Huawei, a global technology giant, seems to have weathered its recent storms and is moving forward with renewed strength and optimism. This was the sentiment expressed by Ken Hu, Huawei’s rotating chair, in his New Year message as 2024 dawned. In 2023, despite ongoing challenges, Huawei has shown remarkable resilience, expecting to report a revenue of about $98 billion, a significant increase from the previous year. This achievement reflects Huawei’s persistent efforts and strategic focus on long-term, steady growth.

Huawei is boosting the app development for HarmonyOS too

Huawei’s journey has not been easy, especially given the sanctions imposed by the US. However, the company has managed to maintain its momentum, particularly in the realms of devices, cloud computing, and ICT infrastructure. This progress underscores Huawei’s ability to adapt and innovate in a rapidly evolving tech landscape.

A key area of Huawei’s future growth lies in aiding digital transformation across industries. With its carrier business, Huawei aims to support its customers more effectively, enhancing data traffic, introducing new services, and evolving network capabilities.

The devices segment of Huawei also made headlines in 2023, particularly with the launch of handsets rumoured to have 5G-like features. This buzz underlines the company’s commitment to technological advancement. Additionally, Huawei plans to boost the development of apps for its HarmonyOS through strategic collaborations, signaling a move towards creating a more integrated ecosystem.

Huawei’s cloud business, termed as the company’s digital backbone, is another focal point. This emphasis on cloud computing reflects a broader industry trend where cloud services play a pivotal role in digital transformation. Ken Hu acknowledges the past challenges but emphasizes the importance of staying grounded. His words suggest that for Huawei, the path forward is about steady progress and not getting swayed by either pressures or praises. For Huawei, the future seems to be about balancing resilience with innovation, ensuring steady progress even amidst global challenges.

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Beijing-based Moore Threads Intelligent Technology, a graphics processing unit (GPU) start-up, recently unveiled a cutting-edge GPU-based computing center, despite facing significant challenges due to US sanctions. Moore Threads, which specializes in designing GPUs tailored for AI training, announced its new GPU that will be central to the KUAE Intelligent Computing Centre. This center aims to cater to China’s burgeoning demand for training large language models, a crucial component in the AI sector. This initiative reflects a push towards technological self-reliance, a significant theme in the current era of tech competition.

Moore Threads also went through a round of layoffs to restrategize resources

The US sanctions have indeed impacted Moore Threads, limiting its access to necessary manufacturing and software resources. These restrictions are part of the US’s broader strategy to maintain its technological edge, especially in sensitive areas like AI and chip manufacturing. Despite these hurdles, Moore Threads has shown remarkable agility. After a round of layoffs, the company has refocused its resources on advancing its GPU development, a move that mirrors the challenges and resilience shown by Huawei Technologies under similar pressures.

The significance of Moore Threads’ new GPU and computing center extends beyond the company. It’s a part of China’s larger endeavor for chip self-sufficiency, a priority given the current global chip shortage and geopolitical tensions. The company’s successful funding rounds, totaling over US$525 million, underscore investor confidence in this vision.

Moreover, the KUAE computing facility’s compatibility with Nvidia’s CUDA platform suggests a strategic approach to ensure interoperability with existing technologies. This compatibility is crucial, considering Nvidia’s dominance in the GPU market and recent US export controls limiting Nvidia’s chip sales to Chinese companies.

Companies like Moore Threads are not just navigating a challenging business environment; they are actively reshaping it. Their efforts to innovate under pressure reflect a broader narrative in the tech world, where adversity often breeds ingenuity and resilience. As the global tech landscape continues to evolve, the story of Moore Threads serves as a compelling example of how companies can adapt, innovate, and thrive even under challenging circumstances.

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US sanctions on semiconductor exports to China have minimal effect on the industry as companies are creating different variants of microchips, especially for the Chinese market. 

As part of a deliberate effort to stifle China’s domestic semiconductor industry, the US has been gradually limiting the access of Chinese companies to advanced chipmaking technologies. The sanctions bar US companies like Nvidia Corp and Advanced Micro Devices Inc from exporting the latest chips to China.

However, Nvidia Corp and other technology giants facing strict US sanctions have managed to overcome the restrictions by producing customized versions of their chips exclusively for the Chinese market. 

According to a Reuters report, these chips are not cutting-edge and may take 10% to 30% longer to perform certain AI tasks, potentially doubling the costs compared to Nvidia’s top-performing chips in the US. Despite the reduced speed of Nvidia’s chips designed for the Chinese market, they still provide a significant upgrade for Chinese companies. 

Nvidia is currently providing its H800 chips to some of the biggest technology companies in China, such as Tencent, Alibaba Group Holding Ltd, and Baidu Inc, for their use. Nvidia has stated that the U.S. government’s intention is not to damage competition or American industry and that U.S. firms are permitted to offer products for commercial purposes, such as providing cloud services to consumers.

What are the major US Sanctions?

The US has implemented two types of sanctions on semiconductors. Firstly, they have imposed a limit on a chip’s ability to perform exceptionally accurate calculations, with the intention of curbing the creation of military-focused supercomputers. Secondly, there is a constraint on chip-to-chip transfer speeds, which has an impact on artificial intelligence. For instance, technologies like ChatGPT rely on models that are too vast to be contained on a single chip, necessitating distribution across thousands of chips that need to intercommunicate.

The US announced controls on technologies for making advanced chips, including 14-nanometer, 16-nanometer, and even shorter-length chips, in an effort to limit China’s progress in fields such as artificial intelligence, quantum computing, and ballistic missile development. Despite these efforts, there are indications that China may have already made significant strides in producing chips smaller than 14 nm. For instance, Semiconductor Manufacturing International Corp. (SMIC), China’s biggest contract chip manufacturer, claimed to have successfully produced 7 nm chips last year, though questions remain about the sustainability of this production.

