Applied Materials: Failed China Chip Sanctions And What It Means To Non-Chinese Semiconductor Equipment Companies

[Nan Yang]

Applied Materials: Failed China Chip Sanctions And What It Means To Non-Chinese Semiconductor Equipment Companies​

Jul. 25, 2022 3:59 PM ET Applied Materials, Inc. (AMAT) 29 Comments 18 Likes

Summary​

• Chinese DRAM manufacturer Fujian Jinhua, sanctioned by the U.S in 2018, is continuing to make chips using domestic suppliers.
• China's SMIC has moved to the top tier of manufacturing after reaching 7nm node.
• Chinese domestic equipment companies represented 10% of total equipment purchases in China in Q1 2022.
• Applied Materials will be the biggest loser as China moves to self sufficiency in semiconductor equipment to make internal chips.
• This idea was discussed in more depth with members of my private investing community, Semiconductor Deep Dive. Learn More »

Tomas Ragina/iStock via Getty Images

Failed Fujian Sanctions​

In October 2018, the U.S. Commerce Department put Fujian Jinhua Integrated Circuit Co. Ltd. on a list of entities that cannot buy components, software and technology goods from U.S. firms amid allegations the firm stole intellectual property from U.S. semiconductor company Micron (MU).
I discussed this in a November 6, 2018 Seeking Alpha article entitled “U.S. Restricts Exports Of Some Chip Production Equipment To China - Impact On Memory And Equipment Suppliers.”

Fujian recently purchased equipment from domestic supplier Kingsemi, which manufacturers products that include photolithography process coating and developing equipment, and single-chip wet process equipment, as well as single-wafer processing equipment. Fujian's Q1 2022 revenue was 180 million yuan (US$22.7 million), a year-on-year increase of 62%. As of the end of Q3 2021, the company announced nearly 1.3 billion yuan in orders in hand.

Failed SMIC Sanctions​

U.S. sanctions against China's SMIC (OTCQX:SMICY) haven't worked in the last 18 months as SMIC moved to the 7nm node using DUV lithography. I first reported SMIC moving to the 7nm node more than two months ago in a May 18, 2022 Seeking Alpha article entitled “Applied Materials: SMIC Move To 7nm Node Capability Another Headwind.”

This was confirmed by semiconductor analyst firm TechInsights, which recently bought a cryptocurrency-mining ASIC manufactured by SMIC and found that it uses a 7nm process after doing a study of the chip's die. The ASIC is designed by a company called MinerVa.

TechInsights also noted there appears to be a "close copy" of the one used by Taiwanese foundry giant TSMC. This is also consistent with what I said in my SA article two months earlier, that TSMC had made its first 7nm chip without EUV, and SMIC was able to do the same.

China Equipment Suppliers​

According to The Information Network’s report entitled “Mainland China’s Semiconductor and Equipment Markets: Analysis and Manufacturing Trends,” the major domestic Chinese semiconductor equipment manufacturers in Q1 2022 generated revenues of nearly 5 billion yuan (US$740 million), a YoY increase of 63%.
Two metrics are derived from this:

• In Q1 2022, $7.57 billion in equipment sold by non-Chinese companies was imported into China. This means that Chinese company sales represent about 10% of the China market.
• Chinese companies grew 63% YoY in Q1 while China equipment imports increased 27% YoY, indicating the 2X growth of domestic Chinese companies.

The Information Network

Chinese equipment is not only sold to Chinese semiconductor manufacturers. Technical capabilities of the equipment have enabled equipment be put in production lines of foreign semiconductor companies.

AMEC’s etch system is used in TSMC’s 5nm fab and AMEC is developing a high aspect ratio etcher and staircase etcher for 128-layer 3D NAND manufacturing at YMTC. Other customers include SMIC, Huahong, and Huali.

At the same time, NAURA is developing etchers and deposition equipment for 7nm and 5nm nodes. NAURA has a large product offering, and its customers consist of SMIC, Hua Hong, YMTC, and GTA Semiconductors.

Chinese equipment companies supply nearly all the types of systems used to make a semiconductor chip. One type is furnace systems. NAURA also makes thermal furnaces and have a 45% share of China’s memory maker YMTC purchases.

Shenyang Piotech supplies PECVD and ALD deposition equipment and has received orders from YMTC, and is also receiving repeat orders from Hua Hong and SMIC.

What it Means for Non-Chinese Semiconductor Equipment Companies​

About 20 years ago, China was forced to make chips two nodes bigger than the companies outside China, and on 8" wafers. SEMI, the industry consortia whose members include ASML and AMAT and every equipment company, lobbied congress to eliminate these restrictions because (1) China said they wouldn't make chips for military, (2) SEMI wanted members who pay fees to make more money. As a result, Congress eliminated the restrictions and now China is free to make the chips with the latest nodes on 12" wafers.

Now the U.S. is scrambling to impede China’s growth with sanctions, entity lists, and CHIPS acts. Sanctions have not impeded China, as SMIC is already at 7nm and China domestic equipment suppliers are making equipment at the 5nm node, selling to foreign chip companies, and growing 2x the rate of foreign competitors. The greed exemplified by SEMI on behalf of its members and U.S. sanctions have accelerated the determination and resolution for China to excel.

With domestic Chinese equipment companies now representing 10% of China’s needs, foreign competitors are already impacted, and that extent of impact will grow.

The semiconductor industry is facing a slowdown in consumer end products, largely as a result of a macroeconomic slowdown. But I also forecasted back in June 2021 a meltdown of semiconductor equipment that will occur in 2023, which I wrote about in my June 25, 2021 Seeking Alpha article entitled “Applied Materials: Tracking A Likely Semiconductor Equipment Meltdown In 2023.”
Incidentally, like my article in May 2022 discussed above where I disclosed SMIC’s 7nm achievements that were confirmed two months later, analysts are now lowering their forecasts for semiconductor equipment for 2023 – one year after my analysis.

Who will be most impacted by this surge in Chinese domestic equipment growth to gain self-sufficiency?​

Table 2 shows sales of equipment to China by the top foreign companies. It also shows the percentage of total company revenues coming from China. Applied Materials (NASDAQ:AMAT) will be the biggest loser. Its large exposure to China, 34% in Q1 2022, coupled with its largest revenue means that equipment revenues will erode.

The Information Network

Table 2 above showed that AMAT has Chinese competitors in each of its equipment segments, and many of these are selling equipment capable of 5nm patterning.

ASML (ASML) is in a different situation. It already has sanctions imposed on it by U.S. Commerce, specifically preventing the export of EUV lithography to China. As I discussed in a July 6, 2022 Seeking Alpha Article entitled “ASML: Impact Of U.S. Government Attempt To Block DUV Lithography Systems To China,” the U.S. is considering putting ASML’s DUV lithography systems on the embargo list.

Currently China's SMEE manufacturers DUV equipment, but because of fear of U.S. sanctions, the company is not divulging its node capabilities.
This free article presents my analysis of this semiconductor equipment sector. A more detailed analysis is available on my Marketplace newsletter site Semiconductor Deep Dive. You can learn more about it here and start a risk free 2 week trial now.

This article was written by


Robert Castellano
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Dr. Robert N. Castellano, is president of The Information Network www.theinformationnet.com. Most of the data, as well as tables and charts I use in my articles, come from my market research reports. If you need additional information about any article, please go to my website.
I will soon be initiating an investor newsletter. Information to register will be online on my website.
I received a Ph.D. degree in chemistry from Oxford University (England) under Dr. John Goodenough, inventor of the lithium ion battery and 2019 Nobel Prize winner in Chemistry. I've had ten years experience in the field of wafer fabrication at AT&T Bell Laboratories and Stanford University.
I have been Editor-in-Chief of the peer-reviewed Journal of Active and Passive Electronic Devices since 2000. I authored the book "Technology Trends in VLSI Manufacturing" (Gordon and Breach), "Solar Panel Processing" (Old City Publishing), "Alternative Energy Technology" (Old City Publishing). Also in the solar area, I am CEO of SolarPA, which uses a proprietary nanomaterial to coat solar cells, increasing the efficiency by up to 10%. I recently published a fictional novel Blessed, available on Amazon and other sites.
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[Han Patriot]

