Seismic Shifts Underway in Global Semiconductor Market as U.S. Accelerates Decoupling from China

The U.S. might not hold the largest global share of semiconductor manufacturing, but it’s home to a number of critical semiconductor processing suppliers—namely, Applied Materials, KLA and Lam Research—and the export controls include services.

Most semiconductor fabrication facilities would be operating around the clock with a maintenance and service contract secured from these companies to address any faults or need for servicing in a timely manner to maximize operations and production. Service contracts are critical for most semiconductor fabrication facilities, and the restrictions introduced through the new export controls will severely affect both China’s semiconductor fabrication capabilities and, in the short term, U.S. semiconductor processing companies like Lam Research and Applied Materials for which service contracts are a regular source of income. Applied Materials has estimated that it will make a U.S.$400 million loss just from the announcement as U.S. semiconductor tech companies grapple with the changes to their customer base and the rapid exit of all their staff from China.

In 2020, the Boston Consulting Group estimated that U.S. companies could potentially lose 37 percent of their revenue if they were banned from selling to Chinese customers, which would affect the amount of investment in research and development and the availability of highly skilled jobs in the U.S. semiconductor industry.

The impacts of the U.S. export controls will go far beyond the sudden exit of traditional semiconductor companies from China. The semiconductor ecosystem is intertwined with other manufacturing sectors, such as companies that provide stainless-steel components, vacuum systems and parts (for example, U.S.-based Varian and Swagelok) or metrology tools such as microscopes. Every company working in this broader semiconductor ecosystem will be taking stock of the repercussions.

Perhaps the greatest impact will be felt in the global 3D NAND semiconductor manufacturing sector. The 3D NAND flash memory is a technology first unveiled in 2013 by Samsung Electronics, which introduced a method of scaling the memory size by stacking several 2D NAND planar layers to form nano skyscrapers. The U.S. controls apply to 3D NAND chips of 128 layers or more, which are fabricated through a high-precision process with more than 1,000 consecutive processing steps that require the continuous operation of a set of semiconductor processing workhorses.

The non-volatile memory industry has been revolutionized this year with the announcement first by Micron of a revolutionary 232-layer 3D NAND memory chip and then by SK Hynix of a 238-layer 4D NAND memory chip.

In August, China-based Yangtze Memory Technologies (YMTC), a newcomer to this field in 2018, threatened the oligopoly of the 3D NAND markets by announcing its own 232-layer 3D NAND product. YMTC is one of the companies expected to be severely impacted by the U.S. government’s restrictions.

U.S. companies like Micron will benefit from the export controls and the expected slowdown of YMTC’s rapid ascension in this competitive market. Shortly after the latest U.S. announcements, ASML, a Dutch state-of-the-art lithography company that has a monopoly on deep UV lithography systems, put a hold on all its exports to China. Under the U.S. ban, Applied Materials, KLA, Lam Research and ASML can no longer supply YMTC and other Chinese semiconductor companies. This will also mean that the processing and manufacturing equipment acquired from the U.S. companies can’t be serviced for smooth operation. Under the same restrictions, U.S.-based companies will be allowed to supply to semiconductor chip manufacturers like Samsung, SK Hynix and TSMC that have semiconductor fabrication facilities in China for one year.

It is not just businesses that are finding themselves at the pointy end of the decoupling. Universities are an important part of the R&D ecosystem for semiconductor research and there are currently close international collaborations between China and other countries in this area. The U.S. restrictions will change the semiconductor research collaboration landscape with China in a similar way to the effects U.S. export controls have had on research collaboration with Iran in recent years.

Jenny Wong-Leung is a data scientist with ASPI’s International Cyber Policy Center.This article is published courtesy of the Australian Strategic Policy Institute (ASPI).