The U.S. administration is trying to restrict China's military potential by denying access to government-controlled entities leading processor designs, chip development, and production capabilities, according to Bloomberg. As a result, it wipes billions of dollars from the semiconductor industry's global market value. Some U.S. companies are already restricting access to certain China-based companies to their products and services, whereas others are waiting before the U.S. government makes its restrictions official.
Being the world's second-largest economy and the global factory, China unsurprisingly consumes loads of semiconductors and produces loads of chips in the country. China must adopt the latest technologies designed in the country and elsewhere to support its economic and humanitarian development. Still, those technologies could also help advance Chinese military potential, something that nobody in the region and outside of it likes. Advanced weapons will boost China's influence on the economy and geopolitics, which poses risks not only to U.S. allies like Japan, South Korea, and Taiwan but also to the U.S.
To crack down on advancements in China's military development or at least slow it down tangibly, the U.S. has been gradually imposing restrictions on the Chinese chip industry for several years. Still, the Biden administration is ready to impose even more severe sanctions against China's chip sector in the coming weeks or months. In particular, it looks like the current government wants Chinese contract chipmaker Semiconductor Manufacturing International Co. (SMIC) to stop making chips using its 14nm-class fabrication technology (and thinner) nodes as well as Yangtze Memory Technologies Co. (YMTC) to cease advancing its 3D NAND memory.
The U.S. authorities plan to impose stricter rules on exports of advanced U.S.-originated semiconductor technologies to China. But because the chip industry is global, decisions of the U.S. administration will impact the whole semiconductor supply chain. Capitalizations of large chip companies have been decreasing for a while now as investors have been expecting slowing demand for chips (and it is here). With more restrictions from the U.S., more semiconductor companies will suffer. As a result, the Philadelphia Stock Exchange Semiconductor Index — a modified market capitalization-weighted index composed of semiconductor companies — hit its low this week.
Semiconductor Companies Set to Suffer
Several types of semiconductor industry companies will suffer from the U.S. attempting to crack down Chinese high-tech industry to prevent the development of the country's military potential.
Chip development begins with intellectual property and electronic design automation (EDA) tools. Companies like Ansys, Cadence, Keysight, and Synopsys sell plenty of software and IP blocks to Chinese chip designers. Approximately 13% of Cadence's and Synopsys' 2021 revenue came from China, and that does not count the various chip designs developed elsewhere with China in mind. There are other providers of EDA and similar tools from other countries, and while Cadency and Synopsys are market leaders, usage of software from Siemens EDA (Germany), Zuken (Japan), or Primarius Technologies (China) for chip designs is possible.
We are not sure whether the American government has the power to restrict licensing of Arm chip designs to customers in China. Still, potentially it could confine licensing of certain portions of designs developed in the U.S. Also, the U.S. administration can restrict the usage of American chip development tools to create chips for certain Chinese entities by contract chip designers like Alchip.
Foundries. Hundreds of chip designers in China develop chips requiring sub-14nm/16nm process technologies. At least a dozen companies could use leading-edge production nodes like TSMC's N4/N5 or Samsung's 3GAE/5LPP. If they are prohibited from using advanced manufacturing processes (including relatively mainstream 14nm/16nm-class nodes), contract makers of chips will lose revenue and profits.
Makers of semiconductor production equipment. China is not exactly a leading nation in chip production. Still, with thousands of chip developers in the country (most working on ICs for emerging applications like Internet-of-Things, smart homes, smart cities, etc.), it needs loads of semiconductor production capacity in the country. As a result, China is one of the largest markets for companies like ASML, Applied Materials, KLA, and Lam Research.
Even without the U.S. administration announcing stricter restraints against China's memory and logic production companies, KLA on Tuesday stopped sales of specific tools to Chinese companies that can produce 3D NAND with 128 layers or more, DRAM chips at an 18nm node or thinner, and advanced logic chips, according to Reuters. Despite expectations, KLA stopped shipments to companies like SMIC and YMTC and companies like SK Hynix that produce memory in China.
Chip designers like AMD, Nvidia, and Intel also sell boatloads of advanced chips to various Chinese companies. However, recently the U.S. government barred sales of AMD's, and Nvidia's high-performance compute GPUs to any customers in China, including cloud companies like Alibaba and Baidu, which could have lowered Nvidia's quarterly revenue by up to $400 million if the government did not allow the company to fulfill existing orders and continue to work with Chinese manufacturing partners for a while.