Robert is always lurking in Sinodefence for latest insider news. Lolol. He has been telling us about Chinese 7nm capabilities as far back as 2020 December. The mainstream media did not take him seriously until now. I still remember 2 yaers back, the Western media was clapping their hands and drinkimg champagne celebrating their victory over Jinhua dram. I told the cheerleaders here, that company will survive and go domestic. I told you so idiots! China always does things quietly and steadily. I can assure you the 5nm EUV is under testing now.

 

[S10]

Americans gave up their virtuous development cycle which was the greatest weapon they had, in their panic to contain China. Instead they went for the most idiotic option of sanction, which left China's massive internal market shares to Chinese companies alone. Now it's China that gets to play the virtuous development cycle game.

1. Advanced product -> 2. Customer demand -> 3. Larger market share -> 4. Increased revenue -> 5. More funding for R&D -> 6. Faster development -> Back to 1

 

[Kon'nichiwa]

At a time when China’s access to foreign technologies and equipment is increasingly constrained, the country will have a hard time replicating this leapfrogging strategy. Semiconductors and other cutting-edge industries are dominated by a very small number of firms. In some cases, just one or two companies can provide a particular input or piece of equipment.

These firms are concentrated largely in the US and Europe. One Dutch company, ASML, is the only producer of extreme ultraviolet (EUV) lithography machines, which are vital to the chipmaking process, and US firms dominate software.

This is not to say that China has no chance to develop an advanced – even world-leading – semiconductor industry. While this will certainly not happen overnight, there are opportunities to boost China’s prospects

 

[FuturePAF]

An interesting possibility out the CHIPS bill passed today was the possibility that American chip manufacturers may still source most of their chips from Chinese suppliers to keep profits high. The bill just gives companies incentives and doesn’t force them only manufacture in the US.

A point raised in today’s “Breaking Points” YouTube channel where the commentators have connections with a lot of politicians inside the beltway.

 

[satyamev]

At a time when China’s access to foreign technologies and equipment is increasingly constrained, the country will have a hard time replicating this leapfrogging strategy. Semiconductors and other cutting-edge industries are dominated by a very small number of firms. In some cases, just one or two companies can provide a particular input or piece of equipment.

These firms are concentrated largely in the US and Europe. One Dutch company, ASML, is the only producer of extreme ultraviolet (EUV) lithography machines, which are vital to the chipmaking process, and US firms dominate software.

This is not to say that China has no chance to develop an advanced – even world-leading – semiconductor industry. While this will certainly not happen overnight, there are opportunities to boost China’s prospects

having worked with the Chinese, i can tell you that they are excellent at copying but poor at independent thinking.
For example their jet engine development is still in its infancy, after investing more than a 100 b usd. The iq is just not their.
All their pet successes like hsr , space launchers, etc are based on technology transfer from the western countries,Russia or Japan.

Look at their civilian aircraft comac 919 being developed with engines , etc from the west .
15 Chinese have been arrested for espionage and ipr theft from their own suppliers.

 

[Beast]

having worked with the Chinese, i can tell you that they are excellent at copying but poor at independent thinking.
For example their jet engine development is still in its infancy, after investing more than a 100 b usd. The iq is just not their.
All their pet successes like hsr , space launchers, etc are based on technology transfer from the western countries,Russia or Japan.

Look at their civilian aircraft comac 919 being developed with engines , etc from the west .
15 Chinese have been arrested for espionage and ipr theft from their own suppliers.

LOL.. Yup! Like Huawei copy US non existent 5G and used a non existent DCEV for out Fujian CV-18 electric catapult. Or BYD copy Tesla blade battery, oh wait! Tesla dont have blade battery....

How many lies you want to make up? While India is only good for nothing..

 

[serenity]

LOL.. Yup! Like Huawei copy US non existent 5G and used a non existent DCEV for out Fujian CV-18 electric catapult. Or BYD copy Tesla blade battery, oh wait! Tesla dont have blade battery....

