US sanctions helped China boost its chip manufacturing industry

(Bloomberg) — China’s chip industry is growing faster than anywhere else in the world, after U.S. sanctions on local champions from Huawei Technologies Co. to Hikvision whetted appetite for the components. homegrown.

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Nineteen of the 20 fastest-growing chip industry companies in the world over the past four quarters, on average, hail from the world’s No. 2 economy, according to data compiled by Bloomberg. That compared to just 8 at the same point last year. Those China-based providers of design software, processors and vital chipmaking equipment are growing revenues several times over, like world leaders Taiwan Semiconductor Manufacturing Co. or ASML Holding NV.

That supercharged growth underscores how tensions between Washington and Beijing are transforming the $550 billion global semiconductor industry, a sector that plays an outsized role in everything from defense to the advent of future technologies like AI and self-driving cars. . In 2020, the US began restricting sales of American technology to companies like Semiconductor Manufacturing International Corp. and Hangzhou Hikvision Digital Technology Co., successfully containing their growth but also fueling a boom in chip manufacturing and supply. Chinese.

While shares of companies like Cambricon Technologies Corp. have more than doubled since this year’s lows, analysts say there may still be room to grow. Beijing is expected to orchestrate billions of dollars of investment in the sector under ambitious programs such as its “Little Giants” plan to back and finance national tech champions, and encourage “buy China” tactics to circumvent US sanctions. The rise of indigenous names has drawn the attention of some discerning customers: Apple Inc. was said to be eyeing Yangtze Memory Technologies Co. as its latest supplier of flash memory for the iPhone.

“The biggest underlying trend is China’s quest for supply chain self-sufficiency, catalyzed by Covid-related lockdowns,” Morningstar analyst Phelix Lee wrote in an email responding to inquiries from Bloomberg News. . “Amid lockdowns, Chinese customers who use mostly imported semiconductors need to source local alternatives to ensure smooth operations.”

Read more: China’s ‘little giants’ are latest weapon in tech war with US

At the heart of Beijing’s ambitions is the drive to move away from a geopolitical rival and more than $430 billion worth of imported chipsets in 2021. Orders for chipmaking equipment from foreign suppliers jumped 58% last year. as local plants expanded capacity, data provided by industry body Semi show.

That, in turn, is boosting local commerce. Total sales by China-based chipmakers and designers rose 18% in 2021 to a record over 1 trillion yuan ($150 billion), according to the China Semiconductor Industry Association.

A persistent chip shortage that is cutting output at the world’s largest auto and consumer electronics makers is also working in favor of local chipmakers, helping Chinese suppliers more easily access the international market, times with bonuses added to top-selling products, such as auto and PC chips.

SMIC and Hua Hong Semiconductor Ltd., the largest contract chipmakers, have kept their Shanghai-based plants operating near full capacity even as the worst Covid-19 outbreak since 2020 paralyzes factories and logistics across China. With the help of local authorities, cargo flights from Japan delivered essential materials and equipment to chip plants while the city was in lockdown. SMIC recently reported a 67% rise in quarterly sales, outperforming much larger rivals GlobalFoundries Inc. and TSMC.

Read More: China’s chipmaking power grows despite US efforts to counter it

Shanghai Fullhan Microelectronics Co.’s revenue grew 37% on average due to strong demand for surveillance products. The video chip designer has vowed to expand into electric vehicles and artificial intelligence after earning its “Little Giant” designation. And design tools developer Primarius Technologies Co. doubled sales on average over the past four quarters, saying it has developed software that can be used to make 3-nanometer chips.

Long-term profitability concerns aside, Morningstar’s Lee said aggressive capacity-building by Chinese players will elevate their presence globally.

“There is no doubt that Chinese chipmakers can achieve revenue growth in the coming years from cars, consumer electronics and other devices,” he said.

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