Amid the heating tech war between the U.S. and China, and the stringent sanctions imposed to prevent China from obtaining cutting-edge chips, it appears that China is still able to find its way out. According to a report by Tom’s Hardware, citing the New York Times, the latest tactic of China would be setting up new companies to trade advanced hardware and operating them until they are shut down.

Before that, it is understood that Chinese firms have been smuggling NVIDIA chips through some underground networks, which involve buyers, sellers and dispatchers, according to a previous report by the Wall Street Journals.

Now the country seems to find another option in order to evade the sanctions. According to the New York Times and Tom’s Hardware, buyers that include state-owned or affiliated companies, even sanctioned companies, are reportedly collaborating with the Chinese defense industry, as transactions ranging from a few hundreds of GPUs to a deal worth USD 103 million have been observed lately.

The new tactic, it is reported, would be to establish new companies to acquire advanced chips before facing U.S. sanctions. For instance, after Sugon, established under the strong promotion of the Chinese Academy of Sciences and focuses on fields like computing, storage, security and data center, was banned from obtaining NVIDIA chips due to its ties with the Chinese military, some former executives created a new company named Nettrix.

The reports further note that within six months, Nettrix became one of the largest Chinese manufacturers of AI servers, as tech giants including NVIDIA, Intel, and Microsoft have already begun doing business with it, all without violating any American laws. Given the company’s recent establishment, the U.S. likely hasn’t had the opportunity to thoroughly vet its background.

The reports suggest that the White House might significantly reduce Chinese backdoors in trade by ensuring that only licensed, white-listed buyers can legally procure these chips. However, many in the industry oppose increasingly stringent bans, arguing that they harm American companies more than they help.

Before the upcoming U.S. presidential election in November, the Biden authority is said to be considering a series of actions targeting semiconductors. The latest one includes new measures that might unilaterally impose restrictions on China as early as late August, preventing major memory manufacturers like Micron, SK hynix, and Samsung Electronics from selling high-bandwidth memory (HBM) to China.

• [News] US Reportedly Weighs Stricter Limits on AI Memory Access for China
• [News] China Reportedly Acquires Nvidia AI Chips Indirectly; Nvidia, Gigabyte Emphasize Compliance with U.S. Regulations

(Photo credit: Nettrix)

As the U.S. presidential election approaches, uncertainties also arise. Compared with the stance in President Biden’s term, U.S. presidential candidate Trump shows a remarkably different attitude regarding the “Taiwan issue,” while he highlights the “America First” agenda further.

However, according to a report by Technews, Trump may overlook the fact that Taiwan’s semiconductor is closely tied to shaping the “America First” stance that he values. By standing as a crucial ally in semiconductor, Taiwan could help the U.S. secure a foothold in the arms, AI, and technology race. Without Taiwan’s support, it is hard to say whether U.S. may face the risk of being overtaken by China, as the latter is developing semiconductor at full throttle. Read below for more analysis from Technews:

Intel’s “Five Nodes in Four Years” Roadmap: Details of Intel 20A Still Vague

Let’s look at Intel’s progress first. The tech giant has announced a plan to advance through five nodes in four years (5N4Y), as the latest update includes Intel 14A in its top-tier node strategy.

However, in the chart below, Intel 7, which has been categorized as a mature process, is already being caught up by SMIC’s 7nm and 5nm processes. This is happening despite the U.S.-China trade war, with the U.S. placing SMIC on the entity list and imposing equipment restrictions.

From the perspective of advanced nodes, Intel’s latest Lunar Lake platform will be manufactured with TSMC’s 3nm process this year. In addition, its next-generation Nova Lake processors will also adopt TSMC’s 2nm process, with a potential release date in 2026.

Intel CEO Pat Gelsinger has stated that the first-generation Gate-All-Around (GAA) RibbonFET process, Intel 20A, is expected to launch this year, with Intel 18A anticipated to go into production in the first half of 2025.

However, it is worth noting that Intel 20A was originally reported to be used for Arrow Lake and Lunar Lake processors, but Gelsinger confirmed at COMPUTEX that the latter will use TSMC’s 3nm process, with no mention of Arrow Lake’s progress. The market expects that some Arrow Lake processor orders may be outsourced to TSMC, which also suggests that the progress of Intel 20A may not meet expectations.

On the other hand, SMIC, limited by equipment constraints, has progressed to 7nm but faces delays with 5nm, so it will advance gradually with N+1, N+2, and N+3 processes.

Without Taiwan’s Semiconductor Manufacturing, the AI Computing Power of the U.S. May Eventually Be Caught up by China

Industry experts believe that without Taiwan’s semiconductor manufacturing, it would be difficult for the industry to progress, especially for AI and HPC chips that require significant computing power and advanced processes.

Currently, AI chips primarily adopt TSMC’s 4nm and 3nm nodes and will continue to use the 2nm process in the future. Without TSMC’s technology, the U.S., if it solely relies on Intel for its foundry and capacity, may progress relatively slow in AI computing power, which may make the country eventually lose the AI race with China, falling behind in future commercial and military equipment advantages.

According to a report by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) in December last year, the global semiconductor IC design industry was valued at USD 248 billion in 2022, while integrated device manufacturers (IDM) were valued at USD 412 billion, totaling USD 660 billion. The U.S. accounted for 53% of this value, while Taiwan only accounted for 6%.

On the other hand, the global foundry services in 2022 was valued at USD 139 billion, while the packaging and testing industry was valued at USD 50 billion, totaling USD 190 billion. Taiwan accounted for 63%, while the U.S. only accounted for 8%.

Despite this, the overall semiconductor industry value in the U.S. remains at USD 365 billion, making it the largest beneficiary in the sector. That of Taiwan, on the other hand, is only USD 159 billion, less than one-third of the U.S. total.

Sanctioning Taiwan Would Be “Shooting Oneself in the Foot,” Making the U.S.  Harder to Win the Tech War with China

Regarding government subsidies, China is launching the third phase of its Big Fund, with a registered capital of 344 billion RMB (about USD 47.5 billion), which is significantly higher than the previous two phases. This represents a nationwide effort to invest in semiconductors, with a focus on enhancing semiconductor equipment and the overall supply chain.

The U.S. CHIPS Act, on the other hand, has a scale of USD 52.7 billion, which is comparable to China’s subsidies. However, as technology and arms races are long-term competitions, how related policies may evolve would also be subject to the results of the election.

On the other hand, China is currently working hard to better its semiconductor eco-industrial chain, expand its market share in mature processes, and continue advancing to more advanced process technologies, which may further shorten its gap with the U.S.

As the U.S. IC design sector is closely related to Taiwan’s semiconductor manufacturing technology, Taiwan’s role in the game has become a key factor for the U.S. to maintain its leading edge with China. Without Taiwan’s technological support, the techonological dominance of the U.S. might be threatened, as China’s semiconductor industry has gradually catching up.

As former U.S. President Trump has brought up the topic that Taiwan should pay for protection, raising concerns on cross-strait issues at the same time, Taiwan’s semiconductor industry and its foundry leader, TSMC, have once again draw market attention. Some scholars believe that the U.S. must realize that Taiwan is not a competitor but an important fabless partner, which could not only play a crucial role in advancing the development of next-gen technologies in the U.S., but help the nation to win the U.S.-China tech battle.

Citing Chien-Huei Wu, a research fellow of the Institute of European and American Studies at Academia Sinica, a report from Technews points out that while profits for foundries have significantly increased in the past five years, it is the IC design sector that gains the largest share of value in the entire supply chain. The benefits to foundries are not particularly significant.

Wu further notes that when NVIDIA, AMD, and Apple place orders, TSMC provides the best service, which indicates that the semiconductor industry in Taiwan is not the only major beneficiary, but U.S. IC companies and the American semiconductor industry as a whole.

U.S. Emerges as the Biggest Winner while Outsourcing Wafer Manufacturing to Taiwan

“The U.S. must recognize that without Taiwan providing better services and designing better processes to overcome limitations, its semiconductor industry would find it difficult to make progress continuously,” said Wu.

Wu believes that the relationship between Taiwan and the U.S. involves high-level cooperation in the supply chain, with each playing its respective role. This is why TSMC founder Morris Chang has repeatedly emphasized that TSMC is a service provider, a trustworthy and reliable partner.

Additionally, the outsourcing of the semiconductor industry is an inevitable trend. Look back in history: the industry had moved from Europe and the U.S. to Japan. Then the Reagan administration sought to suppress the Japanese semiconductor, leading to the signing of the U.S.-Japan Semiconductor Agreement in 1986, while TSMC was founded the following year (1987).

And the history seems to repeat itself. Even after more than forty years, the U.S. has struggled to prevent the industry’s relocation. Now, Taiwan and South Korea have taken the lead in the semiconductor manufacturing business, and there are reasons for this.

Wu further explains that the work cultures between the Europe, the U.S., and Asia are entirely different, and these differences in technology, personnel, and culture will all increase manufacturing costs. Furthermore, these hidden costs will have to be absorbed by American consumers, which will inadvertently increase U.S. inflation. The situation not only harms American consumers but also hinders the country in the competition of next-generation advanced technologies.

The U.S. May be More Concerned about TSMC’s Tech Reaching China than Whether the Wafers are “U.S.-made.”

Currently, the market is concerned that Trump might impose a 10% tariff on all imported products if he takes office. According to Wu, the purpose of the tariff is to protect American manufacturers, making consumers more inclined to choose American-made products at the same price level.

“But the premise is that the quality must be the same, and that there must be existing American manufacturers.” He believes that the U.S. currently lacks manufacturers of equivalent quality, as U.S. tech giants, including Intel, place orders with TSMC, which indicates that the tariff may not have the intended effect. If an additional 10% tariff is imposed, products from major companies like NVIDIA, AMD, and Intel will become more expensive, increasing U.S. inflation, which benefits no one.

If this happens, Wu suggests that TSMC could organize manufacturers into a lobbying group, including key players from both Taiwan and the U.S., to expand the impact of the tariffs to the American semiconductor industry.

Furthermore, he notes that the Taiwanese government must work more closely with the industry, acting as a mediator in times of conflict. With both sides maintaining a unified stance, the government should prioritize industry interests in its communications.

In addition to tariffs, the U.S. government is also very concerned about the share of TSMC’s high-end chips going to China, especially with the escalation of the U.S.-China trade war.

Regarding this, Wu comments that as Taiwan’s current technological controls on the flow of technology to China are still in early stages, it will be difficult to convince the U.S. that it is a reliable partner and service provider. Therefore, the Taiwanese government must enhance its efforts to control the flow of high-tech, talent, products, or intellectual property to China, as there is still significant room for improvement.

How Should Taiwan’s Semiconductor Industry Handle U.S.-China Geopolitical Tensions?

Regarding Trump’s views on cross-strait politics, Wu analyzes that he is different from typical Western politicians, as Trump is known for his transactionalism, unilateralism, and personal connections. Namely, he is more concerned with “What’s in it for me (Trump)?” or “What’s in it for the U.S.?”

From Trump’s perspective, maintaining order is no longer an U.S. obligation. Taiwan must protect its own country with its own efforts, including maintaining a certain defense budget.

Additionally, it is worth watching whether Trump’s chip policies aim to relocate the entire semiconductor supply chain from Taiwan to the U.S. Although this poses practical difficulties and is economically unfeasible, Taiwanese government and the semiconductor industry must prepare for the worst-case scenario, and starts policy planning in advance.

Read more

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• [News] TSMC Maintains Overseas Expansion Strategy, Unfazed by Geopolitical Disruptions

(Photo credit: TSMC)

Republican presidential candidate Donald Trump’s recent remarks on Taiwan “taking about 100% of our chip business” and thus should pay the U.S. for defense have raised concerns in the semiconductor industry. According to a report by Economic Daily, citing a Taiwanese scholar’s observation, as Trump’s odds of winning increase, related chip subsidies may face a higher chance of being adjusted.

In an interview with Bloomberg, Trump mentioned that Taiwan did take 100% of the country’s chip business, and thus should pay for defense, while the U.S. is “no different than an insurance company.”

