Over the last week and a half, the Chinese semiconductor industry’s circumstances have taken a sharp turn for the worse.
The Biden administration announced on October 7 a sweeping set of export restrictions that prevent the export of certain chips and, more important, the sale of tools using certain technologies to Chinese chipmakers. The rules go well beyond those introduced during the Trump administration and are likely to keep Chinese companies several generations behind the leading edge.
The goal of the new rules is to “protect our national security and prevent sensitive technologies with military applications from being acquired by the People’s Republic of China’s military, intelligence, and security services,” Alan Estevez, Undersecretary of Commerce for industry and security, said in a statement.
Previously, semiconductor equipment manufacturers were prevented from supplying companies that sold to Huawei, which had the effect of cutting the device maker off from the most advanced chips. The Trump administration also barred the sale of EUV lithography tools that are required to make chips with features under 10 nanometers in size. Leading edge chips today are at least two generations more advanced than that.
The new rules leverage the United States’ dominance of the semiconductor equipment market, using it as a choke point to prevent Chinese firms that supply the country’s military from advancing too rapidly.
Specifically, the rules restrict companies using U.S. technology from selling to factories and R&D centers that focus on a handful of technologies, including so-called non-planar designs like FinFET and GAAFET at 14 to 16 nanometers, which have enabled increasingly denser transistor counts, DRAM memory made at the 18-nanometer node or smaller, and NAND flash memory with 128 layers or more.
The export restrictions prevent sales to any Chinese facility by default. Foreign companies that operate factories in China, like Intel, TSMC, or SK Hynix, must apply to receive exemptions from the rules. Both Intel and SK Hynix have reportedly obtained exemptions, and other companies from the U.S. and its allies that have Chinese factories will probably receive waivers, too.
Already, U.S. suppliers including KLA and Lam have halted deliveries and support for existing tools provided to Yangtze Memory Technologies Co., also known as YMTC, The Wall Street Journal reported. YMTC and 30 other companies were added to the “unverified list,” which doesn’t explicitly prevent U.S. companies from dealing with them, but it does heighten scrutiny of any deals and transactions. Semiconductor Manufacturing International Corporation, also known as SMIC, is also thought to be a key target of the new rules.
Already, Apple has reportedly pulled out of plans to use YMTC’s memory chips in upcoming iPhones, despite having completed a lengthy certification process, according to Nikkei Asia.
American executives at Chinese chipmakers may also fall in the crosshairs. The Wall Street Journal said that at least 43 senior executives might be barred from working at 16 publicly listed Chinese companies.
The financial ramifications could be far-reaching, and not just for Chinese companies. Applied Materials, for example, cut its fourth-quarter sales projections by $400 million as a result of the new rules. Semiconductor makers and suppliers have long said that revenues from sales to Chinese firms help bankroll R&D efforts that help keep American companies on the leading edge. But critics have said that those sales risk American competitiveness by helping Chinese firms more quickly climb the ladder.
Exemptions may temper the blow somewhat, and while the breadth of the new restrictions caught the industry by surprise, they continue the trend of using U.S. chip prowess as lever to control the rate of progress at Chinese semiconductor companies.
