Is the semiconductor industry "de-Americanized" or "de-Chineseized"? There is no winner in this war

Semiconductor chips are one of the typical high-tech industries and a symbol of a country's scientific talent. In recent years, chip makers have increasingly fallen into the core vortex of Sino-US competition: both countries want to surpass the future of each other’s dominant industries. However, the Wall Street Journal recently reported that the industry split by this competition will eventually cause both sides to lose.

For China, with the suppression of the United States, Huawei HiSilicon, as the leader of domestic chips, also exposed its own vulnerabilities, making China's long-term goal of developing its own semiconductor industry more urgent. A recent report by the Boston Consulting Group pointed out that, excluding the manufacturing activities of Chinese factories for foreign companies, Chinese (Mainland) companies accounted for 23% of global semiconductor demand. Today, the semiconductor industry in China (mainland) (without manufacturing plants built by foreign semiconductor companies in China) accounts for only 14% of domestic demand.

Today, the Sino-US trade conflict has evolved into geopolitical, technological, and ideological competition. The decoupling of Sino-US relations will reshape the global market, economy and politics.

The Cold War with China will pay a high price

The Wall Street Journal author believes that the Cold War with China means that the United States wants to use its technological superiority to thwart China's development in the semiconductor field. For example, the US Department of Commerce revised its export control rules in May, and even required chip makers outside the US such as TSMC to apply for export licenses if they use US equipment or software to manufacture chips for Huawei.

In fact, the focus of global chip manufacturing is shifting to Asia: TSMC and Samsung are the world's two leading foundry companies. However, companies such as Applied Materials in the United States, KLA and Lam Research are still in a key position in terms of equipment needed for wafer manufacturing. Citibank's Roland Shu pointed out that no one can completely stop using US equipment to select semiconductor manufacturing; Cowen's Krish Sankar predicts that in the foreseeable future, Chinese chipmakers will have to rely less on some US equipment suppliers.

Nevertheless, using the upstream advantage to completely destroy China's chip manufacturing development plan is a risky gamble for the United States, even if it is possible to eliminate all loopholes. "Killing" Huawei means that US chip manufacturers and their suppliers have lost billions of dollars in revenue, while more mainland companies are increasingly becoming the ultimate buyers of chips. According to Goldman Sachs, Huawei alone accounted for 5% of global semiconductor consumption last year. In addition, companies such as Lenovo and Xiaomi are also major chip buyers.

Judging from the recent agreement between TSMC and the US government, the US goal may not even stifle Huawei. TSMC announced on May 15 that it will build a new 5nm fab in Arizona, and just a few hours ago, the US Department of Commerce announced new regulations on Huawei's export restrictions. TSMC is Huawei's main chip foundry partner. Huawei accounted for 8% of TSMC's revenue in 2018 and 14% in 2019. It is the second largest customer after Apple. Many people believe that if TSMC does not reach an agreement with the United States to continue to carry out at least part of its business with such important customers, TSMC will not make actions to set up factories in the United States.

The move also triggered US chip manufacturers to take action through the Semiconductor Industry Association (SIA) of the US chip industry organization, lobbying for federal funds to expand local research and manufacturing operations, which in turn helps maintain the leading position of the US in the chip industry. In the draft lobbying draft, SIA proposed to seek US$37 billion in state funding support, including subsidies for building new chip factories, assistance to states seeking to attract semiconductor investment, and increased research funding.

However, the escalation of the US strike against Huawei may still cause unintended consequences. Foreign companies headquartered in markets such as Japan and Europe may begin to seek more supplies from non-US companies to avoid being affected by the long-arm jurisdiction of the United States. Foreign companies may also reconsider the status of their R&D centers in the United States if they are concerned about restrictions.

Even American companies may reconsider domestic operations. For example, semiconductor equipment manufacturer KLA is headquartered in California, where it mainly produces equipment. However, on the May 5 earnings conference call, KLA CEO Rick Wallace described the company's production facilities in Singapore and Israel as "a lever and choice we have when looking for and considering the best placement." "

Forced desinicization may lead to de-Americanization of the industry

Both China and the United States want to dominate the chip industry and invest a lot of resources in each. However, if both parties insist on a zero-sum approach to competition, then the real winner may be a third party: Asian or European countries and companies that benefit from US R&D, and Huawei and other mainland Chinese buyers who want to hedge Higher sales revenue to oppose future US export restrictions. War-even paper trade-often hurt both sides.

The Wall Street Journal author believes that war, even on paper, often ends in defeat.

As previously reported by Jiwei, the semiconductor industry is the most thoroughly globalized industry, and it is difficult for the United States to constrain the entire industry. Only one fifth of the top 12 semiconductor companies in the world are located in the United States. For reasons of seeking cheaper labor and other resource allocation, American semiconductor manufacturers and upstream suppliers are also constantly expanding abroad. The new U.S. crackdown on Huawei may not be able to achieve its goal at all, and it is more likely to cause the U.S. chip manufacturing industry to move outward. The forcible de-sinization of the Trump administration's semiconductor industry chain may lead to de-Americanization of the industry.

For China, the current chip imports from the United States are still in a huge deficit. At the same time, the development of the Chinese semiconductor industry is also inseparable from the core technologies of the United States; for the United States, its own core technologies and products in the semiconductor field are strictly Under export control, and American semiconductor technology giants have huge markets in China, if the semiconductor is restricted in the trade war, it will not benefit the US.

Chen Shaomin, managing director of Beijing Hanergy Investment and visiting professor of Fudan University/Shanghai Jiaotong University, also emphasized that the two systems of China and the United States will cause great waste, duplication of investment, and high technology. The company directly loses half of the market at the direct cost of doubling terminal prices and doubling the time for new technology iterations. The United States has upgraded its export controls on Huawei, which violates economic laws and has no winner in this war.