The US lost billions of dollars by banning Chinese semiconductors

An increasing number of US companies doing business with Chinese partners are confirming that they will lose billions of dollars after the chip export ban.

Lam Research Corp. is the latest semiconductor maker to release financial damage estimates. The Silicon Valley-based company said it will lose about $2.5 billion in 2023 due to the new ban.

"We have taken the necessary steps to ensure full compliance with the code and have stopped shipping and product support at the request of the US government," said Timothy Archer, CEO of Lam Research. , told SCMP , October 19.

Inside a chip factory in Jiangsu on September 16. Photo: AP

The US is seen as determined to strangle China's semiconductor business. The US administration on October 7 announced a series of new export control measures, preventing China from buying many types of semiconductor chips made with US equipment around the world. The move is based on the Foreign Direct Product Regulations (FDPR). The regulation was enacted in 1959 and added in 2020 to allow the US to control foreign-made chips, prevent them from reaching Huawei and block the flow of semiconductors to Russia.

Under the new provision, companies anywhere in the world are not allowed to sell computer chips or advanced semiconductor technology to China if American technology is included in their products. They must submit an application to the US competent authorities for approval. Most regulations take effect immediately.

The ban makes it difficult for businesses doing business with China. Before Lam Research, Applied Materials - the largest US chip equipment maker - also admitted that export restrictions would cost its revenue between $250 million and $550 million in the last quarter. Lam Research, Applied Materials and another US semiconductor company, KLA Corp. are currently the largest suppliers of wafer fab used to make chips in the US.

Lam Research is heavily dependent on orders from Chinese partners. It is estimated that the Chinese market accounted for 30% of total revenue in the second quarter of 2022, higher than the 6% in the US market. Similarly, Applied Materials and KLA's revenue in the billion-dollar market is 33% and 26%, respectively.

ASML Holding, the Dutch company that has a monopoly on the ultraviolet lithography tools needed to manufacture advanced chips, now uses a lot of American technology and is an important Chinese partner for chips. The company said the ban from Washington had "fairly limited" impact. However, in a leaked internal memo, the company asked employees "not to directly or indirectly serve customers in China".

China's Direction

China is now pushing the technology sector more, spending tens of billions of dollars on the semiconductor sector. According to data from research firm CVInfo, in the period 2020-2021, the country has poured more than 30 billion USD into research and production of semiconductors.

According to SCMP , local governments in China are also more favorable to domestic semiconductor enterprises, by doubling cash incentives and supporting an open policy. Among them, Shenzhen and Shanghai take the lead in attracting businesses, factories and talent in the chip segment.

The promotion of companies with semiconductor achievements is also focused. Lishui, a city in the eastern province of Zhejiang, said on October 14 that it was giving rewards to chip design businesses that have their own products. If the annual revenue of a chip design enterprise exceeds 20 million yuan ($2.78 million), 100 million yuan ($13.8 million) and 500 million yuan ($70 million) , they will receive a subsidy of 300,000 yuan ($41,500), one million yuan ($140,000) and 5 million yuan ($700,000), respectively. For companies with over 500 million yuan in revenue, the rewards are many times higher.

"The policy this time has a clear, precise direction, has a motivating factor, relevance and strong support," said Xia Zhiming, a Lishui city official.

Nanjing, the capital of Jiangsu province, has now announced policies to support the semiconductor industry by accelerating the development of several industries, such as software and information services, power grids, etc. intelligent, integrated circuits and biomedical.

Shanghai also set out its ambition to become a "launching pad for the industries of the future" with policy incentives and human resources. Shenzhen and Hefei also have a similar approach to Shanghai, combining bonuses and incentives of up to 30 million yuan for successful semiconductor businesses.

However, according to semiconductor consulting firm ICWise, local governments in China should be cautious as well as have a long-term strategy when drafting policies to avoid wasting resources. "Semiconductor is a scientific field, it is necessary to respect professionalism, and at the same time carefully study the growth model instead of following it blindly," said ICWise's representative.

Wei Shaojun, president of integrated circuit design at the China Semiconductor Industry Association, said that central and local governments need to provide more support for semiconductor R&D to promote the field. "If we don't have continuous R&D input, it will be difficult to get motivated to develop in the future," Wei said.