New Export Rules Bludgeon Chip Equipment Stocks

Last Friday, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) updated its export policies in order to make it more difficult for chip makers and semiconductor equipment manufacturers to export their products to China.

China’s top chipmakers, including Semiconductor Manufacturing International, Hua Hong Semiconductor and Shanghai Fudan Microelectronics, posted trading losses Monday of 4.0%, 9.4% and 20.2%, respectively, according to the Financial Times.

U.S. chip makers also are seeing share prices drop, dragging the entire tech sector down with them. Marvell Technology Inc. (NASDAQ: MRVL) traded down about 3.6% shortly after Monday’s opening bell, and Advanced Micro Devices Inc. (NASDAQ: AMD) traded down about 2.6%. Qualcomm Inc. (NASDAQ: QCOM) and Nvidia Corp. (NASDAQ: NVDA) both traded down by about 1.7%.

Chip equipment makers Lam Research Corp. (NASDAQ: LRCX) and Applied Materials Inc. (NASDAQ: AMAT) traded down 6.2% and 3.8%, respectively, Monday morning.

The new BIS export controls are intended to “restrict the [China]’s ability to obtain advanced computing chips, develop and maintain supercomputers, and manufacture advanced semiconductors.” The rules also “make clear that foreign government actions that prevent BIS from making compliance determinations will impact a company’s access to U.S. technology through addition to the Entity List.”

In order to be allowed to export chips or chipmaking equipment to China, U.S. companies will have to get an export license, not easy to accomplish in the best of circumstances. The United States has even convinced non-U.S.-based companies like ASML Holding N.V. (NASDAQ: ASML) and Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM) to stop selling their most advanced technology to China-based firms.

After the U.S. government began its campaign against China’s Huawei, the Chinese networking giant that appeared to be certain to lead the transition to 5G networking lost its access to the most advanced U.S. chips, and U.S. companies and friendly governments were asked to eliminate Huawei devices from their networks. In the first six months of 2022, Huawei’s revenues fell by nearly half. In August, Huawei’s CEO said the company’s “aim is to survive.”

Among semiconductor equipment no longer to be made available are “Logic chips with non-planar transistor architectures (I.e., FinFET or GAAFET) of 16nm or 14nm, or below.” The newest chips use chip architectures that are less than half the size that would be authorized for export to China. ASML’s most advanced machines can manufacture 3nm devices, and Taiwan Semiconductor is expected to supply those chips for Apple’s 2023 iPads, high-end Macs and iPhones.

Andy Maynard, a trader at the China Renaissance financial advisory firm based in Beijing, told the Financial Times, “Washington is never going to back down on this.” Japan, South Korea and Taiwan are all observing holidays on Monday. When markets open Tuesday morning, the Chinese firms may take another beating.

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