Semiconductor of discord

Export restrictions on the supply of equipment for the production of semiconductors in the PRC, which are planned by the United States, the Netherlands and Japan, can “cause irreparable damage” not only to the Chinese, but also to the global economy, local manufacturers say. The aggravation of the conflict has already led to an increase in prices in the secondary equipment market. The upcoming technological blockade of China will also hit the Russian semiconductor market, its participants warn.

The China Semiconductor Industry Association (CSIA, China Semiconductor Industry Association, according to its own data, brings together hundreds of Chinese developers and manufacturers of microelectronics) on February 15 issued a statement that the introduction of new restrictions by the United States, Japan and the Netherlands on the supply of equipment and technologies to the country “will cause irreparable damage not only to the semiconductor industry in China, but also to the global semiconductor industry, the global economy, and will also cause long-term damage to the interests of end consumers around the world ”(quoted by TASS).

The authorities of the United States, Japan and the Netherlands (the latter two countries are home to the world’s largest manufacturers of equipment for the production of semiconductors – ASML, Nicon and Canon) have been negotiating the introduction of a trilateral technological blockade since December 2022 to stop the supply of advanced equipment for the production of microelectronics to China, wrote December 12, Bloomberg, citing sources. Japan may limit the export of equipment for the production of microelectronics in the spring, Interfax reported with reference to the Japanese agency Kyodo.

Rumors of impending supply cuts have already fueled the aftermarket, with requests from Chinese semiconductor fabs to supply Japanese equipment “significantly up” in the past two weeks, as are prices, according to the South China Morning Post, which surveyed local dealers.

Meanwhile, the semiconductor market as a whole is now growing. The International Semiconductor Industry Association (SIA) reported in early February that sales increased by 3.2% in 2022 to $573.5 billion, but noted a 14.7% drop in the fourth quarter.

The head of SIA, John Neufer, attributed the change in dynamics to “the cyclical nature of the market and the macroeconomic situation.” Analysts attribute the fall in semiconductor sales to overproduction in the second half of the year and stocks in the warehouses of the largest customers (more see interview Associate Professor at Tufts University Christopher Miller).

After the imposition of sanctions that deprived Russian design centers of the ability to produce their chips in Taiwanese factories, and domestic semiconductor factories to purchase the necessary production equipment, the Russian authorities hoped for help from Beijing. “Of course, we will, by hook or by crook, look for exits to these factories. Until we have our own production, it is impossible to make a competitive project. Of course, we are counting on the help of our colleagues in China, ”said Yury Borisov, head of Roskosmos, in June 2022 (until September he held the post of deputy prime minister for the industry).

The Russian-Asian Union of Industrialists and Entrepreneurs (RASPP) confirms that negotiations between Russian design centers and Chinese contractors are really underway. The head of RAUIE Vitaly Mankevich told Kommersant that by the end of 2022, the number of requests from Russian technology companies to create a joint venture with Chinese corporations increased by 168% overall: “The number of such requests from Russian microelectronics developers has grown even more – by 300% year on year “.

But a possible technological blockade of China’s semiconductor sector could complicate cooperation, according to Kommersant’s sources in the microelectronics market:

“Now the Chinese authorities are directing large state investments into the launch of new semiconductor factories and the modernization of existing plants. If new export restrictions are adopted, the PRC will begin to experience a shortage of manufacturing equipment and, quite possibly, will restrict its export from the country.

In this case, the interlocutor emphasizes, the Russian authorities will either have to independently develop a complete line of equipment for the production of semiconductors, starting with the standards of 300–350 nm, or reengineer existing imported equipment.

Russian factories are already experiencing a shortage of equipment for the production of semiconductors, which makes it impossible to increase production capacity, says the manager of one of the Russian manufacturers of radio electronics. Because of this, he claims, a number of production modernization projects have stalled in 2022: “We had to look for replacements for equipment suppliers, which is not always possible. The cost of the found alternatives turned out to be two to five times higher. Terms also increased in a similar proportion. By and large, over the past year in the Russian Federation, the industry has not made much progress in terms of rearmament.”

Nikita Korolev, Timofey Kornev