In particular, the U.S. government does not want American companies to sell Chinese entities supercomputing-grade hardware that could allow building machines with the performance of over 100 FP64 PetaFLOPS or over 200 FP32 PetaFLOPS within 41,600 cubic feet (1178 cubic meters), according to China Renaissance.
Some say that the decision by the U.S. administration will speed up the development of high-end compute GPUs by Chinese companies like Biren Technologies; others note that Nvidia is years ahead of any China-based firm regarding software stack for artificial intelligence and high-performance computing. But in any case, China is a large market for high-performance CPUs and GPUs, so the crackdown will inevitably hurt companies like AMD, Nvidia, and Intel.
Will it send Chinese cloud giants back or contain the development of new military capabilities is up for debate. On the one hand, it will hurt companies like Alibaba, Baidu, and Tencent. But on the other hand, they will still be able to buy less capable hardware from AMD and Nvidia, so they will not lose access to American technologies overnight. Still, they will have to spend more on electricity, data center space, and maintenance.
Will It Work?
The U.S. sanctions against China's high-tech sector aim to control what the country gets and restrict some of the technologies to the People's Republic, not wholly destroying its high-technology and economic potential. Therefore, the appropriate U.S. organizations approved 88% of tech exports to China in 2021.
But if the percentage of approvals gets dramatically lower, Chinese semiconductor companies will suffer (and the whole industry with it). China will take years and hundreds of billions of dollars to replace all technologies with U.S. origins.
On the chip production side of matters, the good news for China is that Japan-based chip tools companies like Nikon, Canon, Tokyo Electron, and several others will suffer from the U.S. crackdown and will likely attempt to develop equipment that does not use technology designed in the USA. However, assuming that they succeed and China-based makers will make progress in tools, Chinese SMIC and YMTC will be able to continue advancing their chip technologies (assuming that the U.S. government does not try to curb the production of chips using trailing nodes).
On the chip design side of matters, things are considerably more complex. Local chip developers barely have experience with the design of ultra-large supercomputer-grade chips. While some items may be mitigated by exploiting a modern chiplet-based design approach, there are not enough engineers or senior managers in China to address all large-scale semiconductor projects that the country might need to replace things like Nvidia's A100/H100 compute GPUs, according to China Renaissance. Meanwhile, Taiwan and the U.S. now restrict the hiring of chip specialists by Chinese companies, so getting the right talent will be harder for Chinese companies.
While severe restrictions for the Chinese semiconductor industry might have a drastic effect on local chipmakers, the U.S. government has not entirely restricted access of Chinese companies to American technologies, which has enabled companies like Biren to develop their world-class chips. However, if this happens, the effect will be far-reaching. It will take years for China to replace technologies that originated in the U.S., which will dramatically affect the country's economic development.
But so far, investors' worries about a significant chip demand slump and fears about the future of the global semiconductor industry if the U.S. decides to impose stricter sanctions against the Chinese chip sector have erased more capitalization than any concrete actions by the U.S. administration.
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Anton Shilov is a Freelance News Writer at Tom’s Hardware US. Over the past couple of decades, he has covered everything from CPUs and GPUs to supercomputers and from modern process technologies and latest fab tools to high-tech industry trends.
what bad deicsion US made by restricting China on chips, China is already on path for being self suffient and is doing strongly here, the last shock for US was that Chinese SMIC was able to manufacture chips on 7nano node!Reply
That will drive the chip cost high, poor availability etc .... in the past we paid 2$ a transceiver, now they are at 24$Reply
Covid is not at fault here
'which poses risks not only to U.S. allies like Japan, South Korea, and Taiwan but also to the U.S. 'Reply
I think that last one is meant to be UK.
It poses risks not only to the US, but also alarmingly THE US! :P
The 50-cent army is in full-force, huh?Reply
Is there anyone the US doesn't want to provoke? Basically hung Ukraine out to dry in order to pick a fight that's akin to a reverse Cuban missile crisis, now starting to bully China.Reply
All from a country that's tearing itself in half, with a justice system full of judges biased to the party that appointed them, and laws being passed that set the country back fifty years.
Not to mention a terrorist attack on the Nordstream pipeline in order to ensure the US gets to sell gas to Europe while the poorer citizens of said continent freeze this winter.
Time everyone in Europe distanced themselves from the US before they damage out economies further.
And who can question US for misuse of technology?Reply
No one! Because US is/was/will always be the good guys and will never ever misuse anything!
As typical and expected, this has quickly descended into political mudslinging.Reply
Sorry, but going to close this before someone goes off the deep end and gets banned.