New Rules to Cut Out China(Click on image to enlarge)
The Wall Street Journal reports
The U.S. semiconductor industry is uprooting Chinese companies from supply chains, spurred by directives from Washington seeking to suppress China’s involvement in sensitive next-generation technology.
Chip toolmakers are telling suppliers that they need to find alternatives to certain components obtained from China or risk losing their vendor status. Companies relaying this message include Applied Materials AMAT -0.43%decrease; red down pointing triangle and Lam Research LRCX -0.89%decrease; red down pointing triangle, according to people familiar with the matter. The two Silicon Valley companies make equipment used in the production of microprocessors and are among the world’s biggest manufacturers of these tools.
Suppliers have also been told that they can’t have Chinese investors or shareholders, the people said.
Industry executives said such moves were likely to raise costs because it won’t be easy to find non-Chinese alternatives at similar prices.
Lam Research said it adheres to U.S. export controls for companies in the chip-manufacturing supply chain. Applied Materials said it identifies alternative sources for components to make sure they are available.
Washington is becoming increasingly strict on Chinese imports. The two main U.S. presidential candidates have pledged to get tougher on trade with China, and the semiconductor industry is seen as particularly critical because of its importance to national security.
The U.S., Japan and Europe are spending tens of billions of dollars on support for chip manufacturing in a bid to gain more control over the process.
In recent years, U.S. lawmakers have blocked China from acquiring the most advanced chips and chip-making equipment. That equipment is generally made or designed in the U.S. and in regions friendly to the U.S., including Taiwan, South Korea, Japan and Western Europe.
In China, a reciprocal drive to push U.S. technology out of the country is under way, with state-owned companies in finance, energy and other sectors moving to replace foreign software and hardware in their systems.
The rules have left some Chinese contractors in a bind. Shenyang Fortune Precision Equipment, a supplier to Applied Materials, opened a factory in Singapore this year expecting it could serve foreign customers including the U.S. manufacturer, according to people familiar with the matter.
Very Dangerous Path
Technology
China does not have any companies that directly compete in skill level or quality with any of the above., a Netherlands corporation stands alone with virtually no competition.
ASML is a Dutch company based in Veldhoven, the Netherlands, that designs and builds systems and software used in the production of semiconductor chips.1
It is the only company in the world as of 2024 that manufactures extreme ultraviolet (EUV) lithography machines, which enables the production of smaller, faster, more powerful microchips through the use of a shorter wavelength of light.
ASML also produces deep ultraviolet (DUV) lithography systems, metrology and inspection systems, and computational lithography software; refurbishes existing machines; and provides extensive training and customer support services.
The US has pressured AMAT, NVDA, TSM, and ASML to not work with or deliver parts or service to China.
KLA and Lam Research Tumble Along With ASML as Analysts Worry About China SalesOn October 15, Investopedia reported
The losses came as ASML also accidentally released its quarterly results a day earlier than expected, reporting lower-than-expected net bookings for the period and issuing a lackluster sales outlook for 2025.
Meanwhile, a report that the Biden administration is considering a cap on exports to certain nations due to national security concerns added to downward pressure on semiconductor stocks broadly.
– Semiconductor Index(Click on image to enlarge)
Technically speaking that is a bearish chart. And the fundamentals match the technicals.
SOX ComponentsAMAT, NVDA, TSM, and ASML are in the SOX. So are AMD, Broadcom (), Intel (), Lam Research (), Qualcom () and numerous other companies with a total count of 30.Here is the list of .When you restrict supply to China of what those companies produce you restrict their profits.
Critical Materials Risk AssessmentOn June 12, 2023 I commented on a
Our own Department of Energy has placed some of the rare earth minerals we need for weapons systems, windmills, batteries, and aircraft on a critical materials list.
Biden Eases Sanctions on Venezuela, Blocks Rare Earth Mining in AlaskaOn April 21, I commented The Inflation Reduction Act was supposed to increase permitting in the US. As the election nears, Biden is blocking oil drilling and mining in the Alaska.(Click on image to enlarge)
How Might China Respond?So how might China respond to increasing US pressure? I believe the answers is obvious.The first is blocking exports of rare earth minerals the US needs for weapons systems, wind turbines, EV batteries, and microchips.On February 18, 2024, I commented on There are two reasons things have not escalated further. #1: China is waiting to see who wins the US election. #2: Despite US efforts, China has been able to ramp up internal production of chips and get its hands on advanced chips needed for AI.If either Trump or Harris pushes China too hard, China will block exports of materials the US needs for weapons systems, wind turbines, EV batteries, and microchips.Alternatively, China will invade or attack Taiwan.This is the game the US is playing. Cheer if you like. I don’t and won’t.More By This Author:
