When the US first banned sales of certain tech products to Chinese tech company Huawei three years ago, it crippled a once-proud national champion and sent ripples through the US semiconductor industry in the United States. In the quarters following the export ban in May 2019, major US chipmakers reported an average revenue decline of 4% to 9%.
The latest technology checks by the Biden administration threaten to accelerate those losses, throwing the global semiconductor industry into chaos. And the Chinese companies targeted by the new regulations won’t be the only ones to feel the pain.
“If China really wants to be as aggressive as the US and retaliate, there could be a huge impact for other companies in the US,” Edith Yeung, general partner at Race Capital, said in an interview with Yahoo Finance Live ( video above). . “This goes beyond the revenue impact of Intel (INTC) or Qualcomm (QCOM) or NVIDIA (NVDA).”
The United States has long been a world leader in semiconductors, with a market share of about 45% to 50%. However, that leadership has been built on global demand for its products, with China consuming roughly 75% of the semiconductors sold globally.
Chinese device makers alone accounted for about a quarter of global demand for semiconductors in 2018, according to a study by the Boston Consulting Group (BCG).
‘More than just a preventive tool’
That cycle of innovation is at risk of being shattered, with the Biden administration’s sweeping tech controls intended to freeze China’s semiconductor development and sharply limit US exports of critical technology.
“Technology export controls can be more than just a preventative tool,” National Security Adviser Jake Sullivan said, ahead of the administration’s announcements. “If implemented in a robust, durable, and comprehensive manner, they can be a new strategic asset in the US and allied toolkit to impose costs on adversaries and even, over time, degrade their capabilities in the field. battlefield”.
‘A sea change’ in politics
Specifically, the new measures block sales of semiconductors critical to the development of artificial intelligence, supercomputers and other advanced technologies, unless the companies receive exemptions. It also expands an existing ban on selling advanced chipmaking equipment to Chinese companies.
In a wide escalation, the Biden administration’s actions also prevent US companies and citizens, including permanent residents, from supporting the development of advanced chips in China.
The restrictions announced earlier this month have already created a chilling effect.
At least 43 top executives are US citizens who work with 16 publicly traded Chinese semiconductor companies, according to the Wall Street Journal. Western companies such as Dutch equipment maker ASML Holding NV have furloughed American employees from work as a precaution, as they seek more clarity. In addition, Apple has temporarily halted plans to use memory chips from China’s Yangtze Memory Technologies Co. in products, according to Nikkei Asia.
“This is really a sea change in policy… The US is imposing a freeze-in-place strategy towards China’s indigenous chip development,” said Reva Goujon, director of Rhodium Group. “[The semiconductor sector] it is an interdependent and interconnected ecosystem where all parts must be in place for things to work and can be upgraded to ever more advanced levels. So if you cut the legs under that production cycle, you can really cause a huge disruption, which is exactly what the US intends.”
Impact on US chipmakers
The disruption may not be limited to Chinese companies. A 2020 study by BCG estimated that US companies could lose 18% of their global market share and 37% of their revenue over the same period if the US completely bans semiconductor companies from selling to customers. Chinese.
The moves have already led chip equipment maker Applied Materials to cut fourth-quarter net sales estimates by about $400 million. Fourth quarter non-GAAP adjusted diluted EPS is expected to range between $1.54 and $1.78, compared to the previous range of $1.82 to $2.18.
While the restrictions are now limited to next-generation chips, NVIDIA, the largest US chipmaker by market value, warned in August that the new licensing requirement for advanced chip shipments to China could cost it. the company up to $400 million in quarterly sales.
“There is certainly a possibility that this could have a much larger cascading effect, but I think these companies have already looked at the situation, they are evaluating it,” said Daniel Newman, founding partner and principal analyst at Futurum Research. “I’m not too alarmed that it’s going to be the whole portfolio [of chips]… I think it’s about leading the arms race for the next generation of technology in areas like supercomputing, high-performance computing, and artificial intelligence.”
Containing technology ‘where they need to be’
Secretary of State Anthony Blinken has reiterated this, noting in a recent speech at Stanford University, that only “a small number of countries” make or make tools to make the highest-end semiconductors.
“We want to make sure we keep them where they need to be,” Blinken said, without singling out China.
But Goujon argues that US companies, particularly equipment manufacturers, face the risk of losing market share and revenue to competitors in countries that have historically had friendlier relations with the US, including Japan and South Korea. If businesses there find a solution to the Biden administration’s measures, Goujon said the new controls could end up backfiring on the US.
“Foreign U.S. Competitors [equipment makers] they have an opportunity here, of course, to try to capture more market share in China if they can displace American people and ties to the US, which is possible in some areas,” he said.
“The United States is applying strong bilateral and plurilateral pressure for partners to follow suit, and is sending the signal that this package contains extraterritorial measures and we will add more if necessary. But here’s the window to try to basically align with our controls. So that’s really going to be an important question now.”
Akiko Fujita is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AkikoFujita
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