U.S. Chipmakers Adapt Amid China Tensions, AI Chip Focus

Key Takeaway

• U.S. chipmakers like Intel, Broadcom, Qualcomm, and Marvell generate more revenue from China than the U.S., despite export controls.
• Companies adapt to restrictions by designing modified AI chips for China; Nvidia works on a new chip post-updated rules.
• China's push for semiconductor self-sufficiency intensifies, yet U.S. firms maintain a technological lead in key areas like AI GPUs.

US-China Semiconductor Tensions Escalate

The US has intensified efforts to curb China's access to advanced semiconductor technology, marking a significant escalation in the tech cold war between the two superpowers. Washington's export controls, initiated in October 2022, specifically target chips used in AI applications, aiming to stifle China's technological and military advancements. Despite these restrictions, China remains a crucial market for American chipmakers like Intel, Broadcom, Qualcomm, and Marvell Technology, which derive substantial revenue from the region. The Semiconductor Industry Association has called for easing tensions, highlighting the importance of the Chinese market for US firms.

Navigating Export Curbs

In response to the US restrictions, companies such as Nvidia and Intel have adapted by designing modified AI chip products for the Chinese market. However, the US updated its export rules to close these loopholes, prompting firms like Nvidia to develop new chips compliant with the regulations. Intel reportedly continues to sell to Huawei under a license from the Trump administration, while AMD's efforts to design an AI chip for China hit a regulatory snag. These maneuvers underscore the complex dance US chipmakers perform to maintain access to China's lucrative market.

China's Push for Semiconductor Self-Sufficiency

Facing stringent US export controls, China is doubling down on its quest for semiconductor self-reliance. The country has invested heavily in its domestic chip industry, with state support bolstering firms like SMIC, which has made strides in advanced chip manufacturing despite US sanctions. The launch of Huawei's Mate 60 Pro, featuring a domestically produced advanced chip, exemplifies China's progress and its ongoing efforts to circumvent US restrictions. However, experts like Phelix Lee from Morningstar caution against expecting a rapid overhaul of the global semiconductor supply chain.

Street Views

• Chris Miller, Author of “Chip War” (Neutral on U.S. chipmakers in China):

  "China remains an important market for U.S. chipmakers, and the U.S. restrictions on selling advanced AI chips to China have been designed specifically to allow most U.S. firms to continue selling most types of chips to Chinese customers."

• William B. Bailey, Nasdaq IR Intelligence (Bullish on U.S.-based chip companies' capabilities):

  "There are still plenty of ‘high end’ chips with all types of allowable use cases that are good to go where U.S. based chip companies have the dominant, leading edge."

• Phelix Lee, Morningstar (Neutral on changes in supply chain dynamics due to Chinese innovation):

  "It does not expect 'an overhaul of the supply chain' even as Chinese firms could be innovating legacy chips found in everything from household appliances to medical equipment."

• Brady Wang, Counterpoint Research (Cautiously Optimistic about American tech lead over China):

  "We believe China can still build up its local GPU supply chain for specific market segments, but the amount will be limited, and the cost will be much higher."