Semiconductor manufacturers with customers in China are evaluating the impact of the US government's imposition of export restrictions at a time when inventories are rising from a downturn in demand.
Effective from 21 October, the US Department of Commerce has introduced controls to limit exports to China of advanced and high-performance computing (HPC) chips as well as devices that contain those chips. It has also introduced license requirements for items used for supercomputer or semiconductor development or production in China. The rules announced on 7 October expand the scope of regulations over chips produced outside the US.
China consumes around 75pc of the semiconductors sold globally but accounts for only 15pc of global production. The country's domestic manufacturers are 4-5 years behind their competitors in developing advanced chips, leaving them unable to cover the shortfall from domestic output.
Dutch multinational BE Semiconductor, which manufactures semiconductor assembly equipment, is among the companies looking at the restrictions to determine how much of their business will be affected.
"As we currently understand that, that's less than 5pc," the company's chief executive Richard Blickman said on its quarterly earnings call yesterday. "So the traction for the below 14 nanometers is for us, certainly not out of China. So that risk is limited."
But Blickman added, "it definitely will have an impact on the entire state of the industry. One could argue there will be production moving out of China to surrounding countries, maybe also onshoring in certain cases. That also is a positive thing because more equipment will be needed. But overall, it may have an impact of slower growth for the industry."
Netherlands-based ASML, which produces semiconductor production systems, said in reporting its earnings on 19 October that its initial assessment indicates that the export controls will have a limited direct impact on its shipment plan for 2023 but an indirect impact of around 5pc of its backlog, as other equipment suppliers will be unable to ship their systems.
"This percentage is based on the share in our backlog of purchase orders from Chinese fabs that in our current assessment are seen as meeting the technology criteria as indicated in the updated US export controls restrictions," ASML's chief executive Peter Wennink said.
As a European company with limited US technology in its equipment, ASML can continue shipping to China out of the Netherlands. The new controls are directed at advanced nodes, while ASML's business in China is predominantly for mature nodes. "If for export control-related reasons we cannot ship to more advanced fabs in China, we have more than sufficient demand for these systems elsewhere globally, as demand continues to exceed supply," Wennink added.
The controls are likely to have a larger impact on the semiconductor ecosystem in Asia.
"While these measures are not targeted at Singapore, our semiconductor sector could still be impacted, since semiconductor supply chains are highly complex, and globalised for many semiconductor companies operating in Singapore have manufacturing processes and products that rely on US technology, which may be subject to export controls imposed by the US government," said Alvin Tan, Singapore's minister of state for trade and industry, in Parliament yesterday. "We are also working with our companies to strengthen their business continuity plans and to diversify their supply chains."
Earlier this week, Singapore announced strategies for the electronics and precision engineering industry including attracting investments from leading global companies, doubling down on research and development investments in emerging semiconductor technologies, and deepening its talent pipeline.
Tan added that the ministry is monitoring the implementation of the new rules as "it is equally possible that the US could be contemplating additional steps that may further reshape or affect technology supply chains". He added that the ministry is carefully monitoring the situation.
Neighbouring Malaysia, which provides components and services accounting for 80pc of global back-end chip output, is also likely to be affected by the fallout.
Malaysia's exports of electrical and electronic products climbed by 30.3pc year on year in September, and accounted for 39.8pc of its total exports, data from the country's Ministry of International Trade and Industry show. The country's E&E exports to China rose by 36.5pc year on year, while shipments by regional peers moderated. Exports to China are likely to be affected by the US trade restrictions, compounding the ongoing slowdown in global demand.
The impact of the controls will extend to semiconductor companies in Taiwan, South Korea and Japan. The US Department of Commerce has granted one-year licences to the likes of Taiwan Semiconductor Manufacturing Company (TSMC), SK Hynix and Samsung.
TSMC's chief executive C.C. Wei said last week that as the new export controls focus on high-end chips for artificial intelligence and supercomputing, "our initial assessment is the impact to TSMC is limited and manageable. We will continue to closely monitor the situation to ensure that we are all in full compliance with all the rules and regulation. And for the longer term, it's too early to really assess all the true impact."
TSMC has also started preliminary evaluations to decide whether to build a production site in Europe, which Wei said would be based on "customers' need, business opportunities, operational efficiency and the cost economics".