Bilateral Trade Agreements, Such as US-Taiwan 21st Century Trade Initiative, May be Impacted

Regarding his comments, the report cited the observation by Liu Da-nian, Director of the Regional Development Study Center at the Chung-Hua Institution for Economic Research. The scholar noted that the notion that Taiwan is taking away American chip business is a preconceived misconception, as Taiwan’s chip manufacturing relies on its own R&D achievements, with little government subsidies. Instead of taking the development of Taiwanese industry into consideration, Trump only focused on the outcome, which is very unfair.

Liu said that since Trump opposes any bilateral trade agreements, if he is re-elected, the ongoing US-Taiwan 21st Century Trade Initiative negotiations could be affected, which covering topics including agriculture, labor and digital trade.

Liu analyzed that Trump, with his America-centric approach, would likely push for more of the supply chain to be based in the U.S. Additionally, he would tend to increase investment controls on China and impose heavier tariffs.

Furthermore, he stated that as Trump has threatened to impose a 10% tariff on all imports to the US if elected, Taiwan would not be exempt from this neither. He warned that such actions could disrupt global trade order, and the whole world be concerned about how to deal with Trump during his potential second term.

TSMC Unlikely to Suffer as the CHIPS Act Has Been Approved by Congress

It is also worth noting that in April, Taiwanese foundry giant TSMC is confirmed to receive a USD 6.6 billion subsidy from the U.S. government, under the framework of the CHIPS Act. The company plans to build its third fab in Arizona afterwards, with total investment rising to USD 65 billion.

Regarding the development afterwards, Liu stated that although Trump believes the US CHIPS Act is a misguided policy, the act was passed by the US Congress, making it difficult to overturn and it is already being implemented.

On July 17^th, GlobalWafers joins TSMC as the second Taiwanese semiconductor company to receive subsidies from the CHIPs Act. It is set to receive USD 400m in direct funding to support the opening of two new US-based manufacturing sites for semiconductor wafer production.

Read more

• [News] US Reportedly Targeting China’s Mature Semiconductor Processes Next
• [News] TSMC Receives USD 6.6 Billion for Chipmaking from the US Government, Commits to Constructing Third Fab

(Photo credit: the White House)

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. According to a report by Nikkei, citing financial data such as Applied Materials and Lam Research, China’s share of sales have exceeded the threshold of 40%.

According to the latest forecast by SEMI, the global chip equipment sales are expected to grow by 3.4% to USD 109 billion in 2024, with China anticipated to reach a record-high USD 35 billion, accounting for over 30% of the global market.

The strong demand of China is also reflected in the sales of major U.S. chip equipment makers. Citing the latest financial data, Nikkei notes that from February to April, China accounted for 43% of the total sales of Applied Materials, a 22 percentage point increase YoY.

Similarly, from January to March, China accounted for 42% of the total sales of KLA Corporation, a 20 percentage point increase YoY.

The development appears to contradict Washington’s export control plans targeting China. In 2022, the US government restricted the export of advanced semiconductor production equipment to curb Beijing’s progress in this field. However, the manufacturing equipment for traditional chips above 28nm is not subject to these controls.

Citing sources familiar with the matter, Nikkei states that if it was not because of the regulation, the proportion of their business in China would be even higher, with sales growth in China occurring only in the non-advanced equipment sector.

The report also notes that though Washington’s policy of building a local ship supply chain does seem to benefit U.S. equipment manufacturers, they still find it difficult to reduce the reliance on China. In 2023, the U.S. accounted for 15% of Applied Materials’ total revenue, up 6 percentage points from 2021.

In order to confront the semiconductor sanctions from the U.S., China has been doubling down on the efforts by setting up its largest-ever semiconductor state investment fund. Earlier in May, it established the third phase of the National Integrated Circuit Industry Investment Fund, with investment totaling USD 47.5 billion.

The aim for China’s Big Fund is to leverage fiscal funds to attract private capital, focusing on key segments of the integrated circuit industry chain, including chip design, manufacturing, packaging and testing.

Read more

• [News] China Lists Semiconductor Self-Reliance Challenges, Excluding Lithography Equipment
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(Photo credit: Applied Materials)