The Anglophone FT are enjoying themselves.
FT reporters
Two years after the US hit Huawei with harsh sanctions, the Chinese technology group’s revenue has dropped, it has lost its leadership position in network equipment and smartphones, and its founder has told staff that the company’s survival is at stake.
Now, China’s entire chip industry is bracing for similar pain as Washington applies the tools tested on much more broadly.
Under announced on Friday, semiconductors made with US technology for use in AI, high performance computing and supercomputers can only be sold to China with an export licence — which will be very difficult to obtain.
Moreover, Washington is barring US citizens or entities from working with Chinese chip producers except with specific approval. The package also strictly limits the export to of chip manufacturing tools and technology China could use to develop its own equipment.
“To put it mildly, [Chinese companies] are basically going back to the Stone Age,” said Szeho Ng, Managing Director at China Renaissance.
Paul Triolo, a China and technology expert at the Albright Stonebridge consultancy, said: “There will be many losers as the tsunami of change unleashed by the new rules washes over the semiconductor and associated industries."
He added the impact would be especially profound on Chinese companies using US-origin hardware to deploy AI algorithms including for autonomous vehicles and logistics, as well as medical imaging and research centres using AI for drug discovery and climate change modelling.
“The full impact will take some time to become clear, but at a minimum will slow innovation in both China and the US, ultimately costing US consumers and companies hundreds of millions or even billions of dollars,” Triolo said.
Several of the new controls work through third-country chip manufacturers as almost every semiconductor is designed using US software and most chip plants contain US machines.
“You can look at Huawei as a case study,” said Brady Wang, an analyst at technology market research house Counterpoint. While Huawei could still obtain certain supplies, he said, it was not the most advanced ones but those from a previous era, which would limit the functionality of its products.
The new controls on semiconductor equipment are also a potent weapon, set to hit mainstream manufacturers and leading-edge chip producers. According to analysts at the Bank of America, the equipment restrictions will affect logic chips designed in the past four to five years, and Dram chips designed after 2017. “It’s their sweet spot right now — they’re a laggard in technology and are relying on older tools and technology,” said Wayne Lam, an analyst at CCS Insight.
Chinese chip companies are even more concerned about Washington’s attempts to bar US citizens from supporting them.
“That is a bigger bombshell than stopping us from buying equipment,” said a human resources executive at a state-backed semiconductor plant.
“We do have [US passport holders] in our company, in some of the most important positions,” she said, calling them a “core weapon” for developing technology. “We need to find a way for these people to continue working for our company. This is very difficult. Most people are not willing to give up their US passports.”
Most US citizens in the Chinese chip sector are Chinese and returnees from the US. There are no statistics on the size of this group. But a Taiwanese intelligence official estimated that as many as 200 US passport holders worked in Chinese semiconductor companies.
And the restrictions extend beyond that group. An executive at a semiconductor materials supplier said his company would have to replace all American sales and technical support staff sent to Chinese customers.
Another threat to China’s entire technology industry is a new licence requirement for exporting chips for use in AI and high performance computing.
“The whole point of the policy is to
kneecap China’s AI and HPC efforts, at least those related to the military, with the commercial side collateral damage from the US government point of view,” said Douglas Fuller, an expert on the Chinese semiconductor industry at Copenhagen Business School.
Even some of China’s largest technology companies such as Alibaba and Baidu are thought to be vulnerable. “[Their] whole research and development progress will be slowed down,” said Counterpoint’s Wang.
Experts believe China’s dynamic breed of AI chip design companies will suffer. “If you lose the AI start-ups, you lose their innovation dynamic,” said a Taiwanese electronics industry executive.
As the Chinese semiconductor market by end user now accounts for nearly a quarter of global demand, foreign suppliers are also set to take a hit.
