Danish Kapoor
Danish Kapoor

Chip manufacturers are on the ropes: the tension between the US and China makes it increasingly difficult

The semiconductor manufacturers that orbit around the US-led alliance have a difficult task ahead of them. On the one hand, they are obliged to scrupulously respect the regulations of the countries in which they operate, and, of course, they must protect their business and economic activity. The problem for most of them is that in the current situation these two premises oppose each other to the point of threatening their integrity in the medium term.

NVIDIA, AMD, Intel, TSMC, Samsung, SK Hynix or Micron are some of the companies dedicated to the design or manufacturing of integrated circuits that cannot sell their cutting-edge solutions in China or Russia. It is expressly prohibited by the Governments of the USA, Taiwan and South Korea. The most relevant reason used by these Administrations is to prevent rival countries from using these semiconductors in the development of advanced weapons.

However, the sanctions do not only affect the business of chip manufacturers; They also expressly limit the commercial activity of the main manufacturers of lithography equipment, such as Canon, Nikon, Tokyo Electron or ASML. And it is that They can’t sell their machines of more advanced integrated circuit manufacturing neither to Russia, nor to China, nor to countries suspected of being aligned with the states led by Vladimir Putin and Xi Jinping.

Chipmakers have no choice but to swim in troubled waters

The situation in which the Dutch company ASML, the only lithography equipment manufacturer that has been able to produce extreme ultraviolet (EUV) machines, is immersed is especially delicate. 2023 is being a good year for her. According to its forecasts, its net sales will grow by at least 25% compared to those obtained in 2022, and to a certain extent these good results are supported by its performance in the Chinese market despite the fact that it cannot sell its most advanced machines to companies. Chinese.

Peter Wennink has not missed the opportunity to warn the US and its allies that isolating China completely is not the way

Peter Wennink, the CEO of ASML, traveled to China at the end of last March to meet with Wang Wentao, the Minister of Commerce, in a clear attempt to ease the tension that the sanctions have triggered between his company and the Government of Xi Jinping. ASML is doing well, but we must not overlook that 30% of orders that it will deliver in the future comes from Chinese customers. This has been confirmed by Wennink himself, who has not missed the opportunity to warn the US and its allies that isolating China completely is not the way.

South Korean semiconductor manufacturers are also having tensions with their own Government, and, above all, with the US Administration. For Samsung and SK Hynix, the Chinese market is very important, and, in addition, both companies have integrated circuit manufacturing plants on Chinese soil. Samsung produces NAND Flash chips in Xian, and SK Hynix manufactures DRAM ICs in Wuxi and NAND Flash in Dalian. After a presumably tough negotiation, both companies have achieved something that is crucial for them: a special permit from the US Administration to send lithography equipment to their plants in China.

The outlook for American companies, such as NVIDIA or Intel, and Taiwanese companies is not very different. The latter, led by TSMC and UMC, have sold advanced semiconductors to Chinese companies in recent years, and they can no longer do so. It has not been revealed what impact the bans are having on the economic results of these and other Taiwanese companies, but in all likelihood it will be important. Until now, the governments of the US and Taiwan have been inflexible, and nothing seems to indicate that the current climate of tension will ease in the future. Not even timidly. Quite the opposite.

Cover image: Intel

Danish Kapoor