The Japanese Ministry of Economy, Trade, and Industry’s 2024 White Paper on International Economy and Trade reveals that in its examination of imported goods sources, over half of the import value for 1,406 product categories (accounting for over 30% of the total) comes from China. This figure is 1.5 times higher than that of the United States, which relies on China for only 567 product categories. Thus, Japanese media Nikkei’s report has highlighted that this data underscores Japan’s significant dependence on China within its supply chain.

According to Nikkei, Japan’s trade statistics for 2022 covered approximately 4,300 types of goods. The report indicates that nearly 40% of these products are highly dependent on a single import source, with China being the predominant supplier.

Specific data further hints that Japan’s highly dependent imports from China include laptops, air conditioners, organic chemicals, and rare-earth metals. Additionally, over 90% of Japan’s imported household appliances originate from China. Moreover, China serves as Japan’s primary supplier of phosphorus, a key raw material for fertilizer production.

The data also indicates that Japan imports 252 and 151 types of goods that are “highly dependent” on the United States and South Korea, respectively, ranking these countries second and third in terms of Japan’s import dependency. In contrast, other G7 members exhibit lower levels of dependency on single import sources compared to Japan.

Per Nikkei’s report, essential minerals, semiconductors, and fertilizers have been designated as critical goods by the Japanese government. The data in the latest White Paper indicates that Japan’s supply chain is significantly dependent on China, highlighting the importance of diversifying procurement sources and conducting risk assessments. Japan has already started implementing measures to reduce reliance on China in cooperation with the United States and Europe.

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• [News] Semiconductor Equipment Sales Soared in Chinese and Japanese Markets
• [News] New Regulations Reportedly Introduced by Japan Regarding Semiconductor Exports

(Photo credit: Lenovo)

According to a report from Commercial Times, Apple is said to have informed its suppliers and partners that it is confident in boosting sales of the upcoming iPhone 16, set to be released in the second half of this year, through the addition of AI features. Reportedly, the goal is to increase iPhone 16 shipments by approximately 10% compared to the iPhone 15, reaching 90 million units in the second half of this year.

Apple showcased its advancements in AI at the annual Worldwide Developers Conference (WWDC) in June, including the introduction of the generative AI large model Apple Intelligence, AI upgrades for Siri, and collaboration with OpenAI. Apple is expected to launch Apple Intelligence in the U.S. market this fall, with full functionality projected to be available in the spring of next year.

Per sources cited by Bloomberg, Apple did not perform well in the second half of last year, particularly facing challenges in its third-largest market, China. Huawei’s Mate 60 Pro, equipped with a domestically manufactured 7nm processor, has gained favor among local consumers.

The same report from Bloomberg indicated that after a turbulent 2023, Apple is relying on AI services to boost demand for its new products. Data cited by Bloomberg shows that in the second half of last year, iPhone 15 shipments were approximately 81 million units.

Furthermore, for the first quarter this year, TrendForce reported that Apple also faced a decline in sales in the Chinese market, resulting in a drop in annual production to 47.9 million units. This decline prompted several adjustments within the component supply chain, although production plans for processor chips remained unchanged. TrendForce posits that the second quarter falls within a product iteration gap for Apple, and production is expected to decrease by approximately 10%. 

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• Q1 Smartphone Production Increases Due to Low Base Last Year, Expected to Decline 5–10% in Q2, Says TrendForce
• [News] Apple’s AI Push on iPhone 16 in China Faces Obstacles in Finding Local Partners

(Photo credit: Apple)

According to a report from Tom’s Hardware, it’s reported that one of GPU giant NVIDIA’s key advantages in data centers is not only its leading GPUs for AI and HPC computing but also its effective scaling of data center processors using its own hardware and software. To compete with NVIDIA’s CUDA, Chinese GPU manufacturer Moore Threads has developed networking technology aimed at achieving the same horizontal scaling of GPU compute power with its related clusters, addressing market demands.

Moore Threads was founded in 2020 by former senior executives from NVIDIA China. After being blacklisted due to U.S. export restrictions, they were unable to access advanced manufacturing processes but continued to develop gaming GPUs.

Per another report from South China Morning Post, Moore Threads has upgraded the AI KUAE data center servers, with a single cluster connecting up to 10,000 GPUs. The KUAE data center server integrates eight MTT S4000 GPUs, designed for training and running large language models and interconnected using MTLink network technology, similar to NVIDIA’s NVLink.

These GPUs use the MUSA architecture, featuring 128 tensor cores and 48GB of GDDR6 memory with a bandwidth of 768GB/s. A cluster with 10,000 GPUs can have 1,280,000 tensor cores, though the actual performance depends on various factors.

However, Moore Threads’ products still lag behind NVIDIA’s GPUs in performance. Even NVIDIA’s 2020 A100 80GB GPU significantly outperforms the MTT S4000 in computing power.

Moore Threads has established strategic partnerships with major telecommunications companies like China Mobile and China Unicom, as well as with China Energy Engineering Group and Big Data Technology Co., Ltd., to develop three new computing clusters aimed at boosting China’s AI development.