US equipment maker Applied Materials derived 33 per cent of its sales from China last year and its peer Lam Research 31 per cent. Lam Research named Yangtze Memory Technologies, China’s largest memory chipmaker that the US specifically targets under the new rules, as a significant customer in its annual report, and BofA estimates that 6-7 per cent of Lam Research sales are to YMTC.
Since many of Intel’s high-end processors go into Chinese supercomputers, BofA expects that the restrictions could hit up to 10 per cent of Intel’s sales.
But some analysts believe that the measures will favour foreign chipmakers. As the US’s main motive was to slow down China’s development in the most advanced semiconductor technology, leading foreign chipmakers such as or Intel would benefit, said Akira Minamikawa, a semiconductor analyst at research firm Omdia.
He said flash memory makers that compete directly with YMTC, such as Japan’s Kioxia, might “get some benefit” from the new US measures, but the gains would probably be small.
Kim Young-woo, head of research at SK Securities, said the fact that Washington had not imposed a blanket ban on equipment supplies for foreign chipmakers operating in China would come as a relief for Korean semiconductor companies, but the need for export licences could still be a hassle.
The biggest question is how China responds. “We’re in a negative cycle where the US continues to push for restrictions, which pushes the Chinese to strive for technological independence, which in turn pushes the US towards harsher restrictions,” said an industry insider in Beijing.
But Beijing’s levers are limited. “This will propel the Chinese to look for alternatives but with the acknowledgment that alternatives to US technology are decades away,” the person said.
This dire situation could lead to more intellectual property theft. As some equipment now under export controls is already used in China, Beijing could ignore intellectual property rights and reverse-engineer the machinery to strengthen local equipment makers, said Lam at CCS. He added: “We may be shooting ourselves in the foot.
Reporting by Kathrin Hille in Taipei, Qianer Liu and Eleanor Olcott in Hong Kong, Richard Waters in San Francisco, Demetri Sevastopulo in Washington, Kana Inagaki in Tokyo and Song Jung-a in Seoul
Original source:
Non paywall source:
China’s chip industry set for deep pain from US export controls
Experts predict tsunami of change’ for semiconductor industry as Washington wields tools tested on Huawei.FT reporters
Two years after the US hit Huawei with harsh sanctions, the Chinese technology group’s revenue has dropped, it has lost its leadership position in network equipment and smartphones, and its founder has told staff that the company’s survival is at stake.
Now, China’s entire chip industry is bracing for similar pain as Washington applies the tools tested on much more broadly.
Under announced on Friday, semiconductors made with US technology for use in AI, high performance computing and supercomputers can only be sold to China with an export licence — which will be very difficult to obtain.
Moreover, Washington is barring US citizens or entities from working with Chinese chip producers except with specific approval. The package also strictly limits the export to of chip manufacturing tools and technology China could use to develop its own equipment.
“To put it mildly, [Chinese companies] are basically going back to the Stone Age,” said Szeho Ng, Managing Director at China Renaissance.
Paul Triolo, a China and technology expert at the Albright Stonebridge consultancy, said: “There will be many losers as the tsunami of change unleashed by the new rules washes over the semiconductor and associated industries."
He added the impact would be especially profound on Chinese companies using US-origin hardware to deploy AI algorithms including for autonomous vehicles and logistics, as well as medical imaging and research centres using AI for drug discovery and climate change modelling.
“The full impact will take some time to become clear, but at a minimum will slow innovation in both China and the US, ultimately costing US consumers and companies hundreds of millions or even billions of dollars,” Triolo said.
Several of the new controls work through third-country chip manufacturers as almost every semiconductor is designed using US software and most chip plants contain US machines.
“You can look at Huawei as a case study,” said Brady Wang, an analyst at technology market research house Counterpoint. While Huawei could still obtain certain supplies, he said, it was not the most advanced ones but those from a previous era, which would limit the functionality of its products.
