On April 28, the commerce department issued the following news release that could deeply impact the US semiconductor industry:
“The Department of Commerce announced today new export control actions to prevent efforts by entities in China, Russia, and Venezuela to acquire U.S. technology that could be used in the development of weapons, military aircraft, or surveillance technology through civilian supply chains, or under civilian-use pretenses, for military end uses and military end-users.
“It is important to consider the ramifications of doing business with countries that have histories of diverting goods purchased from U.S. companies for military applications,” said Department of Commerce Secretary Wilbur Ross. “Certain entities in China, Russia, and Venezuela have sought to circumvent America’s export controls, and undermine American interests in general, and so we will remain vigilant to ensure U.S. technology does not get into the wrong hands.”
Specifically, the rule changes include:
- Expansion of Military End-Use/User Controls (MEU)
Expands MEU license requirements controls on China, Russia, and Venezuela to cover military end-users in all three countries, as well as items such as semiconductor equipment, sensors, and other technologies sought for military end-use or by military end-users in these countries.
- Removal of License Exception Civil End Users (CIV)
Removes a license exception for exports, reexports, or transfers (in-country) to civilian
end-users in countries of national security concern for National Security- (NS) controlled items.
- Elimination of License Exception Additional Permissive Reexports (APR) Provisions
Proposes to eliminate certain provisions of a license exception for partner countries involving the reexport of NS-controlled items to countries of national security concern to ensure consistent reviews of exports and reexports of U.S. items”.
Lam Research has already reacted with a notice to investors that the action by the commerce department could materially and adversely affect their international sales. Lam pointed out in the SEC document that in the past nine months 29% of their sales have come from China. I’m sure other notices by companies such as Applied Materials and KLA will not be far behind.
From what has been published it is difficult to see how deep this will cut the US semiconductor equipment industry. What it is not difficult to see is how this will further motivate China towards self-sufficiency which, eventually could cost the US semiconductor and Semiconductor equipment industry close to $40 billion annually.
For a more detailed analysis of the impact on the semiconductor industry, read my article, The Implications of doing Business with Huawei.