China’s Semiconductor Industry

China’s current semiconductor capabilities are not on par with those of countries like Taiwan, the Netherlands, or the US. However, since the launch of the Made in China 2025 initiative Chinese companies have made progress in different aspects of the semiconductor industry

China’s semiconductor industry comprises a diverse range of companies, including fabless semiconductor firms such as ZhaoXin, UNISOC, and HiSilicon, as well as integrated device manufacturers like Yangtze Memory Technology Corp and ChangXin Memory Technologies.

With almost one-third of the global sales, China currently holds the position of the world’s largest semiconductor market. The semiconductor industry is a significant contributor to China’s technology sector, which comprises around 30% of its GDP. 

According to Cade Daniel, a software engineer at San Francisco-based start-up Anyscale, the industry had anticipated that AI models would continue to grow in size two years ago. If that were still the case, the current export restrictions would have had a much greater effect. However today, while the restrictions are noticeable, they are not as catastrophic as they could have been.

Moreover, the process of chipmaking involves the synchronization of numerous disparate resources and sophisticated technologies, including raw silicon ingots, rare earth metals, and more which cannot be easily achieved by any country. 

However, China has a three-decade headstart in developing its collection of skilled chip engineers, rare earth metals, and numerous domestic suppliers. Thus despite being behind the global leaders in semiconductor technology, China has the ability to bounce back from the restrictions and compete with global leaders in the near future. 

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China is planning to roll out early-stage 6G technology in the mainland. The technical research and launch for 6G technology will be conducted by China Unicom, the third-largest wireless network operator in the country. The company expects to launch introductory early applications by 2025 and plans to roll out complete 6G mobile technology by 2030. 

China Unicom Chairman and Chief Executive Liu Liehong said that the early 6G application scenarios will be introduced by 2025 in China, which is home to the world’s largest internet user population and biggest smartphone market. This announcement from China Unicom comes right after last week’s Global 6G Conference wherein experts came to a consensus that the 6G technology will be rolled out in China by 2030. 

China’s contribution to the global telecommunications industry is crucial and influential, thanks to its extensive range of application scenarios and the largest user base in the world. Numerous global enterprises are actively engaged in the Chinese market, recognizing its significance in promoting telecom development.

Chinese telecommunications companies are at the forefront of various sectors within the industry, including 5G, 6G, and fixed-line telecommunications. They are collaborating with international institutions to establish industry standards, which helps to mitigate future uncertainties. For instance, China Mobile has published 31 white papers and 60 high-quality papers on 6G, ranking first among global telecom operators. Also China Mobile, China Telecom, and China Unicom, the three major telecom network operators in China, have already begun researching and developing 6G technology for the country.

China has the largest market in crucial fields of the telecom industry, from internet construction to key equipment, with leading companies like Huawei and ZTE. However, the country is facing major challenges in the field of technology due to the pandemic and the ongoing US-China tech war. 

But if we look at China’s past history, the country has achieved tremendous technological advancements, especially in the field of telecommunications. China has successfully constructed the world’s largest 5G mobile network and there are more than 2.31 million 5G base stations installed throughout the country. And with government support, Chinese telecom companies are likely to repeat the feat with 6G technology.

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The United States is planning to limit the number of advanced chips made by South Korean companies in China. This move will likely affect South Korean tech giants like Samsung and SK Hynix who have significant investments in China.

According to a Reuters report, The United States Commerce Department undersecretary for Industry and Security, Alan Estevez said that Washington will likely add a cap to the number of chips that South Korean companies can make in China. Estevez who supervises the Chinese trade restrictions made this comment during an event hosted by the Center for Strategic and International Studies, in Washington. 

South Korea’s Investment in Semiconductor Foundries in China:

South Korea is a world leader in memory chip production with a total market value of $70 billion. The South Korean semiconductor economy is mainly driven by two of the world’s largest semiconductor producers, Samsung Electronics and SK Hynix who have invested billions of dollars in key manufacturing facilities in China.

Samsung Electronics has two main production facilities in China, one for NAND (flash memory) which is located in Xi’an, and another for DRAM ( Dynamic Random Access Memory) which is located in Suzhou. Apart from these facilities, Samsung has also established three advanced R&D centers in China, which is more than it has in its home country. The Samsung Xi’an factory accounts for 42.5% of its total NAND production and 15.3% of its global capacity. It is also the tech giant’s largest overseas investment with an initial expenditure of $7 billion for the production facility. 

When it comes to SK Hynix, though the company has no R&D centers in China, it has built its DRAM and NAND memory chip production facilities in Wuxi, Chongqing, and Dalian. The factory at Wuxi produces more than 40% of the company’s DRAM chips.  Apart from these two tech companies, there are many other South Korean fabless semiconductor firms and startups that have established their base in China. 

Why is South Korea in a Dilemma?

Right now, China is the largest market for South Korean semiconductor companies. According to data from the Korea International Trade Association, mainland China and Hong Kong account for about 60% of the country’s semiconductor exports. However, the ongoing US-China trade war has put South Korea in a difficult position. 

If a chip production cap is put on South Korean companies in China, then the companies will face severe losses and the South Korean economy will take a downturn. South Korea’s Minister of Industry said that to date there have been no official discussions between South Korea and the United States for setting a limit on the technology and production levels. 

He further added that both South Korea and the US have agreed to not let the sanctions and policies affect the current and future investments of Korean companies in China. Last year in October, both Samsung Electronics and SK Hynix received a one-year reprieve from US export restrictions. The country is now planning to enter into a discussion with the US to extend the reprieve. 

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ASML has reported that an employee from China stole data on Lithography System Details from its chip machine depository. The employee who worked in ASML’s China-based company allegedly stole data from a repository that stores the company’s technical information. 

ASML has not elaborated on the nature of the theft nor the importance of the stolen data. However, sources report that the breach occurred in the facility that also had the data for the advanced EUV Lithography machines. The lithography machines are one of the hottest items of the decade as they create the chips used in almost everything from smart computing, home devices, EVs, and Communication devices to military weapons and spaceships. 

Dutch Trade Minister Liesje Schreinemacher called the incident economic espionage and said the investigation was underway and they were waiting for the results. 