Recently, Moore Threads completed a new round of financing, raising CNY 2.5 billion (roughly USD 343.7 million) to support its expansion plans and technological development. However, the inability to access advanced processes from TSMC, Intel, and Samsung presents significant challenges for developing next-generation GPUs.

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• [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

(Photo credit: Moore Threads)

The China Association for Science and Technology (CAST) recently listed challenges facing China’s semiconductor industry. However, the list did not include lithography. According to a report from TechNews, it’s believed that the move to exclude lithography is more of a political consideration aimed at downplaying the impact of US sanctions on China’s local chip manufacturing industry rather than fostering innovation in lithography equipment within China.

Reportedly, Chinese leader Xi Jinping once told the Dutch Prime Minister that China does not need the help from ASML, the world’s leading advanced lithography system manufacturer, to drive its technological development. Currently, Shanghai Micro Electronics (SMEE) and Naura Technology Group in China aim to develop exposure equipment for the first time by April 2024.

However, regarding in the overall semiconductor manufacturing process in China, the production rate of Chinese chip manufacturing equipment is only 20%, with a global market share of less than 1%. In contrast, ASML holds a global market share of 93%.

EUV (Extreme Ultraviolet) lithography equipment is crucial for manufacturing next-generation chips. Even if Chinese companies had obtained these devices before US sanctions, they still require ongoing maintenance and support. The US ban has cut off this supply line, meaning the currently used exposure equipment will eventually cease to operate.

Unless China makes significant breakthroughs in the semiconductor lithography equipment industry, it will face many obstacles in advanced processes. Some industry leaders have already urged their companies to focus on traditional chips and 3D packaging rather than attempting to continue with advanced processes.

Currently, many companies are still striving to circumvent Washington’s sanctions. For instance, Huawei is establishing a major research and development center for exposure and wafer fabrication equipment. Yet, per an earlier report from Reuters, Peter Wennink, former CEO of ASML, stated in an interview that the chip war between China and the US will not be resolved anytime soon and could potentially persist for decades.

Other Chinese companies are also exploring open standard technologies like RISC-V. However, given the current situation, it could take China several years, if not decades, of research and development to catch up with mainstream exposure equipment manufacturers.

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• [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

(Photo credit: ASML)

While driving advances in HBM, foundry, and advanced packaging, AI generative applications also boosted the demand and sales of semiconductor equipment.

Recently, Japanese semiconductor equipment giant DISCO announced that its non-consolidated (individual) shipments for April to June 2024 amounted to JPY 85.7 billion, marking a 50.8% year-on-year increase. The quarterly (individual) shipment surpassed the JPY 78.5 billion from January to March 2024, setting a new record high.

DISCO pointed out that the demand for precision processing equipment related to generative AI remains solid; for consumable-type precision processing tools, the demand remains high, align with the operation rates of customers’ equipment.

Semiconductor equipment refers to specialized equipment used in the production of various types of integrated circuits and discrete semiconductor devices, encompassing various products mainly categorized into front-end process equipment and back-end process equipment.

Front-end process equipment is used in the wafer manufacturing process involving products such as lithography machines, etching equipment, thin film deposition equipment, and CMP equipment.

Back-end process equipment is mainly used in the packaging and testing processes of semiconductor products to ensure product quality and reliability. Representative products include dicing equipment, packaging equipment, testing equipment, and wafer dicing saws, which are used to cut wafers into individual chips for subsequent packaging and testing. DISCO is a leading manufacturer in this segment.

Japanese semiconductor equipment holds a significant position globally, gathering numerous renowned companies such as Tokyo Electron, Advantest, Hitachi High-Tech, Nikon, and DISCO.

With the AI boom, the industry believes that sales of Japanese semiconductor equipment will continue to climb up. The Semiconductor Equipment Association of Japan (SEAJ) forecasts that Japan’s semiconductor equipment sales is expected to exceed JPY 4 trillion for the first time in 2024, representing a 15% annual increase, which is projected to surpass JPY 5 trillion by 2026.

This growth is primarily benefited from the increasing demand for AI-driven GPU and HBM. In May 2024, Japanese semiconductor equipment sales surged by 27% YoY, continuing to grow and setting new monthly records.

China’s semiconductor equipment market is also enjoying robust growth driven by favorable factors like AI. Recently, data jointly released by the Semiconductor Equipment and Materials International (SEMI) and SEAJ indicated that in the first quarter of 2024, global semiconductor equipment sales totaled USD 26.4 billion, down 2% YoY and 6% QoQ, which was dragged down by the sluggish demand in some markets.

Despite the headwind globally, China’s sales reached USD 12.52 billion in the first quarter, up by 113% YoY, maintaining its position as the world’s largest semiconductor equipment market for the fourth consecutive quarter.

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• [News] Booming GPU and HBM Demand Pushes Japanese Chip Equipment Annual Sales to Record High
• [News] New Regulations Reportedly Introduced by Japan Regarding Semiconductor Exports

(Photo credit: TEL)