China tech shares sink as U.S. export curbs raise chip sector hurdles

By Josh Horwitz and Jason Xue

SHANGHAI, Oct 10 (Reuters) – Shares in Chinese tech giant Alibaba Group (9988.HK) and Tencent (0700.HK) and chipmakers fell on Monday as investors spooked by new US export controls aimed at slowing Beijing’s technological and military advancements.

The Biden administration on Friday issued a sweeping set of export controls, including a measure to cut China off from certain semiconductors made anywhere in the world with American equipment.

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The series of measures, some of which take effect immediately, could be the biggest shift in U.S. policy on exporting technology to China since the 1990s.

Experts said the new rules will have a broad impact, slowing China’s efforts to develop its own chip industry and advance commercial and state-run research involving military weapons, artificial intelligence, data centers and many other areas powered by supercomputers and high-end chips.

The new controls also come at a time when the global chip industry is already facing major headwinds from the post-COVID demand slump in computers, smartphones and other electronics and warned of the low income.

The most immediate impact will likely be felt by Chinese chipmakers, they said.

Under the new regulations, US companies must stop supplying Chinese chipmakers with equipment capable of producing relatively advanced chips – logic chips under 16 nanometers (nm), DRAM chips under 18 nm and NAND chips. of 28 layers or more – unless they first obtain a license.

This is expected to affect China’s major contract chipmakers – Semiconductor Manufacturing International Corp (SMIC) (0981.HK) and Hua Hong Semiconductor Ltd. (1347.HK) – as well as major state-backed memory chip makers Yangtze Memory Technologies Co Ltd (YMTC) and Changxin Memory Technologies (CXMT).

“The measures will hamper China’s chip industry and sabotage many growth plans and potentially set back innovation in both East and West,” said Danni Hewson, analyst at AJ Bell.

“Many boardrooms will be hosting high-level meetings over the next few days given the implications of US export controls.”

Chinese foundries hold a fraction of the global contract chip market, which is dominated by Taiwan’s TSMC (2330.TW)but they control about 70% of the domestic market, underscoring Beijing’s efforts to bolster chip self-sufficiency.

In memory chips, industry watchers have identified YMTC and CXMT as China’s best hopes to break into the global market, neck and neck with top players such as Samsung Electronics. (005930.KS) and Micron technology (MU.O).

The new regulations will now pose major hurdles for the two Chinese memory chip makers, analysts said.

“The advancement of memory will be limited because there is no possibility of upgrading processing equipment, no possibility of expanding production, and the market will be lost,” wrote Gu Wenjun, who heads the research at Shanghai-based consultancy ICWise, in a research note. .

Blocking equipment supplies for high-end chip production could also have a cascading impact on simpler chips, analysts said.

Stewart Randall, who follows China’s semiconductor industry at Shanghai-based consultancy Intralink, said that for NAND chips, the same equipment used to produce 128-layer NAND can also produce simpler 64-layer NAND. .

Chinese Foreign Ministry spokesman Mao Ning on Saturday called the move an abuse of trade measures aimed at bolstering U.S. “technological hegemony.”

U.S. toolmakers are now required to halt shipments to wholly Chinese-owned factories producing advanced logic chips, including KLA Corp (KLAC.O)Lam Research Corp. (LRCX.O) and Applied Materials Inc. which sent their shares down about 4% and 8%.

The Philadelphia Semiconductor Index (.SOX) fell 3.4%.

Inside Advanced AI Chips – Nvidia Corp (NVDA.O) and Advanced Micro Devices Inc. (AMD.O) – which are among the main suppliers of China, fell by around 3% each.

“It could hardly come at a worse time for Nvidia given that it is already facing a very difficult time due to supply chain issues and slowing demand for game consoles,” said Susannah Streeter, analyst at Hargreaves Lansdown.

SUPERCOMPUTERS, DATA CENTERS

The rules also include blocking shipments of a wide range of chips for use in Chinese supercomputing systems that can be used to develop nuclear weapons and other military technology.

Some industry experts say the ban could also affect Chinese tech giants’ commercial data centers. Shares of e-commerce company Alibaba and social media and gaming company Tencent, which both rely heavily on data centers, fell 3.3% and 2.5%, respectively.

A sharp drop in tech stocks led the Chinese market lower in its first holiday trade after Golden Week on Monday.

An index measuring Chinese semiconductor companies (.CSIH30184) fell nearly 7%, and Shanghai’s technology-focused board STAR market (.STAR50) down 4.5%.

The SMIC fell 4%, chip equipment maker NAURA Technology Group Co (002371.SZ) fell 10% from the daily limit and Hua Hong Semiconductor plunged 9.5%.

Shares in AI research company SenseTime (0020.HK) and surveillance equipment manufacturer Dahua Technology (002236.SZ)which will be cut from chips made using American technologies, fell 5.7% and 10% respectively.

The impact on tech stocks outside of China was limited on Monday, with financial markets in South Korea, Japan and Taiwan closed for separate holidays.

European Technology Index (.SX8P) fell 0.8%, while New York-listed shares of Chinese companies Alibaba, JD.com and Pinduoduo (PDD.O) fell between 3% and 7%.

Analysts expect the impact on TSMC, the world’s largest contract chipmaker, to be limited as most of its advanced chip orders come from US-based customers such as Apple. (AAPL.O) and Qualcomm (QCOM.O)even though it generates about 10-12% of its revenue in China.

South Korea also did not expect a significant disruption in equipment supplies from Samsung and SK Hynix on Saturday. (000660.KS) existing chip production in China.

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Reporting by Josh Horwitz and Jason Xue; Additional reporting by Anisha Sircar and Medha Singh in Bengaluru; Written by Miyoung Kim; Editing by Muralikumar Anantharaman

Our standards: The Thomson Reuters Trust Principles.

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