This analysis is by Bloomberg Intelligence Analyst Clelia Imperiali. It appeared first on the Bloomberg Terminal.
Rising trade and national security-based policies to limit the dominance of China’s semiconductor industry continue to threaten sales of both Chinese and US companies. While US duties on more than $3.5 billion-worth of Chinese chip exports remain in place, it’s the growing export restrictions on both sides that’s likely to weigh most on chipmakers.
Increasing US-led curbs on semiconductor exports to China threaten to damage companies in the US and its allies. As Japan and the Netherlands join US export curbs and China retaliates with limits on critical raw materials, both input supplies and a significant share of leading western chipmakers’ sales from China — including 15% for ASML, 28% for Tokyo Electron — are coming under increasing pressure.
World chipmakers’ high sales, supply chain exposure to China
Intel and Qualcomm are among the top US semiconductor companies with high revenue exposure to China (combined $45 billion in 2022). Their sales’ share in China declined by 2-3 percentage points 2021-22. Most non-Chinese semiconductor companies have a double-digit revenue share exposure to the country, and that may experience a decline over 2023. Though the US doesn’t have power to halt exports of companies based in other countries, US partners such as the Netherlands and Japan have aligned with the October measures in early Q1, and more could follow.
US export restrictions, license requirements, entities and staff restrictions add up to a growing scrutiny over Chinese takeovers by the US Committee on Foreign Investment (where China accounted for 12.5% of notices filed across all sectors in 2021).
Thailand, Vietnam could benefit from western China walkout
Supply-chain considerations to avoid regulatory tension between the US and China are likely to favor the relocation of manufacturing to other East Asian countries, potentially lifting sales of existing smaller local manufacturers such as Thailand’s Silicon Craft Technology. APAC is the region with the largest chips revenue growth after China (30% in 2022), with Vietnam and Thailand having both implemented new policy incentives for the domestic semiconductor industry in 2021-22.
In February, Japanese Kyocera announced its intention to rethink China as a manufacturing base for the company’s exports, following similar news in 2022 by Samsung and SK Hynix.
Taiwan is set to consolidate chips prominence amid US-China row
Taiwan’s TSMC sales growth trajectory — with revenue that more than doubled since 2019 to almost $76 billion in 2022 — could be further boosted by the US-China row over semiconductor technology. North American sales could drive the trend, after December 2022 announcements of facilities expansion in the US. TSMC is Taiwan’s largest semiconductor company and the world foundry leader, accounting for about half of the total global semiconductor manufacturing.
Taiwan is already the manufacturing hub for 13% of US-headquartered semiconductor firms, and features one of the highest (third only after US and Europe) percentage of R&D investment as a percentage of sales in the industry — 11%, according to the Semiconductor Industry Association.
Chinese metal export restrictions hit high-tech supply chains
Export restrictions by China on two metals that are key for semiconductors (gallium) and fiber-optic apparatus and solar panels (germanium) from Aug. 1 is likely to raise component costs for a number of high-tech industries. The US accounts for just 7% and 16% of the global buyers of germanium and gallium produced in China, respectively, but the exposure of US importers to Beijing is much higher, with China being the country’s largest supplier of the metals, accounting for 22% and 35%, respectively, of total US imports in 2022.
China’s position in the trade dispute is also strengthened by the fact of the country being the largest producer globally of germanium and gallium (60% and 80%, respectively, according to the Critical Raw Materials Alliance.)
link
