According to MoneyDJ, citing Reuters, the U.S. government is actively working to curb the development of China’s semiconductor industry.

Republican Congressman John Moolenaar, chair of the House Select Committee on the Chinese Communist Party, along with senior Democratic Congressman Raja Krishnamoorthi, jointly sent letters to five semiconductor equipment manufacturers: ASML, Applied Materials, KLA, Lam Research, and Tokyo Electron. The lawmakers requested information on sales to China, arguing that China is using advanced semiconductor equipment to strengthen its military and is supplying chips to the Russian military, thereby threatening international order and security, as the Reuters report noted.

The report from MoneyDJ indicated that the U.S. government intends to expand the scope of export controls, including tightening the Foreign Direct Product Rule (FDPR) to prevent China from obtaining advanced equipment for military purposes, which would prohibit the export of semiconductor equipment containing U.S. technology to China.

However, this legislation has been delayed due to strong opposition from Japan and the Netherlands, as it would significantly impact the operations of semiconductor equipment manufacturers, as the report from MoneyDJ indicated.

On the other hand, as reported by the Financial Times, TSMC has informed Chinese companies that it will cease production of the most advanced AI chips at 7nm or below for Chinese customers starting on November 11. This decision is seen as a direct response to concerns about China’s access to cutting-edge technology. The report suggests that TSMC’s tightening and cessation of advanced chip supplies to Chinese clients could set back the AI ambition of major Chinese tech companies such as Alibaba and Baidu.

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• [News] TSMC Reportedly to Halt 7nm and Below Chip Shipments to China’s AI Firms Next Week
• [News] China’s Chipmaking Equipment Spending Likely to Drop below USD 40 Billion in 2025 amid U.S. Tensions

(Photo credit: istock photo )

Ahead of the upcoming U.S. presidential election, U.S. semiconductor equipment giants Applied Materials and Lam Research are already working out to exclude Chinese firms from supply chains, driven by Washington’s directives to limit China’s role in sensitive leading-edge technologies, according to a report by The Wall Street Journal.

According to the report, major chip toolmakers, including Applied Materials and Lam Research, are notifying suppliers that they must source alternatives for certain Chinese components or risk their vendor status. Suppliers have also been informed that they must not have Chinese investors or shareholders, according to sources cited by the report.

The move would potentially drive up costs, as finding non-Chinese alternatives at comparable prices will be challenging, noted industry executives interviewed by The Wall Street Journal.

China is now reportedly the largest market by revenue for top global chip equipment suppliers. The latest quarterly financial reports from companies such as Applied Materials, Lam Research, and KLA show that China contributes approximately 40% of their sales.

When asked about whether the act of finding alternatives to Chinese-made components has been initiated, Lam Research stated it complies with U.S. export controls within the chip-manufacturing supply chain, while Applied Materials indicated it seeks alternative component sources to ensure consistent availability, according to the report.

It is worth noting that as the U.S.-China Chip War escalates, both presidential candidates, Donald Trump and Kamala Devi Harris, promise a firmer stance on trade with China, and the semiconductor industry is particularly targeted due to its national security significance recently.

Earlier in September, the Biden administration has introduced new export controls targeting critical technologies, including quantum computing, advanced chip making tools, specific components and software tied to metals and alloys, and high-bandwidth chips essential for AI applications, according to a previous report by CNBC.

While these restrictions apply globally, concerns have been raised on major semiconductor equipment companies, such as Dutch giant ASML and U.S. heavyweights Applied Materials and Lam Research.

The Wall Street Journal report also mentions that last year, the Commerce Department already introduced regulations requiring U.S. toolmakers to secure licenses before sharing technical details with Chinese suppliers. They received a temporary license to maintain current suppliers, set to expire at the end of 2025. This summer, the department clarified that suppliers outside China must also comply if their parent company is based in China.

