US research company Rhodium Group estimated that the Biden administration's latest controls on China's semiconductor industry not only have short-term industry costs but also long-term expansive impact which will spill over to foreign companies manufacturing semiconductors in China.
In a recent report, Rhodium estimated the immediate loss of sales of US semiconductor manufacturing equipment companies in China market could be US$1.4-3 billion as a result of export control on equipment for manufacturing 16/14nm logic chips or below with FinFET or GAAFET architectures, memory ICs with 128 layers or more for NAND and 18nm half-pitch or less for DRAM. But since those semiconductor equipment makers are still working on their order backlogs, the output is likely to be redirected to markets outside China.
"There is a real risk that foreign semiconductor equipment manufacturing competitors, over time, could remove US inputs from their supply chains," said Rhodium, who also added that at the same time, the US has signaled it will not hesitate to pursue extraterritorial measures if partners fail to fall into line with the new tech restrictions through foreign direct product rule (FDPR).
"However, in certain areas of chip toolmaking, these controls can accelerate diversification away from the US for firms that are to keep a foothold in the Chinese market," according to the research note.
In the case of non-Chinese semiconductor companies manufacturing in China whose exemptions will expire after one year, the annualized sales lost for US semiconductor equipment manufacturers could fall in the range between US$4.6-5.2 per annum, according to Rhodium estimates.
The impact of the new restrictions on the memory market is considered to be most acute because Chinese companies are much more competitive in memory (90% of China's leading-edge capacity) compared to logic chip production (10%). Hence logic chip foundries such as TSMC and UMC could more easily justify maintaining trailing edge fabs in China.
Although not all of the capacities in China memory fabs are leading-edge, since there is also a restriction on the activities of US persons (including PRC nationals who are US citizens and Green Card holders, US executives and engineers working at restricted China companies or US equipment vendors providing supports to companies put on Entity Lists, and since memory fabs need to upgrade regularly to remain competitive, the sector will be particularly hard hit by the new measures.
Rhodium also advises foreign memory chip makers Samsung and SK Hynix to consider the reliability of a one-year waiver by the US, consider stopping to invest in their supply chains in China, and instead expand in capacities elsewhere. Rhodium emphasizes that the tightening of controls (for example to cover non-Chinese leading-edge chip manufacturers in China) is a highly plausible scenario in the long run.
Although the global memory market is running at overcapacity now, Rhodium said if China-based capacity is disrupted by the recent control measures, prices of memory chips are likely to increase significantly within half a year until more capacity is brought online outside of China over at least a couple of years.
"Get ready for more controls in the months ahead," said the research note, indicating that a new regulatory regime housed under the Treasury Department is likely to focus on force-multiplying technologies such as high-performance computing AI, quantum computing, advanced semiconductors, and could also be expanded to include areas such as bio-manufacturing and high-capacity batteries.
