The US-China trade war is top of mind for those who work in the semiconductor industry. How much of the current downturn is it responsible for? What impact will it have on the industry? It’s no surprise that it was a big topic of discussion recently during SEMICON West.

Opinions vary, depending upon where you hang your hat. For US-based companies, for example, the impact may be significant. For example, the recent ban on the sale of components to Huawei cost Broadcom a reported $900 M in revenue. For companies based in other regions, it may offer opportunity as China looks elsewhere to do business. Even with the partial lift of the ban, uncertainty remains. Just today, representatives of some of the tech giants, such as Intel and Qualcomm, are meeting with White House advisiors to “economic matters.” 

Blame the Downturn on Memory

SEMI CEO, Ajit Manocha, says the current downturn has very little to do with the trade war and more to do with the excess in memory capacity and impact on its pricing. In fact, because it’s a unilateral trade war between the US and China, and involves no other countries, the impact on the semiconductor industry as a whole is quite small. In this interview with CNBC that took place a few days before SEMICON West at the World Economic Forum, Manocha noted that regardless of what tariffs Washington imposes, China is still free to do business with other countries.

Rudolph Technologies’ Tim Kryman is not really surprised about the current downturn, which, like Manocha, he attributes to coming down off a significant memory high. “We knew it was going to end,” he said. “Give it two or three quarters to move through the inventories, and we will begin to bounce back.”

Everything going on in the consumer and industrial space calls for lots of memory added Kryman. He also sees a pause in volumes, as artificial intelligence (AI) and machine learning (ML) developments spark new technology that needs to be qualified.

Yann Guillou, Trymax, concurs. “If you exclude memory from the equation, in terms of the IC market the rest of the semiconductor industry is flat for 2019,” he said.

Putting the semiconductor downturn into perspective, Bruce Kim, SurplusGLOBAL, noted that over the last 30 years, the average annual growth rate of the industry is 5%, much higher than other industries. “If we maintain that annual average over the next 15 years, the total market size will by three to four times what it is today,” he said.

A Divided Industry

Beyond just the US-China trade war, Kim sees several factors impacting suppliers who sell tools in the Asia-Pacific region.

The world has two kinds of internet, he explained. There is the Chinese Internet and there is the internet that other countries outside of China use. Google, Facebook, YouTube, Twitter, and WhatsApp are not accessible in China. China uses an information screening system called a “golden shield” to prevent access to overseas services and instead developed native Chinese services such as Baidu, Renren, Kwai, and Wechat. Nowadays, because of the US trade disputes is that the high-tech industry, such as the Internet, is shifting to the Chinese markets.

Kim also says that the leading-edge semiconductor market in China has two sides. On one hand, Huawei is trying to change its supply chain from outside to inside China, because of the tariffs. Additionally, OEMs and OSATS are moving capacity from China to Southeast Asia to avoid a 10% import tax.

Kim’s company, SurplusGLOBAL, sells refurbished, pre-owned semiconductor equipment on the global market. In China, he sees the market divided into two areas: the 200mm equipment market is strong. There is lots of interest in 200mm tools for mature technology. The story is not the same for 300mm tools. “They are not rushing to put in 300mm tools. The leading-edge is slow in China. The trade war is depressing things,” he said. All in all, 20-30% of SurplusGLOBAL’s tools are sold in both China and the US.

After slow down of 300mm expansion in China, Japan, and Europe, had been expanding into 300mm tools as the prices come down, but this demand is also slowing due to the trade war, he said.

The US-China Trade War Impact on US Suppliers

The US-China trade war and the ban on Huawei products have the overall supply chain nervous, says Kryman. “Risk is in the air. People are holding back on decisions,” he noted. “The drivers are there, but what’s happening on the global economic scene is making people pensive.”

Kryman says that while the China trade war hasn’t directly impacted tool orders for Rudolph, the company has felt an indirect impact as it relates to customers. The sooner it ends, the better.

Essentially, the US-imposed sanctions on China apply to equipment and technologies that have more than 25% US-technology content, explained Dave Kirsch, EV Group North America. Since EV Group’s tools are manufactured in Austria and contain less than 25% US-technology content, they are free to sell to China.

“It still impacts us, however, because there are investors in US semiconductor companies that back off because of the sanctions,” Kirsch explained. “So that can impact our sales in the US.”

EV Group’s Hermann Waltl added that there is also an enormous administrative impact. “Every bank and every shipping company requires confirmation that products being shipped don’t fall under certain categories. For example, if we ship spare parts via UPS,” he explained.

Another geopolitical topic that we don’t hear much about with regards to the semiconductor industry is immigration. For EV Group, that means sending talent back and forth between the US and Austria.

“Visa rejections are at an all-time high,” said Kirsch. “It’s affecting the industry. Formalized immigration reform goes beyond what the news reports are saying.”

Opportunity for Non-US Suppliers?

For Trymax, manufacturers of plasma technology solutions based in the Netherlands, the fact that its tools contain even fewer US components than those made by Chinese equipment companies is an added value for Chinese customers, explained Yann Guillou.

“Our subsystems are built in the EU and Japan. We are one of the few equipment suppliers that can sell to China, and it is an important region for us,” he said. “We have a significant install base in China.”  Guillou still recognizes the global impact the trade situation has on the industry because of the companies it does affect. For example, some device manufacturers are reducing CapEx and revising forecasts, which leads to a reduction in investments and delays across the industry while everyone waits to see what will happen.

According to Thomas Fries, CEO, FRT GMbh, China’s efforts to build its own infrastructure creates and opportunity for tool suppliers. As FRT is a German-based manufacturer of metrology and inspection solutions, it is not subject to sanctions, he said. FRT established a China subsidiary in 2008. “We don’t manufacture tools there, but we want to have a local presence to show our commitment to the market,” he said.

Fries sees a bigger geopolitical situation brewing beyond the US-China trade that includes growing discord between the US and Iran, as well as recent sanctions Japan imposed on South Korea for semiconductor suppliers. These sanctions are part of an escalating dispute between the two nations that started over compensation for forced labor during World War II.

Fries doesn’t think the geopolitical impact on the semiconductor market will last, however, because the pressure is too high to continue manufacturing chips to enable the technology megatrends. What he does see is the possibility for other countries to follow in China’s footsteps and establish their own semiconductor infrastructure, versus relying on the global supply chain. These countries will need equipment too, which Fries sees as an opportunity for small independent companies like FRT. It won’t help large US equipment suppliers that aren’t so nimble, he noted.

Keep the US-China Trade War Conversation Going

I appreciate the time these suppliers took out of their busy SEMICON West schedule to share these perspectives with me. Readers, if you have any thoughts to share, I invite you to post comments on the topic below.

Francoise von Trapp

They call me the “Queen of 3D” because I have been following the course of…

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