Dude, Where’s My Semiconductor Industry?
The global semiconductor industry hit another speed bump on Oct.7 when the U.S. Department of Commerce announced new export rules impacting the Chinese tech sector
Tech stocks have been stuck in a bear market for almost a year, and based on recent developments, that trend is likely to continue.
Newly issued export controls issued by the Biden administration are expected to severely impair not only the Chinese tech sector, but also U.S. companies that sell advanced chip technology in that country.
The rules, which take immediate effect, basically halt the export of equipment to Chinese factories producing advanced chips. The measures also apply to semiconductor-related equipment made anywhere in the world using U.S. equipment.
That nuance means the rules also impact foreign firms, and prevent them from selling advanced chips to China, or supplying China-based firms with the tools necessary to make their own chips.
The statement issued by the U.S. Department of Commerce also indicates that “U.S. persons” can’t be involved in the manufacturing of chips in China, which has led to a mass exodus of American executives. It’s been widely reported that a slew of expatriates (people who reside outside their native country) in China have already resigned from their positions in the wake of the new rules.
Jordan Schneider—a U.S.-based tech expert—suggested in a recent tweet that the measures spelled certain disaster for the Chinese semiconductor industry, saying “This is what annihilation looks like: China’s semiconductor manufacturing industry was reduced to zero overnight. Complete collapse. No chance of survival.”
Schneider added, “This is nothing like the 10+ rounds of performative sanctioning during the Trump years —this is a serious act of industry-wide decapitation.”
Unfortunately, the new measures will undoubtedly have a negative impact on not only the Chinese tech sector, but also on overseas manufacturers that were selling this type of equipment in China—particularly American firms.
In the wake of the Oct. 7 announcement, companies from both the Chinese and American tech sectors saw their shares move lower. Already under pressure due to a marketwide correction in 2022, some of these stocks notched fresh 52-week lows.
For example, Baidu (BIDU) shares dropped from roughly $123/share on Oct. 6, down to $100.29 on Oct. 14—good for an 18% decline in just six trading days. Shares in Alibaba (BABA)—another well-known Chinese tech giant—also traded down to 52-week lows, at around $71/share.
Some of the major U.S. companies most impacted by the recent changes include Advanced Micro Devices (AMD), Applied Materials (AMAT), Intel (INTC), KLA Corp (KLAC), Lam Research (LRCX), Micron (MU), and Nvidia (NVDA).
Outside the U.S., impacted companies include ASML Holding (ASML) and Taiwan Semiconductor (TSMC)—as well as Renesas, Rohm, Tokyo Electron and Screen Holdings, which are all listed in Japan.
Also on Oct. 7, the U.S. put 30 additional Chinese companies on the “unverified list,” meaning they could ultimately end up on the U.S. “entity list.”
Companies are placed on the unverified list when U.S. officials are blocked from on-site inspections that help determine if they can be trusted to receive sensitive U.S. technology. Due to another new rule announced on Oct. 7, companies on the unverified list have 60 days to comply, or they are placed on the entity list.
The entity list is a trade restriction list published by the United States Department of Commerce’s Bureau of Industry and Security (BIS), consisting of certain foreign persons, entities, or governments. At present, it’s estimated that around 260 Chinese companies are on the entity list.
The Oct. 7 actions effectively build on the 2022 Chips and Sciences Act, which aims to bolster domestic production of key technologies considered strategically important to the country’s national defense.
When viewed through a political lens, recent actions taken by the U.S. to cut off China from sourcing vital chip-related equipment could further escalate ongoing geopolitical tensions. For example, the co-founder of the Center for Innovating Future—Abishur Prakash—recently told CNBC, “with the latest action, the chasm between the U.S. and China has now expanded to the point of no return.”
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Sage Anderson is a pseudonym. He’s an experienced trader of equity derivatives and has managed volatility-based portfolios as a former prop trading firm employee. He’s not an employee of Luckbox, tastytrade or any affiliated companies. Readers can direct questions about this blog or other trading-related subjects, to support@luckboxmagazine.com.