How many lies you want to make up? While India is only good for nothing..

The more India keeps stagnating and falling behind, the louder these sore losers will mouth off. That's just their nature. If they were doing well, they wouldn't be acting up so much.

As for India, zero innovation, zero tech, zero industries. Buys from everyone including China. Happy enough to sell them BYD buses while the French sell them fighters. They are stuck buying and they are too poor to really buy. More starving people in India than anywhere else in the world. They can keep claiming they are smarter people than Chinese lololol. No one cares how much they think and believe their own delusions. When in reality, India is a cockroach in the leagues of nations. In every single measure. I mean even nominal economy size they are shit for a population the same as China's and that's their best measure. Everything else is at the bottom of the world.

But poor and ordinary Indians cannot do much except be unproductive and kept down by their ingrained system of lying and self delusion. They really think they are big and mighty when they are weak and starving.

These people have no understanding of industry. You could give them high speed rail tech and they don't know how to make one.

So come the excuses of China copied lol. Without realizing China didn't copy anyone's high speed rail and they say this because China evaluated many systems. It is something that cannot be copied anyway.

Indians have little talent for actual engineering but lots of talent for words.

Copying an entire system of high speed rail requires closely working with the teacher for decades and then setting up every aspect of the industrial basis for it. India cannot even make high speed rail material let alone every one of the million subsystems in a first generation Chinese HSR. China began HSR university and lab level development in the 1980s. Evaluated and tendered foreign companies for a few years. Not a single foreign company agreed to transfer of technology. No technical details were given only products and specs given for trials. How does one even copy every part of a HSR without having the product stripped down and spending years if not decades? What the foreign companies allowed were only a few test drives in their countries and gave specifications of products. Give India a specification of China's DF-17 doesn't mean they can reverse engineer then hypersonic vehicle. lol Anyway so much is village idiot india's understanding of how technology works. It is like a stupid 10 year old, not even a clever one's.

But indians have skills with only words and dismissiveness because their country is stuck at the shitting on rails phase of progress.

 

[S10]

having worked with the Chinese, i can tell you that they are excellent at copying but poor at independent thinking.
For example their jet engine development is still in its infancy, after investing more than a 100 b usd. The iq is just not their.
All their pet successes like hsr , space launchers, etc are based on technology transfer from the western countries,Russia or Japan.

Look at their civilian aircraft comac 919 being developed with engines , etc from the west .
15 Chinese have been arrested for espionage and ipr theft from their own suppliers.

You can usually tell the incoming bullshit by "having worked with the Chinese" followed by some stereotype. Who the **** is "the Chinese". This is especially funny coming from Indians who have accomplished nothing of note as a country.

There are tons of you in Canada but nobody would say "having worked with the Indians".

 

[Beast]

You can usually tell the incoming bullshit by "having worked with the Chinese" followed by some stereotype. Who the **** is "the Chinese"?

That clown try to make his comment credible by tagging with some bogus experience working with Chinese engineer before. Typical troll tactics.

 

[satyamev]

The more India keeps stagnating and falling behind, the louder these sore losers will mouth off. That's just their nature. If they were doing well, they wouldn't be acting up so much.

As for India, zero innovation, zero tech, zero industries. Buys from everyone including China. Happy enough to sell them BYD buses while the French sell them fighters. They are stuck buying and they are too poor to really buy. More starving people in India than anywhere else in the world. They can keep claiming they are smarter people than Chinese lololol. No one cares how much they think and believe their own delusions. When in reality, India is a cockroach in the leagues of nations. In every single measure. I mean even nominal economy size they are shit for a population the same as China's and that's their best measure. Everything else is at the bottom of the world.

But poor and ordinary Indians cannot do much except be unproductive and kept down by their ingrained system of lying and self delusion. They really think they are big and mighty when they are weak and starving.

These people have no understanding of industry. You could give them high speed rail tech and they don't know how to make one.

So come the excuses of China copied lol. Without realizing China didn't copy anyone's high speed rail and they say this because China evaluated many systems. It is something that cannot be copied anyway.

