When the US first banned the sale of certain tech products to Chinese tech company Huawei three years ago, it crippled a once-proud national champion and caused repercussions in the US semi-industry. drivers. In the quarters following that export ban in May 2019, major U.S. chipmakers reported a median drop in revenue of 4% to 9%.
The Biden administration’s latest tech controls threaten to accelerate those 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 United States and retaliate, that could have a lot of impact for other companies in the United States,” Edith Yeung, general partner of Race Capital, said in a statement. interview with Yahoo Finance Live (video above). . “This goes beyond the impact on Intel’s revenue (INTC) or Qualcomm (COMQ) or Nvidia (NVDA).”
The United States has long been a world leader in semiconductors, with a market share of around 45-50%. However, this leadership has been built on global demand for its products, with China consuming around 75% of the semiconductors sold globally.
Chinese device makers alone accounted for around a quarter of global semiconductor demand in 2018, according to a study by Boston Consulting Group (BCG).
“More than just a prevention tool”
This round of innovation risks being sidelined, with the Biden administration’s sweeping technology controls aimed at freezing semiconductor development in China and drastically limiting exports of critical technologies from the United States.
“Technology export controls can be more than just a preventative tool,” National Security Advisor Jake Sullivan said, ahead of the administration’s announcements. “If implemented robustly, sustainably, and comprehensively, they can be a new strategic asset to the United States and an allied toolkit for imposing costs on adversaries, and even over time degrading their capabilities on the battlefield.”
“A radical change” of policy
Specifically, the new measures block sales of semiconductors critical to the development of artificial intelligence, supercomputers and other cutting-edge technologies, unless companies are granted exemptions. It also extends an existing ban on selling advanced chipmaking equipment to Chinese companies.
In a broad escalation, the Biden administration’s actions are also preventing U.S. businesses and citizens, including permanent residents, from supporting China’s development of advanced chips.
The restrictions announced earlier this month have already had a chilling effect.
At least 43 senior executives are U.S. citizens working with 16 listed Chinese semiconductor companies, according to the Wall Street Journal. Western companies like Dutch equipment maker ASML Holding NV have suspended US employees as a precautionary measure while they demand more clarity. Additionally, Apple has temporarily suspended 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 United States is imposing a freeze-in-place strategy for the development of indigenous chips in China,” said Rhodium Group Director Reva Goujon. “[The semiconductor sector] is an interdependent and intertwined ecosystem where all the pieces have to be in place to make things work in order to progress to more and more advanced levels. So if you cut the legs under this production cycle, you can really cause a lot of disruption, which is exactly what the United States intends.
Impact on US chipmakers
The disruption may not be limited to Chinese companies. A 2020 BCG study estimated that US companies could lose 18% of their global market share and 37% of their revenue over the same period if the United States completely bans semiconductor companies from selling to Chinese customers.
The measures have already prompted chip-equipment maker Applied Materials to cut estimates for fourth-quarter net sales by about $400 million. Fourth quarter non-GAAP adjusted diluted EPS is expected to be between $1.54 and $1.78, compared to the previous range of $1.82 to $2.18.
While restrictions are now limited to next-generation chips, NVIDIA, the largest U.S. chipmaker by market value, warned in August that the new licensing requirement on shipments of advanced chips to China could cost the business up to $400 million in quarterly sales.
“There’s definitely a chance that it will have a much bigger cascading effect, but I think these companies have already looked at it, they’re evaluating it,” said Daniel Newman, founding partner and principal analyst at Futurum Research. “I’m not too worried that it’s the whole wallet [of chips]… I think it’s about leading the arms race for the next generation of technologies in areas such as supercomputing, high performance computing and artificial intelligence.
Contain technology “where it needs to be”
Secretary of State Anthony Blinken has reiterated this, pointing out in a recent speech at Stanford University, that only “a small number of countries” manufacture or manufacture the tools to make the most high-end semiconductors.
“We want to make sure we keep those where they belong,” Blinken said, not singling out China.
But Goujon argues that American companies, especially equipment manufacturers, run the risk of losing market share and revenue to competitors in countries that have historically enjoyed friendlier relations with the United States, especially Japan and South Korea. If companies find there a workaround for the Biden administration’s measures, Goujon said the new controls could end up backfiring on the United States.
“Foreign competitors in the United States [equipment makers] have an opportunity here, of course, to try to capture more market share in China if they can displace American people and American ties, which is possible in some regions,” she said.
“The United States is applying strong bilateral and plurilateral pressure for partners to follow its lead, and it is sending the signal that look, this package contains extraterritorial measures and we will add more as needed. But here is the window to try to snap to our controls. So it’s really going to be an important question now.
Akiko Fujita is a presenter and reporter for Yahoo Finance. Follow her on Twitter @AkikoFujita