When the US first banned sales of certain tech products to Chinese tech firm Huawei three years ago, it crippled a once-proud national champion and sent ripples across the US semiconductor industry. In the quarters following that export ban in May 2019, top American chipmakers reported a median revenue decline of 4% to 9%.
The Biden administration’s latest tech controls threaten to accelerate those losses, throwing the global semiconductor sector into disarray. And 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 US and retaliate, there could be a lot of impact for other companies in the US,” said Edith Yeung, Race Capital General Partner, in an interview with Yahoo Finance Live (video above). “This is beyond impact on revenue for Intel (INTC) or Qualcomm (QCOM) or NVIDIA (NVDA).”
The US has long been a global leader in semiconductors, commanding roughly 45% to 50% market share. However, that leadership has been built on global demand for its products, with China consuming roughly 75% of semiconductors sold globally.
Chinese device makers alone accounted for roughly a quarter of global semiconductor demand in 2018, according to a study by Boston Consulting Group (BCG).
‘More than just a preventative tool’
That innovation cycle is at risk of being picked apart, with the Biden administration’s sweeping tech controls, aimed at freezing China’s semiconductor development and dramatically limiting critical technology exports from the US
“Technology export controls can be more than just a preventative tool,” said National Security Adviser Jake Sullivan, ahead of the administration’s announcements. “If implemented in a way that is robust, durable, and comprehensive, they can be a new strategic asset in the US and allied toolkit to impose costs on adversaries, and even over time degrade their battlefield capabilities.”
‘A sea change’ in policy
Specifically, the new measures block sales of semiconductors critical to the development of artificial intelligence, supercomputers, and other advanced technologies, unless companies receive exemptions. It also expands an existing ban to sell advanced chip-making equipment to Chinese firms.
In a broad escalation, the Biden administration’s actions also restrict US firms and citizens, including permanent residents, from supporting China’s development of advanced chips.
The restrictions announced earlier this month have already created a chilling effect.
At least 43 senior executives are American citizens working with 16 publicly listed Chinese semiconductor companies, according to the Wall Street Journal. Western firms like Dutch equipment maker ASML Holding NV have suspended American employees from working as a precaution, while they seek further clarity. What’s more, Apple temporarily halted 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 U.S. is imposing a freeze-in-place strategy toward China’s indigenous chip development,” said Reva Goujon, Rhodium Group Director. “[The semiconductor sector] is an interdependent, interlocking ecosystem where all the parts kind of have to be in place for things to work to be able to upgrade to more and more advanced levels. So, if you cut the legs out from under that production cycle, you can really cause a lot of disruption, which is exactly what the US intent is.”
Read More: Why U.S tech controls on China, could end up hurting American semiconductors