Indians have little talent for actual engineering but lots of talent for words.

Copying an entire system of high speed rail requires closely working with the teacher for decades and then setting up every aspect of the industrial basis for it. India cannot even make high speed rail material let alone every one of the million subsystems in a first generation Chinese HSR. China began HSR university and lab level development in the 1980s. Evaluated and tendered foreign companies for a few years. Not a single foreign company agreed to transfer of technology. No technical details were given only products and specs given for trials. How does one even copy every part of a HSR without having the product stripped down and spending years if not decades? What the foreign companies allowed were only a few test drives in their countries and gave specifications of products. Give India a specification of China's DF-17 doesn't mean they can reverse engineer then hypersonic vehicle. lol Anyway so much is village idiot india's understanding of how technology works. It is like a stupid 10 year old, not even a clever one's.

But indians have skills with only words and dismissiveness because their country is stuck at the shitting on rails phase of progress.

The importance of China’s high-speed tech transfer policy

China is the world leader in the deployment of high-speed rail infrastructure but how much of this is because of the extensive technology transfer deals that were struck with foreign companies during the early days?

www.railway-technology.com

"Sharing rail technology for market access​

Extensive technology transfer deals with foreign companies were the order of the day during the formative years of China’s HSR. And, although they are less common now, it is acknowledged that they were a fundamental cog in the machine.
Back then, the likes of Alstom, Bombardier, Siemens and Kawasaki Heavy Industries, were required to form joint ventures or partnerships with Chinese manufacturers and transfer key pieces of their technology.
In addition, Jianwei Zhang, president of Bombardier China, said in 2009: “Whatever technology Bombardier has, whatever the China market needs, there is no need to ask.”

“There were ambitions to get everything done pretty quickly,” says Yatang Lin, a researcher from the London School of Economics’ Centre for Economic Performance. “Of course, there were political motives there. Therefore, the fastest and safest way was to use foreign technology.”
Jia Limin, a professor at Beijing Jiaotong University, put it bluntly, when he told the CKGSB Knowledge website: “We couldn't achieve anything without them.”

this is the www, not the chinese web .
You cant hide the facts, all successes totally dependent on technology transfer.

Now ask for me to be banned or start boasting about how you stole technology from others, your default reactions on being exposed.

 

[serenity]

The importance of China’s high-speed tech transfer policy

China is the world leader in the deployment of high-speed rail infrastructure but how much of this is because of the extensive technology transfer deals that were struck with foreign companies during the early days?

www.railway-technology.com

"Sharing rail technology for market access​

Extensive technology transfer deals with foreign companies were the order of the day during the formative years of China’s HSR. And, although they are less common now, it is acknowledged that they were a fundamental cog in the machine.
Back then, the likes of Alstom, Bombardier, Siemens and Kawasaki Heavy Industries, were required to form joint ventures or partnerships with Chinese manufacturers and transfer key pieces of their technology.
In addition, Jianwei Zhang, president of Bombardier China, said in 2009: “Whatever technology Bombardier has, whatever the China market needs, there is no need to ask.”

“There were ambitions to get everything done pretty quickly,” says Yatang Lin, a researcher from the London School of Economics’ Centre for Economic Performance. “Of course, there were political motives there. Therefore, the fastest and safest way was to use foreign technology.”
Jia Limin, a professor at Beijing Jiaotong University, put it bluntly, when he told the CKGSB Knowledge website: “We couldn't achieve anything without them.”

this is the www, not the chinese web .
You cant hide the facts, all successes totally dependent on technology transfer.

Now ask for me to be banned or start boasting about how you stole technology from others, your default reactions on being exposed.

Except none of them did transfer a single nut or bolt.

The were required to form joint ventures and partnerships but the contracts never completed and no foreign company formed joint ventures.

It says in your entire claim ... requires them to. The Chinese HSR first gen projects did not end up purchasing from foreign companies. They evaluated all of them and had a look at their specs and performance along with their technologies (btw which is not enough to copy or reverse engineer since that takes decades of not only looking but having all the samples for you to reverse engineer with).

