US Plans Tailored Controls on China... Semiconductor Equipment Firms Begin Halting Support in China (Comprehensive)

President Joe Biden [Photo by AP News]

[Asia Economy Reporter Jeong Hyunjin] Jake Sullivan, U.S. National Security Advisor at the White House, stated on the 12th (local time) that the Biden administration will pursue "careful, tailored export controls on targeted technologies to competitors" in relation to the advanced technology export controls to China announced by the U.S. government. Immediately after the semiconductor export control announcement, U.S. semiconductor equipment companies took action by ceasing support for YMTC, a leading Chinese memory semiconductor company.

Although the measures were intended to curb China's semiconductor dominance, U.S. semiconductor equipment companies, which must distance themselves from China?the largest market player?are expected to inevitably face deteriorating performance.

◆ "U.S. Technology Does Not Threaten America... Creating a Gateway for Core Technologies"

According to major foreign media, after announcing the National Security Strategy (NSS) that day, Sullivan described China as "the most important geopolitical challenge" during a 'Conversation with Advisor Sullivan' event held at Georgetown University in Washington, D.C., and said the following. He stated, "We are seeing progress in addressing sensitive technologies and foreign investment issues that can accelerate competitors' capabilities in the most sensitive areas without being caught by export controls."

Jake Sullivan, U.S. White House National Security Council (NSC) Advisor
Photo by EPA Yonhap News

Earlier, on the 7th, the U.S. Department of Commerce announced new export control measures effectively banning U.S. companies from exporting semiconductor equipment to Chinese semiconductor manufacturers to prevent China from acquiring semiconductor technology. Specifically, U.S. companies must obtain separate approval if they sell equipment or technology capable of producing semiconductors with technology levels higher than ▲ 18-nanometer (nm; one billionth of a meter) or below DRAM ▲ 128-layer or more NAND flash ▲ logic chips using FinFET technology (16 nm to 14 nm) to China.

Advisor Sullivan explained that the semiconductor export control measures against China were implemented as part of a strategy to create a "choke point" for America's core technologies, described as "small yard, high fence." He emphasized, "Fundamental technologies must remain within the yard, and the fence must be high so that strategic competitors cannot use U.S. and allied technologies to undermine the security of the U.S. and its allies."

Sullivan's remarks came while explaining the NSS's emphasis on domestic investment for U.S. national security. He said, "Pursuing industrial and innovation strategies to invest in our economic strengths and technological advantages is a deep source of America's power worldwide," adding, "The hallmark of the Biden administration is the integration of foreign and domestic policies."

◆ "Equipment Maintenance and Application of New Technologies Difficult if Staff Withdraw"

Following the U.S. export control announcement, the semiconductor industry has been responding swiftly. The Wall Street Journal (WSJ) and Bloomberg News reported on the 12th (local time), citing sources, that major semiconductor equipment companies including KLA and Lam Research have begun to cease support for YMTC. Employees stationed at YMTC have temporarily withdrawn, support for existing equipment installed at YMTC has stopped, and installation of new equipment has been temporarily suspended.

[Image source=Reuters Yonhap News]

Generally, semiconductor equipment companies deploy their personnel at major client factories to manage equipment and respond to issues. Dozens of employees from U.S. semiconductor equipment companies are stationed at YMTC's factory. If they no longer remain on-site, customers like YMTC will inevitably face difficulties in equipment upgrades, maintenance, and applying new technologies.

WSJ evaluated, "Although this movement by U.S. semiconductor equipment companies may be temporary, it is an immediate signal showing that U.S. semiconductor equipment companies and Chinese semiconductor manufacturers are experiencing business disruptions amid U.S. efforts to curb China's semiconductor industry growth." Sources said U.S. semiconductor equipment companies are reviewing what is necessary to comply with the new export regulations when doing business with Chinese clients, but the long-term impact remains unclear.

Not only in the U.S., but Dutch semiconductor equipment company ASML also instructed its employees in the U.S. to refrain from servicing customers in China, according to a Bloomberg report on the same day. ASML stated in an email to employees that this directive will remain until further notice and that they are analyzing which factories are affected by the controls.

For now, domestic semiconductor companies such as Samsung Electronics and SK Hynix can supply equipment to their Chinese factories for the next year without U.S. regulations. Although individual reviews will be conducted for foreign-owned production facilities in China, Korean companies have effectively been granted a one-year regulatory grace period. The U.S. Department of Commerce's notification of this policy to Samsung Electronics and SK Hynix has allowed them to breathe a sigh of relief for the time being.

[Image source=Reuters Yonhap News]

◆ U.S. Semiconductor Equipment Companies ‘Suffer in Silence’... Revenue Impact Inevitable

U.S. semiconductor equipment companies are suffering silently due to their government's export restrictions on China. As it becomes difficult to sell products to China, the largest player in the global semiconductor equipment market, a decline in profits is inevitable.

Immediately, Applied Materials, the world's largest semiconductor equipment company based in the U.S., announced that it expects a hit of approximately $250 million to $550 million (about 360 billion to 790 billion KRW) in net sales for the fourth quarter of fiscal year 2022 (August to October). Accordingly, it revised its net sales forecast downward from the previously projected $6.25 billion to $7.05 billion to $6.15 billion to $6.65 billion. The company added, "We are seeking the necessary additional export licenses."

KLA and Lam Research, other U.S. semiconductor equipment companies, are also expected to face inevitable impacts. China accounts for 30% of the sales of these three major U.S. companies.

Since the U.S. government announced export restrictions to China on the 7th, the stock prices of Applied Materials, KLA, and Lam Research have fallen by 7.98%, 11.40%, and 13.57%, respectively. Compared to the beginning of the year, their declines are 52.47%, 25.77%, and 55.34%, respectively.

This content was produced with the assistance of AI translation services.