinese firms.
In a broad escalation, the Biden administration’s actions also restrict US firms and citizens, including permanent residents, from supporting China’s advanced chip development.
The restrictions announced earlier this month have already acted as a deterrent.
At least 43 senior executives are American citizens working in 16 publicly traded Chinese semiconductor companies. According to the Wall Street Journal. Western firms such as Dutch equipment manufacturer ASML Holding NV have suspended their American employees as a precaution, while asking for more clarity. In addition, Apple, China’s Yangtze Memory Technologies Co. temporarily halted his company’s plans to use memory chips. in products, According to Nikkei Asia.
“This is really a big change in policy… The US is implementing a freeze-in-place strategy for China’s domestic chip development,” said Reva Goujon, Rhodium Group Director. “[The semiconductor sector] It is an interconnected, interconnected ecosystem where all the pieces must be in place so that things can go even further. So if you cut off the feet of this production cycle, you can really cause a lot of disruption, which is exactly what the US is aiming for.”
Impact on US chip manufacturers
The outage may not be limited to Chinese companies. A study conducted by BCG in 2020, US companies may lose 18% of global market shares and 37% of revenues in the same period if US semiconductor companies completely ban sales to Chinese customers.
The measures caused chip equipment maker Applied Materials to cut its fourth-quarter forecasts for net sales by nearly $400 million. Q4 non-GAAP adjusted diluted EPS is expected to be between $1.54 and $1.78, compared to the previous $1.82 to $2.18 range.
While restrictions are now limited to next-gen chips, NVIDIA, the largest US chip maker by market capitalization, warned in August that a new license requirement for advanced chip shipments to China could cost the firm $400 million in quarterly sales.
“There’s definitely a chance this will have a much bigger waterfall effect, but I think these companies have already looked at the situation, they’re evaluating it,” said Daniel Newman, Futurum Research Co-Founder and Principal Analyst. “I’m not overly worried about it being the whole portfolio. [of chips]… I think it’s about leading the arms race for next-generation technology in areas like supercomputing, high-performance computing, and artificial intelligence.”
Incorporating technology ‘where it needs to be’
Secretary of State Anthony Blinken reiterated the same thing in a recent speech at Stanford University, emphasizing that only “few countries” are making or producing tools to produce top-of-the-line semiconductors.
“We want to make sure we keep them where they need to be,” Blinken said, without choosing China.
But Goujon argues that US firms, particularly equipment manufacturers, risk losing market share and revenue to competitors in countries that have historically had friendlier relations with the US, including Japan and South Korea. Goujon said the new controls could backfire on the US if companies there find a workaround for the Biden administration’s measures.
“Foreign competitors to the United States [equipment makers] “Here, of course, they have an opportunity to try to gain more market share in China if they can displace US people and US contacts, which is possible in some regions.”
“The United States is putting heavy bilateral and multilateral pressure on its partners to follow its lead, and this package includes cross-border measures and we will add more if needed,” he signaled. But here’s basically the window for trying to align with our controls. So that’s going to be a really important question now.”
Akiko Fujita is an anchor and reporter for Yahoo Finance. follow him on twitter @AkikoFujita
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