ASML Holdings is a Dutch multinational corporation that specializes in the development and manufacturing of photolithography machines, used to produce computer chips. As of 2022, it is the largest supplier of the semiconductor industry and the only company in the world that makes and supplies extreme ultraviolet lithography (EUV) photolithography machines used to manufacture the most advanced chips. 

ASML is one of the highest-valued European Tech companies in the world and a key player in the ongoing US-China Tech War. The technology war that started in 2018 when the Trump administration banned Huawei and ZTE equipment is now escalated with the ban on exports of semiconductors to China. The US sanctions prohibit exports of semiconductors, chip manufacturing machines, technical know-how, and personnel to Chinese companies. The Biden administration successfully roped in allies like Japan and Netherlands to also impose these sanctions on China.

US and China are trying to outrun each other in a global technology race and companies like ASML are stuck in the middle of their fight. The Dutch company has already been a target of multiple thefts and data breaches. Last year ASML accused a Beijing-based firm of stealing important data back in 2015. It has also claimed that a company named Dongfang Jingyuan Electron has obtained sensitive technology and transferred it to China. A couple of months back, a male employee was also accused of stealing non-sensitive technical information. 

According to the SCMP report, the most recent attack was on a product life cycle management program known as Teamcenter which stores technical information on product development made by different teams. Teamcenter is a software supplied by Siemens that is used by ASML employees. 

Both ASML and Siemens have declined to comment on the incident. It is still not clear, how the employee stole the data from Teamcenter and whether or not he has any connections with the Chinese government or military. However, the latest data theft has escalated the trade war. The US and its allies are labeling the incident as espionage and have involved top-level diplomats in the investigation. 

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Semiconductor Manufacturing International Corporation (SMIC) the largest chipmaker in China recently released its unaudited financial report for the fourth quarter of 2022. 

As per the report, SMIC revenue for 2022 crossed $7.2 billion, which is a 34% increase YoY. The gross margin increased to a record high of 38%. The company has reported an annual growth rate of more than 30% for two consecutive years, 2021 and 2022. The company said that mobile phone wafers accounted for 27% of its total wafer revenue and by the end of 2022, it was able to increase its monthly capacity for 8-inch wafers to 714 thousand units and an annual capacity utilization rate of 92%.

Despite the crushing sanctions by the US on China’s semiconductor industry and a downward economy, the company was able to create record sales in 2022. However, the management has predicted a bleak future as the semiconductor industry cycle is still at the bottom and there are too many complex external factors including the ongoing US-China tech war that can adversely affect the semiconductor industry. 

For the first quarter of 2023, the company is expecting a steady decline of 10% to 12% in revenue. The gross margin projection stands at 19% to 21% which is almost 19% lower than the previous year. Annual revenue for 2023 is expected to decline by a low-teens percentage year-over-year, and the gross margin is expected to be around 20%.

What is the Future of SMIC?

SMIC and its subsidiaries are one of the leading semiconductor foundries in the world and are the front-runners in manufacturing capability, scale, and comprehensive services in China. The company provides semiconductor foundry and technology services to global customers on 0.35 micron to FinFET process node technologies.

SMIC is currently in the expansion phase and is making continuous high investments to increase its production capacity. The company’s capital expenditure stood at $6.35 billion in 2022. By the end of the year, the company had started production in its Shenzhen plant and had entered into a pilot production phase in the the Jingcheng factory. SMIC has already completed the construction of the main fab shell at the Liangang plant and has started the construction work for the new factory at Xiqing. 

US-China Tech War: Its effects on SMIC

The mass production at SMIC Jingcheng is postponed by a couple of quarters due to a delay in getting bottleneck equipment. Though the company has not stated the reason for the delay, experts speculate that the ongoing US sanctions have made it difficult for the company to acquire important semiconductor manufacturing machines. 

In 2020, the US added SMIC and other Chinese semiconductor companies to its Entity List, which is basically a US trade blacklist. From 2020 to date, Washington is trying to desperately stop China’s advancement in the semiconductor industry as it fears that the Asian tech giant would become a global leader in fields like Artificial Intelligence, military, and quantum computing. The Biden administration, not only stopped US companies from exporting technology, equipment, personnel, and ancillary services to China’s semiconductor companies, but also roped in allies like Japan and Netherlands to boycott the Chinese chipmakers. 

China is the world’s largest semiconductor market and accounts for almost one-third of global sales. The semiconductor industry plays a vital role in the country’s technology sector and accounts for almost 30% of the GDP.  However, the country is not self-sufficient in this field, as it is heavily dependent on foreign nations for advanced technology and equipment. 

Though SMIC competes with global leaders like TSMC Taiwan and Samsung of South Korea, it is still generations behind when it comes to technology. SMIC is now working on research and development and expansion of its factories to overtake its competitors. The company has invested $197.5 million in just the fourth quarter of 2022 in research and has reported a 14.7 % YoY increase in R&D expenditure. 

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In a recent report, the Semiconductor Industry Association (SIA) announced that the global semiconductor sales for 2022 stand at $573.5 billion, showing a 3.2% increase from last year. China still holds the number one position in the semiconductor market which accounts for one-third of the global revenue. This is also the highest global sales ever reported by the industry, despite the ongoing US-China tech war and economic downturn.

SIA President and CEO, John Neuffer, said that the global semiconductor market experienced significant ups and downs in 2022, with record-high sales early in the year followed by a cyclical downturn taking hold later in the year.  

He further added that despite short-term fluctuations in sales due to market cyclicality and macroeconomic conditions, the long-term outlook for the semiconductor market remains incredibly strong, due to the ever-increasing role of chips in making the world smarter, more efficient, and better connected.

Why are semiconductors important?

Semiconductors are one of the most important technology items of the era. . All the major technology sectors, like wired communication, consumer electronics, industrial electronics, automotive electronics, wireless communication, and computing and data storage, require semiconductors. Advancement in artificial intelligence, military and weapons systems, space technology, and more is not possible without having the latest and cutting-edge semiconductor tech.

Semiconductors are divided on the basis of circuit design and function. As per the integrated circuitry, the semiconductors can be classified as digital, analog, and mixed and as per functionality they are classified as memory chips, microprocessors, standard chips, and complex systems-on-a-chip (SoCs). 

In 2022, microprocessors generated the highest revenue of $176 billion followed by memory chips which reported sales of $130 billion.  The biggest revenue jump was seen in analog chips used in automobiles, computers, and other consumer goods. Analog chips reported $89 billion in revenue, a 7.5% increase in 2022. 

China’s Semiconductor Industry:

China the world’s largest semiconductor market accounted for almost one-third of the global sales. The Chinese semiconductor industry plays a major role in the technology sector of the country, which accounts for almost 30% of its GDP. The semiconductor industry includes a wide variety of companies, from integrated device manufacturers to pure-play foundries, fabless semiconductor companies, and OSAT companies.

Currently, China’s semiconductor industry includes a wide variety of companies from Fabless semiconductor firms like ZhaoXin, UNISOC, and HiSilocon to IDMs (Integrated Device Manufacturers) like Yangtze Memory Technology Corp and ChangXin memory Technologies.

China which aims to become the global leader in artificial intelligence and quantum computing needs an uninterrupted supply of semiconductors to achieve this target. However, the country is facing huge pressure under the US sanctions on the semiconductor export to China. 

Last year US introduced increased restrictions on semiconductor exports to China to stop its advancement in AI and disrupt its progress in chip making. These restrictions stopped US companies and some of its allies like the Netherlands and Japan from providing machines, tools, personnel, and technical know-how to Chinese companies.

The sanctions and additional restrictions on China have made a global impact as, despite the increase in total sales, the second half of 2022 reported a gradual decrease in revenue.  The fourth-quarter sales of $130.2 billion were 14.7% less than in the same period in 2021 and 7.7% lower than in the third quarter of 2022. Global sales for the month of December 2022 were $43.4 billion, a decrease of 4.4% compared to November 2022. 

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South Korea faces a geo-political dilemma as it is pressured by the US to curb its semiconductor exports to China. 

China is the world’s largest semiconductor market and South Korea’s largest trade partner. However as the US increased the pressure on the Chip War, South Korea lost almost 50% of its revenue from sales to China.   

China is the most important customer of South Korean semiconductor companies.  In 2021,  approximately $50 billion in semiconductor revenue came from China. This accounts for more than 39%  of South Korea’s semiconductor exports.

However, under the growing restrictions from the US, South Korea reported a 16.6% YoY loss in its total exports. The semiconductor revenue, which is the top most exported item of the country fell by 44.5%. 

In 2022 even though the total exports in Korea grew by 6.1 %  shipments to China, the country’s main trade partner, declined by 4.4 %. Prices of core semiconductor components like DRAM, NAND, and memory chips plunged as demand weakened and backlogs piled up, which heavily damaged the industry. 

South Korean semiconductor companies like Samsung and SK Hynix stand to lose more in this war, as they not only face a major drop in their export revenue but also a reduction of output in their Chinese factories. These companies import various materials, technology, and equipment into China to produce the chips, more than 50% of which are then sold to Chinese customers. 

With the newly imposed semiconductor export sanctions, these South Korean firms won’t be able to import anything needed for chip manufacturing into China, which will lead to a reduction in output and loss of business. 

Seoul has so far abstained from taking a firm stance in the US-China tech war. The semiconductor battle which started with the US Chips and Science Act has led to global sanctions on exports of chips to China. Countries like Japan, Netherlands, Taiwan, etc have already joined the US and expanded their sanctions. 

Now the pressure is on South Korea to follow suit. The South Korean Ministry said that the ban was a burden that they could not avoid. Even though South Korea would lose its biggest trading partner, it still may have to go with the US as America holds patents to some of the key technologies used by Korean companies. 

South Korea now faces the biggest decision of whether to choose the US technologies or the Chinese market. However given the geopolitical tensions with North Korea, Seoul cannot afford to lose the US which is its principal military ally. 

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Last week Japan and Netherlands decided to join the US and agreed to abide by the additional sanctions on semiconductor export to China. 

However, Semiconductor Equipments and Material International (SEMI), an industry association that includes the world’s top semiconductor designing, manufacturing, and selling companies, stated that the curbs laid on China were not strict enough.

According to SEMI, if US allies like Japan and Netherlands did not levy tougher curbs, then the sanctions would be ineffective.  The industry group has openly sided with the US in the US-China Tech war and said that it had a vested interest in the US and welcomed the additional sanction agreement on China. 

Though the exact details of the agreement are undisclosed, SEMI believes that China will keep on growing in the semiconductor industry unless the allies come together and agree to wider control and restrictions on Chinese fabrication facilities.

Semiconductor Fabrication facilities or fabs are factories that make integrated circuits. Semi said that as long as Chinese fabs are running, the country has a strong chance to manufacture advanced chips. It further added that allies need to restrict their engineers and others from supporting China’s high-end fabs.

The current sanctions levied by the Biden administration ban the export of semiconductor manufacturing equipment, technology, and personnel to China. American nationals are not allowed to partner with or work at Chinese semiconductor companies. 

Japan and Netherlands have agreed to restrictions on semiconductor export to China. Essentially, these two countries have agreed not to export advanced chip-making equipment and cutting-edge technology to China. However, older technologies and equipment are still exported to China. 

China is the largest semiconductor market in the world and aims to be a global leader in advanced technology and Artificial Intelligence. With its current technology, China can make chips that can be used in low to mid-level industries like washing machines, air conditioners, automobiles, and smart home appliances. However, it still relies on the US and its allies to make advanced chips used in weaponry, Artificial Intelligence, and Cloud computing. 

Though Japan and Netherlands have agreed to additional restrictions on China, the allies are not in favor of a complete ban as it will adversely affect their economies which are largely dependent on technology exports to countries like China. 

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The US-China tech war is getting interesting with the US, Japan, and Netherlands engaging in diplomatic talks to increase the sanctions on semiconductor exports to China. The US is pressurizing Japan and Netherlands to increase the already long list of sanctions and practically ban any export of machinery, technology, personnel, and technical know-how to the Asian giant, which is the largest consumer of semiconductors in the world. 

The existing sanctions have already affected the global semiconductor industry, especially major suppliers like ASML Holdings of the Netherlands and Tokyo Electron of Japan. 

ASML CEO, Peter Wennink said that if we keep on increasing the sanctions, China will eventually learn how to produce its own chips. It is just a matter of time before they learn how to make semiconductor manufacturing equipment and become completely self-reliant. 

He further added that “The more you put them under pressure, the more likely it is that they will double up their efforts.” 

China’s History of Self-Reliance

A quick peek into history will show you that China is capable of going completely independent. China’s space program, high-speed railway, communication, 5G technology, and automotive industry all bear witness to the country’s capacity to grow and become self-reliant. Recently, Goldman Sachs economist also predicted that China’s GDP will surpass the US in 2035. All of these indicate that the country has the ability to go solo and may have already started the process. 

In December,  Reuters reported that China was already preparing a $143 billion package for its semiconductor industry, to enable local entrepreneurs and companies and counter the US curbs. 

Last year Shanghai-based firms also achieved the milestone of mass-producing semiconductors with a 14nm process and made breakthroughs in 90-nm lithography machines, 5-nm etching machines, 12-inch large silicon wafers, central processing units, and 5G chips. China’s Semiconductor Manufacturing International Corp has also started exploring sub-10nm manufacturing techniques.

China’s Semiconductor Industry

Semiconductors are one of the hottest technology items of this decade. All the major technology sectors, like wired communication, consumer electronics, industrial electronics, automotive electronics, wireless communication, and computing and data storage, require semiconductors. 

China, which aims to become the global leader in artificial intelligence and quantum computing, needs an uninterrupted supply of semiconductors to achieve this goal. However, the pandemic restrictions and the ongoing US sanctions have unveiled the loopholes in China’s supply chain, further strengthening Beijing’s belief that autonomy in the semiconductor industry is the only way to achieve global dominance.  

Currently, China’s semiconductor industry includes a wide variety of companies from Fabless semiconductor firms like ZhaoXin, UNISOC, and HiSilicon to IDMs (Integrated Device Manufacturers) like Yangtze Memory Technology Corp and ChangXin memory Technologies.

However, even though these companies can design semiconductors, they lack the technology and capacity to mass produce them, especially the cutting-edge chips required for Artificial Intelligence and other advanced technology. 

For instance, China like every other country relies on ASML to supply the complex EUV (Extreme Ultraviolet Lithography) machine, required to create advanced semiconductors. EUV is used to mass produce the most advanced microchips (7 nm, 5 nm, and 3 nm nodes). 

Under the current sanctions, ASML is not allowed to sell the EUV or share related technology, material, or personnel with any Chinese company. However, the country circumvented this issue by using the DUV lithography system, which is still imported. 

Impact of the Additional Sanction

Now, US wants the Japanese and Dutch government to further widen their sanctions. Talks are going on to ban the exports of DUV lithography machines and related technology. If approved, these sanctions may cripple China in the short term but will actually have a worse effect on Dutch and Japanese companies as they stand to lose more than China in this bargain. 

Tokyo Electron, one of the largest semiconductor companies in Japan, gets around 25% of its revenue from exports to China. ASML has 14% of its revenue and 15% of order backlogs from China. Any additional sanctions will adversely affect the business of these two major semiconductor suppliers. 

If approved, the new sanctions will help US to stop the technological and economical advancement of China. In the short term, it is going to be very difficult for China to sustain and develop its semiconductor industry under the mounting pressure of sanctions. However, if we look at Beijing’s track record, then we can presume that the country will fight back and may even change the whole semantics of the global semiconductor industry in the coming years.

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Europe’s largest semiconductor equipment manufacturer ASML Holding N.V. said that the company expected to continue exports to China at the same level as it did in 2022, despite the building pressure from the US to increase export sanctions on the country.

The company is expecting to earn around 2.2 billion Euro from China sales in 2023 and hopes that the ongoing diplomatic talks between US, Japan, and Netherlands did not end in any more sanctions against China, which can jeopardize the whole semiconductor industry. 

The Dutch company plays a vital role in the semiconductor industry as nobody else in the world can make the complex EUV (Extreme Ultraviolet Lithography) machine,  required to create advanced semiconductors. All major chipmakers like TSMC, Samsung, and Intel depend on ASML for their lithography machines. 

In an interview with Financial Times, ASML CEO Peter Wennik said that he hoped the Dutch Government would choose sensible sanctions which would not affect the key industries that are completely dependent on semiconductors. He further added that the geo-political bifurcations and increasing trade restrictions could create more friction in the industry which can lead to an increase in the pricing or worse, a reduction in the availability of chips. 

The semiconductor or chip is one of the hottest technological device of the decade as it is a crucial component found in almost all electronic devices that make modern living possible. Semiconductors are needed in almost all sectors of modern life like communication, health, smart living, military, medicine, computing, clean energy, transportation, infrastructure, and more. 

China is the world’s biggest semiconductor consumer and accounts for 15% of the backlog orders of ASML. Last year US introduced increased restrictions on semiconductor exports to China to stop its advancement in AI and disrupt its progress in chip making.  

These restrictions stopped ASML from providing machines, tools, personnel, and technical know-how to Chinese companies. At first, the company thought that this would affect its business drastically. However, CEO Wennik said that the actual impact of trade restrictions was not as bad as they thought, as the Chinese customers decided to make older chips using ASML products that did not fall under the purview of sanctions. 

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After months of speculation and dialogue, it seems that Japan and Netherlands are going to join hands with the US, to stop the export of semiconductor technology to China. Japan and Netherlands are the major suppliers of semiconductor manufacturing equipment. 

Though the US has the biggest group of Integrated Device Manufacturers (IDM) for semiconductors, Japan’s Advantest (a leading manufacturer of automatic test equipment (ATE) for the semiconductor industry), Tokyo Electron, Haribo, Hitachi, Kokusai, and Netherlands ASML (a leading supplier to the semiconductor industry that provides chipmakers with hardware, software, and services to mass produce the patterns of integrated circuits) are also major players in this sector. 

To establish the most advanced semiconductor production lines, China needs support from top US firms like Applied Materials Inc., Lam Research Corp., and KLA Corp. However, with the current US sanctions, which not only limit exports of American-made machinery but also restrict US citizens from working with Chinese chipmakers, it is difficult for the country to produce top quality semiconductors.  If Japan and Netherlands also add sanctions on China, then it will break the countries’ hope to achieve global domination in technology. 

Akira Amari, a Japanese Politician of the LDP and the man behind the rise of the Japanese semiconductor industry, said to Bloomberg News that his country must join the US in containing China’s chip ambitions, warning that Beijing is part of a group of nations seeking global hegemony and hence must be curbed. Amari further added that any sanctions need to be carefully calibrated to avoid a complete decoupling that risks global economic stability. 

Though the Japanese and Dutch Governments won’t go as far as the US with their sanctions, Beijing will find itself in a difficult spot with any more additional restrictions from these two countries. If the US, Japan, and the Netherlands act together, China will have no access to the technology or equipment to build advanced semiconductors. 

Semiconductors are one of the hottest technology items of this decade. All the major technology sectors, like wired communication, consumer electronics, industrial electronics, automotive electronics, wireless communication, and computing and data storage, require semiconductors. 

China which aims to become the global leader in artificial intelligence and quantum computing needs an uninterrupted supply of semiconductors to achieve this goal. However, the pandemic restrictions and the ongoing US sanctions have unveiled the loopholes in China’s supply chain, further strengthening Beijing’s belief that autonomy in the semiconductor industry is the only way for China to become the global tech leader. 

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With China aggressively expanding in various fields like artificial intelligence, 5G networking, semiconductors, and more, it appears that the nation will be overtaking the US in 21st century technologies within just a decade.

The news arrives from a recent report from Harvard, which is titled “The Great Rivalry: China vs the US in the 21st Century” that was published by the the Belfer Centre for Science and International Affairs at the Harvard Kennedy School in Cambridge, Massachusetts. The report adds that “China’s rapid rise to challenge US dominance of technology’s commanding heights has captured America’s attention.” It further adds that in some areas China “has already become No 1. In others, on current trajectories, it will overtake the US within the next decade.”

This report further emphasizes on the very real possibility of China replacing the US to become the world’s top economic and technological power, which Reuters labeled as a Sputnik moment of this generation. As of right now, the Asian country has already dethroned America to become the world’s top high tech manufacturer. The nation had produced over 250 million computers, 25 million cars, and a whopping 1.5 billion smartphones in 2020 alone, as per the Harvard report.

Back in October, US intelligence officials had even warned American tech firm about working with their Chinese counterparts (and by that extension the country as well), especially in the fields of I, quantum computing, bioscience, semiconductors and autonomous systems. The report states that “China is catching up and, in some cases, has already overtaken America. Unlike prior technological revolutions that took place when the nation was still a poor country, China’s meteoric rise has provided it with the funds and manpower to potentially lead this field.”

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ASML CEO believes that the attempt to control the export of chips to China will not work. The executive said that this would not only fail to hinder the region’s technological progress but also end up hurting the US economy as well.

According to a Bloomberg report, Peter Wennink, the CEO of ASML Holding believes that trying to control chip export to the region will be detrimental to the US. This move arrives amid growing trade tensions between the US and China, which had also led to restrictions on the sale of the Dutch company’s advanced equipment to Chinese firms. The senior official said that “I believe that export controls are not the right way to manage your economic risks if you have determined that there is an economic risk,” during an online event.

The executive further argued that “you close China from access to technology, that will also cost non-Chinese economies a lot of jobs and a lot of income.” Wennink believes that while it may take China a while to build its own semiconductor equipment and technology due to lack of access to foreign technology, non China based firms will be barred from one of the world’s largest chip markets.

In other words, this would harm even US based companies that trade with China. The CEO also stated that ending ties with China completely could probably cost anywhere between 80 billion to 100 billion US Dollars in sales. Furthermore, it could also affect 125,000 jobs in the US as well, as per estimates from the US Commerce Department.

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Even though the United States continues to crackdown on Huawei and trying to cut it off from its vendors, the U.S. Commerce Department has announced that it will allow American companies to work with Huawei to set standards for the 5G networks.

With this rule change, the companies can disclose U.S. technologies to the Chinese giant without the need for a license but only if the purpose is of 5G standards development. For those who are unaware, Huawei was put on Entity List by the United States last year and now requires any American company doing business with the Chinese company to obtain a license from the government.

The announcement from the Commerce Department says that the amendment is meant to ensure that Huawei’s placement on the entity list “does not prevent American companies from contributing to important standards-developing activities despite Huawei’s pervasive participation in standards-development organizations.”

The change in rule follows the U.S. government’s order last month to clamp down on Huawei’s semiconductor supply. It now requires companies to get an export license to sell to the Chinese giant.

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Although Huawei has not been able to get permission for the 5G infrastructure development in countries like Canada, Australia, and New Zealand, the company has emerged as one of the leading in 5G development.

Huawei is currently ranked first in the world in contribution to 5G standards development, having 3,147 related patents filed as of January 2020. Following Huawei is Samsung, ZTE, and LG Electronics.

Meanwhile, Huawei became the world’s largest smartphone maker in the month of April 2020, surpassing Samsung for the first time. This is quite impressive given that the development comes despite the company has been banned by the United States.

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China’s top chipmaker, SMIC (Semiconductor Manufacturing International), plans to raise 20 billion Yuan or roughly 2.8 billion US Dollars in Shanghai’s Star Market. The move arrives after the US attempts to hamper the growth of its rival tech companies.