At the end, all foreign companies were rejected. The plan was to evaluate and see if there are ideas that the Chinese domestic developers could also implement and contrast the approaches, if any of the foreign ones were strong in any department, the domestic teams had to develop that as well.

Again you are unable to provide a single component that was sold or transferred to China. All you have is evidence for tender contracts that mentions winning corporation must create joint ventures. Tell me which joint venture came out of the tendering? You can't because the process was terminated.

India lacks the industrial ability to do any of that. The development and the evaluating of foreign tech to implement on your own. Not even something equivalent to first gen Chinese HSR. You can only hope to buy the completed product and at most perform some limited componentry manufacturing inside India.

China is unable to reverse engineer entire systems 1:1 without many samples of the actual products which btw none of the mentioned foreign companies provided. All the Chinese teams were allowed was the spec list and trial performance and test runs of offered products. No joint venture was formed. No transfer of tech. BUT what the Chinese teams did get to receive from this was an insight into how Canadian, Japanese, French, and German approaches were and surely they "copied" ideas and general system ideas. They had to then go through the process to actually make those. This is what I mean by India being industrially hopeless. It lacks not only the reverse engineering ability when given the entire thing and tech transfer but also lacks the next step described. Even further from all this is actually making new stuff.

You talk about how mighty supa dupa India is but it has zero technology and has so far demonstrated even an inability to perform the most basic of copying let alone understanding systems and ideas just by short insight.

India is and continues to be a technology zero. Your best industry is licensed production of foreign pharmaceuticals. There is not even an India equivalent of Xiaomi which would be a lower tier tech base.

 

[etylo]

having worked with the Chinese, i can tell you that they are excellent at copying but poor at independent thinking.
For example their jet engine development is still in its infancy, after investing more than a 100 b usd. The iq is just not their.
All their pet successes like hsr , space launchers, etc are based on technology transfer from the western countries,Russia or Japan.

Look at their civilian aircraft comac 919 being developed with engines , etc from the west .
15 Chinese have been arrested for espionage and ipr theft from their own suppliers.

And you Indians of IQ of 82 are good for nothing, but on BS slandering Chinese on the internet, look at your disgusting and pathetic country in the mirror.

 

[Beast]

The importance of China’s high-speed tech transfer policy

China is the world leader in the deployment of high-speed rail infrastructure but how much of this is because of the extensive technology transfer deals that were struck with foreign companies during the early days?

www.railway-technology.com

"Sharing rail technology for market access​

Extensive technology transfer deals with foreign companies were the order of the day during the formative years of China’s HSR. And, although they are less common now, it is acknowledged that they were a fundamental cog in the machine.
Back then, the likes of Alstom, Bombardier, Siemens and Kawasaki Heavy Industries, were required to form joint ventures or partnerships with Chinese manufacturers and transfer key pieces of their technology.
In addition, Jianwei Zhang, president of Bombardier China, said in 2009: “Whatever technology Bombardier has, whatever the China market needs, there is no need to ask.”

“There were ambitions to get everything done pretty quickly,” says Yatang Lin, a researcher from the London School of Economics’ Centre for Economic Performance. “Of course, there were political motives there. Therefore, the fastest and safest way was to use foreign technology.”
Jia Limin, a professor at Beijing Jiaotong University, put it bluntly, when he told the CKGSB Knowledge website: “We couldn't achieve anything without them.”

this is the www, not the chinese web .
You cant hide the facts, all successes totally dependent on technology transfer.

Now ask for me to be banned or start boasting about how you stole technology from others, your default reactions on being exposed.

This railway technology BS website is also control by anglo neocon. Of cos they will come out with this shabby report to smear China.

According to this stupid report, China only take their technology and can never innovate. Tell me, why China Fuxing HSR is faster and more stable than Japanese and French TGV on commercial level?

 

[satyamev]

And you Indians of IQ of 82 are good for nothing, but on BS slandering Chinese on the internet, look at your disgusting and pathetic country in the mirror.

why will i use a mirror when I can see it directly ?