Business Essentials for Professionals


After Huawei Mate 60 Pro, US Targeting China's Top Semiconductor Manufacturing Facility

After Huawei Mate 60 Pro, US Targeting China's Top Semiconductor Manufacturing Facility
According to a Reuters report quoting information from people familiar with the situation, the Biden administration is increasing pressure on China's leading sanctioned chipmaker by preventing more American imports into its most sophisticated factory, which created a sophisticated chip for Huawei's Mate 60 Pro phone.
Two people familiar with the matter, who asked to remain anonymous because they were not authorised to speak publicly about the matter, said that the Commerce Department suspended permission to sell to Semiconductor Manufacturing International Corp (SMIC) in numerous letters sent to American suppliers late last year.
According to one of the persons, the letters suspended shipments of parts and materials worth millions of dollars from at least one supplier, Entegris, for use in chip manufacturing, even though many businesses had already quit doing business with SMIC South, as the unit is known.
Reuters was unable to find any proof that Entegris had broken any laws or rules in the United States.
In response to letters from the Commerce Department suspending authorization to transport goods to SMIC South, Entegris, whose shares plummeted 1.9% on Wednesday, said that it had been making the shipments in compliance with a valid export licence and that it had stopped them.
The Massachusetts-based company said it analyses and complies with the "rapidly evolving regulatory requirements" for international trade that affect the chip sector. The company offers filters, gases, chemicals and devices for handling wafers, the building blocks for producing chips.
There were no comments available from SMIC Huawei, the White House and the Commerce Department.
"This is pure economic intimidation and will unavoidably backfire," a Chinese embassy in Washington spokeswoman declared. "We implore the United States side to desist from misusing its state power to repress Chinese firms and from overstretching the definition of national security.
The Biden administration has taken action against SMIC in response to mounting pressure from Republican China hawks to stop the flow of U.S. technology to the business and impair its capacity to produce advanced chips, as seen by the Commerce Department's licence suspensions, which were originally reported by Reuters.
Since Huawei, the Chinese telecom firm under sanctions, stunned the world in August with a new phone that ran on a cutting-edge technology, the pressure has been increasing.
Despite Washington's continued attempts to undermine China's ability to develop cutting-edge semiconductors, the Huawei Mate 60 Pro was regarded as a sign of the country's technical comeback.
The phone also led the Biden administration to begin an investigation into the inner workings of the chip that powers it—the most sophisticated semiconductor that China has manufactured to far.
The round of letters has drawn criticism for not going far enough. The Foreign Affairs Committee chairman, Republican Congressman Michael McCaul, stated that the Commerce Department ought to have taken action earlier. In a statement to Reuters last month, he continued, "This was negligent work by [the agency] and casts further doubt on its ability to fulfil its national security mission."
The United States has initiated a gradual process to deny SMIC and Huawei access to cutting-edge U.S. technology.
The Trump administration placed Huawei on a list of companies subject to trade restrictions in 2019 due to suspected sanctions violations. Due to suspected connections to the Chinese military industrial complex, SMIC was placed to the same list in 2020. In the past, both businesses have denied any wrongdoing.
When a company is placed to that list, it normally prevents American businesses from selling to the targeted corporations. However, in the previous few years, Trump has approved the sale of certain goods to Huawei and SMIC, allowing American goods worth billions of dollars to reach those companies.
In October 2022, the Biden administration released new regulations that essentially forbade American vendors from shipping semiconductor components and tools to SMIC South and other sophisticated Chinese-run chip manufacturing facilities in China. However, U.S. regulations let businesses that already have licenses—which are typically good for four years—to continue providing the facility with goods.
According to a person with knowledge of the situation, Entegris supplied materials and parts for chipmaking to SMIC South between October 2022 and the end of the previous year.
In its annual report, Entegris stated that 16% of its net sales, or roughly $3.5 billion, came from China in the fiscal year 2023. The company noted that recent export restrictions in the United States “have reduced our ability to sell our products in China and it is possible future regulation could further reduce demand for our products.”
According to Lita Shon-Roy, CEO of market research firm Techcet, SMIC South's primary suppliers of chemicals and parts needed in the chipmaking process are likely to be Chinese, Taiwanese, Japanese, and Korean.
She did note that SMIC's top facility "may experience a 3 to 9 month production interruption depending on inventories if its United States supply chain was suddenly cut off."
She pointed out that, unless SMIC South had done so beforehand, it would take time to locate and thoroughly test new suppliers.
According to experts, SMIC South is the only SMIC factory that can produce the 7 nm chip for the Mate 60. In September, a phone deconstruction by analysis firm Techsights also disclosed that SMIC was the manufacturer of the phone's cutting-edge chipset.
"I don't think there's any doubt that it's that [factory]," said Doug Fuller, a Copenhagen Business School expert on the semiconductor sector.
In December, Reuters revealed that a chip designer who is partially controlled by SMIC continues to have access to cutting-edge U.S. chip design tools.

Christopher J. Mitchell

Markets | Companies | M&A | Innovation | People | Management | Lifestyle | World | Misc