Previously, SMIC had withdrawn its American depositary receipts or ADRs from the New York stock exchange back in 2019. Now, the company is planning on using the large proceedings raised for the Star Market to develop its latest 12 inch SN1 chip and bump its capital. For those unaware, the Star Market is China’s response to America’s Nasdaq, which was the birthplace of many tech giants.

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According to Zhou Ling, a fund manager with Shanghai Shiva Investment, “The Star Market is now playing its role as a strategic fundraising platform to bolster the country’s own technology companies as the US-China relationship worsens.” SMIC is Mainland China’s largest semiconductor foundry and a key chipmaker, raising the large sum to support itself better against US sanctions that aim to prevent China’s rise in the tech industry.

The semiconductor based company previously received major funding of 2.25 billion US Dollars back in May through Chinese state investors to help fund the expansion of its facility in Shanghai. It plans on raising its 14nm wafers production capacity from 6,000 to 35,000. This sizeable growth led the US Commerce Department to take drastic actions to stifle such growth, with an example being the cutting off of supply for chips from TSMC to Huawei. So, US sanctions could potentially still hamper operations for SMIC, but only time will tell how the US-China tech wars play out.

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Charles Lieber, the head of Harvard’s Chemistry Department, has been arrested after the was found to have lied to the authorities regarding his involvement with China’s program to recruit foreign researchers.

The investigation against Lieber has uncovered an affidavit that contained his contract with the program, Thousand Talents, which offered him a monthly salary of $50,000 and annual living expenses of more than $150,000 over the course of three years. Furthermore, he had also been offered upwards of $1.5 million by the Chinese GOvernment and the Wuhan University of Technology (WUT) to conduct research at the university and setting up a lab.

Charles Leiber is a prominent figure in the scientific community and is one of the biggest names that the US authorities have ever arrested for stealing research for foreign nations. Till date, most cases of arrests have generally been in cases against scientist that are collaborating with China. Now, China’s Thousand Talents program which aims to acquire leading scientists that “can enhance China’s high-tech industries and emerging disciplines” has recently come under US authorities attention.

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Leiber is also a renowned professor at Harvard and a leader in nanoscience and nanotechnology related research. Allegedly, he signed an agreement with WUT to conduct research and development of nano-wired lithium-ion batteries for electric vehicles. This agreement was taken on Harvard University’s behalf which is out of Lieber’s authority. In other words, he undertook a deal in Harvard’s name and worked for a Chinese organization.

The affidavit also claims that Lieber misrepresented his work to Harvard and had lied to the Department of Defense and National Institutes of Health, which also fund Lieber’s research group at Harvard. This funding requires full disclosure regarding foreign collaborations that Lieber did not follow through on. Currently, Lieber is under paid administrative leave but is not allowed on campus grounds, for now.

“The charges brought by the U.S. government against Professor Lieber are extremely serious. Harvard is cooperating with federal authorities, including the National Institutes of Health, and is conducting its own review of the alleged misconduct,” according to a statement by Harvard. The implications of Lieber’s actions are severe as the tensions between the US and China are at an all-time high. The investigation is still underway to root out more violations and acts of misconduct.

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Huawei has sued the U.S. government over the recent FCC restrictions that further curbs what little business the company has left in the U.S. The lawsuit challenges a decision taken by the FCC that prohibits rural carriers in the country from using federal subsidies to purchase Huawei equipment.

This is the second such lawsuit from Huawei in the U.S. after it first challenged the ban on the sale of its products to federal agencies back in March. The latest lawsuit was filed in New Orleans against the FCC after it branded the company as a ‘national security threat’ and restricted the sale of Huawei equipment to rural U.S. carriers by blocking access to the Universal Service Fund (USF) for purchases from both Huawei and ZTE.

Huawei’s business with rural U.S. carriers is minimal in comparison to its massive 105 billion revenue posted in 2018. However, it says that such decisions create a stigma around the company which will affect its ability to grow its business globally. Branding a multinational company like Huawei as a national security threat would indeed affect its reputation around the world.

For example, prime minister Boris Johnson recently said that the UK could block Huawei from investing in its 5G networks. Even Japanese carriers have excluded Huawei from 5G deployment. But the company has already signed 50 5G contracts with carriers around the world. So, it’s very important that Huawei protects its reputation on a global scale.

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Huawei argues that the U.S. ban doesn’t provide any proof to support its claims of “backdoor access” or “national security threat”. Also, given how competitors like Nokia and Ericsson make a lot of their telecommunications equipment in China, the claim of China-made gear threatening U.S. security also applies to Huawei’s competitors.

“Both FCC chairman Ajit Pai and other FCC commissioners failed to present any evidence to prove their claim that Huawei constitutes a security threat, and ignored the facts and objections raised by Huawei and rural carriers after the FCC first made the proposal in March 2018,” said Huawei’s Chief Legal Officer Song Liuping at a press conference in Shenzhen that was live-streamed.

This lawsuit comes at a time when some companies like Microsoft were granted a special license to trade with Huawei. It remains to be seen whether this move from Huawei will have any effect on future license approvals from the U.S. commerce department.

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As expected, the U.S. government has extended Huawei’s temporary export license for another 90 days. This will be the third 90-day temporary extension granted to the Chinese telecommunications giant, ever since it was placed under the U.S. Entity list which barred U.S. companies from trading with Huawei.

Huawei’s last 90-day extension expired yesterday, so this announcement was timely. According to the Trump administration, the extension is granted to support the existing infrastructure built by Huawei in the U.S. For example, a number of rural carriers in the country are dependent on Huawei and ZTE’s telecommunications equipment. Replacing them immediately isn’t an option given that it could cost them nearly billions to suddenly shift to another equipment maker.

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“The Temporary General License extension will allow carriers to continue to service customers in some of the most remote areas of the United States who would otherwise be left in the dark,” said the U.S. Secretary of Commerce Wilbur Ross. “The Department will continue to rigorously monitor sensitive technology exports to ensure that our innovations are not harnessed by those who would threaten our national security.”

This 90-day reprieve also allows Google to support Huawei’s existing Android-based smartphones. However, this extension does not apply to new models, so smartphones like the Mate 30 Pro won’t still be able to run Google applications.