The new controls on semiconductor equipment are also a potent weapon, set to hit mainstream manufacturers and leading-edge chip producers. According to analysts at the Bank of America, the equipment restrictions will affect logic chips designed in the past four to five years, and Dram chips designed after 2017. “It’s their sweet spot right now — they’re a laggard in technology and are relying on older tools and technology,” said Wayne Lam, an analyst at CCS Insight.
Chinese chip companies are even more concerned about Washington’s attempts to bar US citizens from supporting them.
“That is a bigger bombshell than stopping us from buying equipment,” said a human resources executive at a state-backed semiconductor plant.
“We do have [US passport holders] in our company, in some of the most important positions,” she said, calling them a “core weapon” for developing technology. “We need to find a way for these people to continue working for our company. This is very difficult. Most people are not willing to give up their US passports.”
Most US citizens in the Chinese chip sector are Chinese and returnees from the US. There are no statistics on the size of this group. But a Taiwanese intelligence official estimated that as many as 200 US passport holders worked in Chinese semiconductor companies.
And the restrictions extend beyond that group. An executive at a semiconductor materials supplier said his company would have to replace all American sales and technical support staff sent to Chinese customers.
Another threat to China’s entire technology industry is a new licence requirement for exporting chips for use in AI and high performance computing.
“The whole point of the policy is to
kneecap China’s AI and HPC efforts, at least those related to the military, with the commercial side collateral damage from the US government point of view,” said Douglas Fuller, an expert on the Chinese semiconductor industry at Copenhagen Business School.
Even some of China’s largest technology companies such as Alibaba and Baidu are thought to be vulnerable. “[Their] whole research and development progress will be slowed down,” said Counterpoint’s Wang.
Experts believe China’s dynamic breed of AI chip design companies will suffer. “If you lose the AI start-ups, you lose their innovation dynamic,” said a Taiwanese electronics industry executive.
As the Chinese semiconductor market by end user now accounts for nearly a quarter of global demand, foreign suppliers are also set to take a hit.
US equipment maker Applied Materials derived 33 per cent of its sales from China last year and its peer Lam Research 31 per cent. Lam Research named Yangtze Memory Technologies, China’s largest memory chipmaker that the US specifically targets under the new rules, as a significant customer in its annual report, and BofA estimates that 6-7 per cent of Lam Research sales are to YMTC.
Since many of Intel’s high-end processors go into Chinese supercomputers, BofA expects that the restrictions could hit up to 10 per cent of Intel’s sales.
But some analysts believe that the measures will favour foreign chipmakers. As the US’s main motive was to slow down China’s development in the most advanced semiconductor technology, leading foreign chipmakers such as or Intel would benefit, said Akira Minamikawa, a semiconductor analyst at research firm Omdia.
He said flash memory makers that compete directly with YMTC, such as Japan’s Kioxia, might “get some benefit” from the new US measures, but the gains would probably be small.
Kim Young-woo, head of research at SK Securities, said the fact that Washington had not imposed a blanket ban on equipment supplies for foreign chipmakers operating in China would come as a relief for Korean semiconductor companies, but the need for export licences could still be a hassle.
The biggest question is how China responds. “We’re in a negative cycle where the US continues to push for restrictions, which pushes the Chinese to strive for technological independence, which in turn pushes the US towards harsher restrictions,” said an industry insider in Beijing.
But Beijing’s levers are limited. “This will propel the Chinese to look for alternatives but with the acknowledgment that alternatives to US technology are decades away,” the person said.
This dire situation could lead to more intellectual property theft. As some equipment now under export controls is already used in China, Beijing could ignore intellectual property rights and reverse-engineer the machinery to strengthen local equipment makers, said Lam at CCS. He added: “We may be shooting ourselves in the foot.
Reporting by Kathrin Hille in Taipei, Qianer Liu and Eleanor Olcott in Hong Kong, Richard Waters in San Francisco, Demetri Sevastopulo in Washington, Kana Inagaki in Tokyo and Song Jung-a in Seoul
Original source:
Non paywall source:
