Why US Intel and Nvidia Urged Biden to Oppose China Export Controls

"We urge the governments of both countries (the U.S. and China) not to maintain a heightened tension situation any longer, but to ease it and seek solutions through dialogue." - Semiconductor Industry Association (SIA), USA

[Image source=Reuters Yonhap News]

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Intel, Qualcomm, Nvidia, and other U.S. semiconductor manufacturers have opposed the Biden administration's semiconductor export control policy targeting China. As news emerged that the Biden administration is preparing additional semiconductor export control measures amid escalating U.S.-China tensions, American companies facing significant profit impacts have actively raised concerns. This stance somewhat contrasts with the SIA's position last October when the Biden administration introduced the measures; at that time, the SIA expressed understanding of the national security goals and willingness to cooperate with the U.S. government.

On the 17th (local time), the SIA, representing 99% of U.S. semiconductor companies, issued a statement reflecting these views. On the same day, CEOs of U.S. companies including Intel, Qualcomm, and Nvidia met with Gina Raimondo, U.S. Secretary of Commerce and head of semiconductor policy, Jake Sullivan, National Security Council (NSC) Advisor, and Antony Blinken, Secretary of State, to discuss the matter.

The main reason U.S. semiconductor companies have taken collective action at this time appears to be the lack of signs of resolution in the U.S.-China conflict and expectations that the conflict will expand within the semiconductor industry.

President Joe Biden of the United States
[Photo by AP News]

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Since the U.S. imposed semiconductor control measures targeting China last October, China has retaliated by sanctioning U.S. semiconductor company Micron in May and deciding last month to control exports of rare metals such as gallium used in semiconductors. Although Secretary Blinken and Treasury Secretary Janet Yellen visited China consecutively last month and this month, they indicated that measures for national security would continue, increasing the likelihood of additional actions.

Later last month, the Wall Street Journal (WSJ) and others reported, citing sources, that the Biden administration is preparing additional semiconductor export control measures targeting China, expected to be announced early next month. It is anticipated that low-end artificial intelligence (AI) semiconductors from Nvidia and cloud computing-related products will be included in the measures. This would be the first additional measure about 10 months after the initial semiconductor export controls targeting China.

As the situation unfolds, the SIA emphasized that the purpose of the Semiconductor Support Act enacted by the Biden administration last year is to ▲ strengthen the industry's international competitiveness ▲ de-risk supply chains, and pointed out that "repeated measures imposing overly broad, vague, and sometimes unilateral restrictions risk weakening the competitiveness of the U.S. semiconductor industry and disrupting supply chains." They added, "This causes significant market uncertainty and could trigger expanded Chinese retaliatory actions."

The longer the U.S.-China conflict drags on, the more companies suffer profit losses. For U.S. companies, China is the world's largest market that cannot be abandoned before national security concerns. The SIA's statement emphasizing "allowing the industry to continue accessing China, the world's largest semiconductor market," is interpreted as reflecting the profitability concerns of U.S. semiconductor companies.

Pat Gelsinger Intel CEO
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China is the biggest spender in the global semiconductor market. According to foreign media, China's semiconductor purchases last year amounted to $180 billion, accounting for one-third of global demand. Looking at individual U.S. companies' sales, Intel generated 27% of its total revenue last year from China. Nvidia, which produces AI semiconductors exclusively for China, earns over 20% of its annual revenue from China including Hong Kong. Qualcomm, the only company authorized to supply semiconductors for Huawei smartphones, generates about half of its revenue from China.

Given this situation, no matter how much the Biden administration pressures, U.S. companies cannot simply abandon the Chinese market, and the expansion of control measures inevitably impacts their profits.

Pat Gelsinger, CEO of Intel, has focused on the Chinese market, visiting twice this year in April and this month. In April, he emphasized in Beijing that "China is one of the largest markets in the world and one of Intel's most important markets." Three months later, in early this month, he again visited China, naming it the largest sales region for Intel's latest AI semiconductors. With China viewed as a core market, expanded government control measures are expected to hinder sales.

The situation is similar for Nvidia. Nvidia does not supply cutting-edge AI semiconductors to China due to U.S. government demands. Instead, considering Chinese market demand, it separately produces lower-spec AI semiconductors and exports these to China. If even low-spec AI semiconductor exports to China are blocked, Nvidia will inevitably suffer damage. Jensen Huang, Nvidia CEO, expressed concern that "China is a very important market in the technology sector. Being unable to sell advanced semiconductor chips in one of the largest markets could cause tremendous harm to the U.S. technology industry."

U.S. semiconductor manufacturing equipment companies, directly hit by Biden administration control measures, are also struggling. China has ranked first in semiconductor equipment investment for three consecutive years. According to the Semiconductor Equipment and Materials International (SEMI), China's semiconductor equipment investment last year was $28.3 billion, surpassing Taiwan ($26.8 billion) and South Korea ($21.5 billion). This amount also exceeds the combined investment of North America, Japan, and Europe ($25.1 billion). Although investment decreased by 5% compared to the previous year due to U.S. regulatory measures, China remains a major player in the equipment market.

What U.S. semiconductor companies worry about most is that these regulatory measures by the U.S. government could be expanded and applied long-term, helping China build its own supply chain. Although China's semiconductor equipment technology still lags behind global standards, concerns exist that with active government investment to improve technology and U.S. controls, Chinese semiconductor companies will turn to domestic equipment.

According to a report by the Korea Institute for International Economic Policy citing SEMI, China's semiconductor equipment market grew at an average annual rate of 27% from 2012 to 2022, and last year, China's localization rate of semiconductor equipment rose to 35%, up 14 percentage points from the previous year.

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In fact, Chinese semiconductor equipment companies are expected to see soaring sales and profits in the first half of this year. According to the South China Morning Post (SCMP), Naura Technology, which manufactures semiconductor etching equipment, announced on the 15th that its first-half profits are expected to increase by 121.3% to 155.8% year-on-year, ranging from 1.67 billion yuan (approximately 130 billion KRW) to 1.93 billion yuan. Sales during the same period are projected to rise 64.4% compared to the previous year.

Another Chinese semiconductor equipment company, AMEC, forecasts its first-half net profit to increase by 109.5% to 120.2% year-on-year, with sales rising 28%. AMEC attributed this strong performance to increased market share, explaining that its etching equipment continues to gain recognition from more domestic and international customers.

These concerns have already been voiced multiple times by semiconductor industry leaders. CEO Huang once said that export controls would lead "China to make its own graphics processing units (GPUs)." He also warned, "If the production capacity of U.S. technology companies shrinks to one-third of what it was due to abandoning the Chinese market, no one will need U.S. factories anymore."

Peter Wennink, CEO of Dutch semiconductor equipment company ASML, whose exports of extreme ultraviolet (EUV) and deep ultraviolet (DUV) lithography equipment to China are effectively blocked, has also criticized the restrictions on China's semiconductor industry as a mistake. He stated, "Building a self-sufficient semiconductor equipment system in China is a goal that will take time but will ultimately become a reality," emphasizing, "The stricter the regulations, the more strength China's efforts gain."

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