While Huawei’s international smartphone strategy is currently in a shambles, the company seems to be working hard with its HarmonyOS to find a workaround for Google Apps. Recently, Huawei’s Ling Hua revealed in an interview with CNBC that the company would announce its HarmonyOS strategy on November 20. He didn’t reveal what kind of strategy he was referring to but it could be anything from bringing HarmonyOS to smartphones to doubling down the focus on IoT products. You can read more about what he said about HarmonyOS and its future from this article.

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This week, U.S. and China officials are meeting to discuss the ongoing trade war. But two U.S. companies aren’t waiting around to see if these two superpowers make amends. Fitbit, as well as Tile (maker of the Bluetooth-enabled location tracker), have confirmed that they will be moving their manufacturing units out of China.

By January 2020, all of Fitbit’s manufacturing operations will be outside of China. The main reason for this shift is to avoid the heavy tariffs being subjected to the goods originating from China. This announcement comes well before the next round of tariffs that goes live from December 15 affecting an additional $300 billion worth of Chinese imports.

Duties on gadgets like smartwatches and Bluetooth trackers with low margins will seriously affect their competitiveness in the U.S. market. And considering how the relationship between the U.S. and China has been deteriorating recently, it makes sense why these companies would want to mitigate their risks.

Fitbit recently unveiled the Versa 2 smartwatch in the U.S. featuring an OLED display, NFC, Spotify, and Alexa for $199.

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Patents are one of the biggest assets for any technology company and last month, Huawei decided to retaliate to the US trade ban by demanding Verizon to pay over $1 billion in total as fees for over 230 patents. Now, two US senators want to block Huawei from buying or selling US patents by introducing a new bill in the country.

The WSJ reports that the bill essentially seeks to give power to the US federal government to stop companies listed on its trade blacklist from buying, selling, or exclusively licensing US patents. It would give the government the authority to step in any domestic case relating to patent infringement. Further, the bill will force the blacklisted company to notify the Justice Department as well as the Patent and Trademark office of such a case and provide details on the infringement, financial implications, and damages demanded.

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The bill is clearly aimed at Huawei who is currently in the government’s crosshairs. Naturally, the Chinese telecommunications giant is not happy with this bill. The WSJ report adds a statement from Andy Purdy, chief security officer for Huawei Technologies USA – “If (this bill is) adopted, it could have severe negative ramifications by creating global mistrust of the U.S. and its ability in upholding, as well as safeguarding intellectual property rights.”

While Trump’s comments from the G20 summit had eased some of the tensions between the US and China, there are still a lot of new developments worsening the situation. For example, US-based Cape, a cloud platform vendor for drone telepresence and data management, abruptly stopped support for the popular drone maker, DJI as well as other Chinese drone makers. On the other hand, a recent editorial for the state-run Globaltimes argues that China could anytime leverage its position in rare earth minerals to pressurize the US.

Overall, it looks like this trade war is far from over and we’ll see a lot more developments in the coming months.

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Tim Cook, CEO of Apple, one of the world’s largest technology company, is optimistic about the company not facing the heat amid the US-China trade war. He says that so far, Apple products have managed to escape the fallout from President Donald Trump’s escalating trade war with China, and he’s optimistic it will stay that way.

His remark comes after Beijing recently said that it would impose a 25 percent tariff on U.S. goods in retaliation for Trump’s plan to increase tariffs on goods imported from China. As per the analysts, the cost of iPhones could increase as much as 14 percent as a result, but that hasn’t happened yet, said Tim Cook.

In an interview with CBS News, Tim Cook said that “the Chinese have not targeted Apple at all, and I don’t anticipate that happening, to be honest.” However, he conceded that a tariff on the iPhone would hurt sales of the smartphone.

He added, “I’m hoping that doesn’t happen. The truth is, the iPhone is made everywhere. It’s made everywhere. And so, a tariff on the iPhone would hurt all of those countries, but the one that would be hurt the most is this one.”

The Chinese tariffs were announced in retaliation for Trump promising to increase tariffs from 10 percent to 25 percent on roughly $200 billion worth of imports from China. Many in the technology and telecom sectors have warned that this will hurt American consumers and businesses.

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The interview of Apple CEO Tim Cook comes on the hills of Worldwide Developers Conference (WWDC) in San Jose, California. During the keynote presentation, the company introduced several new features for iOS 13, a new Mac Pro, a new operating system for the iPad named iPadOS and more.

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While the on-going U.S.-China trade war is not directly impacting the smartphone market, the tensions are high and it’s hitting both the sides. Currently, the U.S. government is pushing hard to ban Chinese smartphones, including devices from Huawei.

At a time when Huawei is facing this issue, which is likely to hurt the company’s business, its business partners are siding with the Chinese technology giant. Menpad, a Shenzhen-based LCD display maker, which is also a supplier for Huawei, has comes up with a new policy to fine employees for buying Apple iPhones.

According to the reports, Menpad has asked its employees not to purchase iPhones and if they do, they will be fined the amount equivalent to its market price. It’s not yet clear how the company will charge the fine, but it could be deducted from their paychecks.

It doesn’t stop there. The company is also offering incentives for purchasing Huawei and ZTE‘s smartphones. The China-based company says that it will give 15 percent subsidy to the employees who buy devices from Huawei and ZTE.

In a show of nationalistic pride and support for Chinese companies, it also said that it will cease to buy any American products such as office equipment, computer, and cars. Further, it says to have doubled the sales commission to any employee who manages to sell its products to the United States.

In a statement, the company said: “If employees buy an iPhone for themselves, the company will impose a 100 percent penalty on the basis of the phone’s market price.” It added that the measures will be valid for three years, effective from December 7.

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The move comes after Huawei issued a public letter to its suppliers all over the globe, criticizing the US for “pressuring a company by all means” and calling for continued support from its suppliers. The letter was issued as Canada confirmed it had arrested Huawei CFO Meng Wanzhou at the request of the US.

(Source)

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