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• [News] US Reportedly Expands Investigation into Applied Materials, Possibly due to Concerns of Shipments to SMIC
• [News] China Contributes Over 40% of U.S. Chip Equipment Makers’ Revenue despite Export Controls

(Photo credit: Applied Materials)

Amid the escalating tech war between China and the US, along with rising geopolitical tensions, China has accelerated its import of chip manufacturing equipment since the middle of last year to counter potential US chip sanctions, with Dutch company ASML and Japanese company Tokyo Electron (TEL) benefited the most.

Notably, according to the Semiconductor Equipment and Materials International (SEMI), despite US sanctions preventing China from acquiring advanced EUV lithography equipment from ASML, it reported that China’s spending on chip manufacturing equipment has reached USD 25 billion in the first half of this year, exceeding the combined total of Korea, Taiwan, and the US. SEMI data also shows that China’s spending remained strong in July and is expected to set a new annual record.

Meanwhile, per the trade data from China’s General Administration of Customs cited by Bloomberg, from January to July this year, Chinese companies imported chip manufacturing equipment worth nearly USD 26 billion, surpassing the previous record set in the same period in 2021.

SEMI projects that China will become the largest investor in new fab construction, including equipment purchases. It is expected that the country’s total spending on chip equipment for the entire year of 2024 will reach USD 50 billion.

Clark Tseng, SEMI’s senior director of market intelligence, further highlighted that at least more than 10 tier-two chip manufacturers are actively purchasing new equipment, which is driving China’s overall spending.

China is now reportedly the largest market by revenue for top global chip equipment suppliers. The latest quarterly financial reports from companies such as Applied Materials, Lam Research, and KLA show that China contributes approximately 40% of their revenue.

For Japanese company TEL and Dutch company ASML, the contribution from the Chinese market is even more significant, with nearly half of their revenue coming from China.

Additionally, per a report from Commercial Times, amid a global economic slowdown, China is the only region where chip manufacturing equipment spending increased in the first half of this year compared to the same period last year.

Tseng also noted that SEMI anticipates spending on new plant construction in China will “normalize” over the next two years.

Read more

• [News] China’s Import of Chip Making Equipment Hit New High This Year, with Mature Nodes Driving the Demand
• [News] China Contributes Over 40% of U.S. Chip Equipment Makers’ Revenue despite Export Controls

(Photo credit: iStock)

According to a report from Bloomberg, Applied Materials Inc. pointed out that the U.S. Department of Justice (DOJ) has requested information regarding its federal grant applications, further intensifying the government’s investigation into the company’s operations.

Per a regulatory filing last week, the chip equipment manufacturer received a subpoena from the DOJ and is fully cooperating with the government. Reportedly, the company stated that the request pertains to certain federal award applications and information submitted to the federal government.

Applied Materials had applied for government support for its planned research center under the U.S. CHIPS and Science Act, which was expected to bolster local chip facilities.

Yet, per previous reports by Bloomberg and Tom’s Hardware, the company’s funding application was ultimately denied, leaving the USD 4 billion research center planned for Sunnyvale, California, underfunded.

It is worth noting that though the U.S. keeps tightening the export controls on the semiconductor sector, major chip equipment makers seem to become increasingly dependent on the Chinese market.

Thus, Applied Materials’ dealings with China have already been under government scrutiny. Notably, from February to April, China accounted for 43% of the total sales of Applied Materials, a 22 percentage point increase YoY.

Back in February of this year, Applied Materials had already received subpoenas from the U.S. Securities and Exchange Commission, as well as the U.S. Attorney’s Office for the District of Massachusetts, even before the DOJ subpoena, and was reportedly under investigation for allegedly sending equipment to SMIC, China’s leading chipmaker, through South Korea without export licenses.

Addressing the matter, Applied Materials did not immediately respond to requests for comment.

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• [News] Funding for Applied Materials’ USD 4 Billion R&D Center Reportedly Denied by the U.S. Government

(Photo credit: Applied Materials)

As semiconductor giants, including Intel, TSMC and Samsung, have been competing fiercely in the Angstrom era for advanced nodes, the progress on their adoption of ASML’s High-NA EUV (high-numerical aperture extreme ultraviolet) equipment has been brought back into spotlight lately. However, the semiconductor market, which seems to get more polarized in the meantime, may rely more on China than most people have imagined.

ASML: China is Ten Years behind the U.S. regarding Cutting-edge Chips

In May, without the assistance for extreme ultraviolet (EUV) lithography machines manufactured by ASML, China’s largest foundry, SMIC, is rumored to produce 5nm chips for Huawei this year. However, ASML’s CEO has denied the possibility that China would be able to replicate EUV technology.

According to an interview by Germany media Handelsblatt in July, ASML CEO Christophe Fouquet stated that the EUV technology, which the Dutch semiconductor heavyweight boasts of, is highly complex. Wccftech, citing Fouquet’s remarks in the interview, noted that it would be extremely difficult for China to replicate because the country lacks the know-how.

Citing Fouquet, the reports noted that regarding the development of cutting-edge chips, China is about ten years behind the U.S.

The World in Dire Need of the Legacy Chips Produced by China

However, Fouquet argued that chip buyers, including those in the German automotive industry, are in need of older generation computer chips, an area in which Chinese chipmakers are currently increasing their investments.

His remarks highlight the importance of China’s semiconductor production for global markets, which may still thrive under U.S. export restrictions.

According to the reports, Fouquet stated that though global demand for the legacy chips have been soaring dramatically, Europe cannot even meet half of its own needs. As manufacturing these chips is not very profitable, Western firms are not investing enough in the sector, Fouquet said.

Therefore, neither did he agree with the extensive, tightening chip controls recently. Fouquet noted that it doesn’t make sense to prevent someone from producing something you need.

Peter Wennink, former CEO of ASML, stated in July that the chip war between China and the US lacks factual basis and is entirely driven by ideology. Wennink also anticipated that this chip war will not be resolved anytime soon and could potentially persist for decades.

China Contributes up to 50% Revenue of the World’s Top 5 Chip Equipment Makers

Take a look at the latest financial results of the world’s top semiconductor equipment manufacturers, and we may find where the strong momentum of China has led to.

ASML, as the world’s exclusive EUV provider, reported second-quarter earnings and sales (USD 6.8 billion) that beat forecasts, as AI chips drives up demand for the Dutch firm’s critical semiconductor making equipment.

More importantly, regarding ASML’s sales in lithography units in the second quarter of 2024, China emerged as the largest market, as it contributed 49% of the revenue, higher than South Korea’s 28% and Taiwan’s 11%.

It is worth noting that a year ago, in the second quarter of 2023, China only accounted for 24% of ASML’s sales in lithography units, while Taiwan and South Korea contributed 34% and 27%, respectively. The results, in a way, have reflected China’s ambition and importance in chip making, as Fouquet noted.

Despite export controls, China has also become the largest market by region for U.S. semiconductor equipment giant, Applied Materials. In the second quarter, China accounted for 43% of its total sales of Applied Materials, a 22 percentage point increase YoY, while Taiwan and South Korea contributed 15% and 15%, respectively.

The dominance of the Chinese market is also evident with other major semiconductor equipment makers. China contributed 39% of Lam Research’s revenue in the June quarter, 2024, much higher than 26% a year ago.

Tokyo Electron, on the other hand, attributed as high as 49.9% revenue to China for the first quarter of its 2025 fiscal year, compared with 39.3% a year ago. China accounted for 44% of KLA’s revenue in the June quarter, 2024.

As DUV systems, which have not been extensively regulated, can still be applied to nodes down to 7nm, or even 5nm, Chinese chipmakers, with the support of government, may continue to hold a significant position in the global semiconductor ecosystem.

Read more

• [News] ASML Former CEO Predicts Chip War Between China and the US May Persist for Decades
• [News] US to Lobby Netherlands and Japan to Contain China’s Chip Development, Focusing on HBM