Shares of global semiconductor equipment firms rallied on Thursday following reports that the US is weighing narrower sanctions on China’s chip industry.
These measures, reportedly softer than previous proposals, could limit the impact on certain Chinese manufacturers, sparking optimism among equipment suppliers like ASML and Tokyo Electron.
ASML shares climbed 3.6% in early European trading, while Tokyo Electron surged over 6% in Japan.
The shift in sentiment stems from expectations that the new rules may exclude key players such as ChangXin Memory Technologies (CXMT), a potential rival to Samsung and SK Hynix.
New rules to reshape the semiconductor landscape
A Bloomberg report suggests Washington is focusing on curbing sales of specific semiconductor equipment and AI memory chips to China, rather than imposing blanket restrictions.
The US Commerce Department’s Bureau of Industry has not yet commented on the potential regulations.
Instead of targeting all entities indiscriminately, the US is reportedly aiming to blacklist fewer companies on its Entity List, the export control mechanism designed to restrict the flow of technology to Chinese firms.
Notably, CXMT, which produces memory chips, is expected to avoid being added to the list, reducing the immediate threat to the company’s operations and to the broader supply chain.
ASML’s China exposure may improve
ASML, a Dutch firm crucial to advanced chip manufacturing, has been at the centre of the US-China technology rivalry.
Its machines are essential for producing cutting-edge semiconductors, and US export controls have previously hindered the company’s ability to serve Chinese customers.
Analysts from Jefferies noted that ASML previously anticipated a 30% drop in its revenue from China next year due to these restrictions.
However, if the proposed measures remain less aggressive, ASML’s sales decline in China could be smaller than initially expected.
The Dutch and US governments have already imposed stringent restrictions on ASML’s export of advanced lithography machines to China.
Extra rules targeting Chinese manufacturers of semiconductor equipment, rather than fabs (chip fabrication plants), could offer some relief to ASML by preserving demand from key customers like Taiwan’s TSMC and China’s SMIC.
The implications of Washington’s recalibrated strategy could extend beyond ASML.
Equipment suppliers that sell to fabs rather than directly to Chinese semiconductor manufacturers are likely to benefit.
For instance, Tokyo Electron, which experienced a significant jump in its stock price, may also see less disruption to its China operations if the sanctions remain focused on equipment makers.
The longer-term geopolitical tensions between the US and China continue to loom over the semiconductor sector.
With the global chip supply chain already strained, any additional sanctions risk exacerbating existing challenges.
US-China technology conflict
The semiconductor battle is just one front in the broader US-China technology conflict.
The US has increasingly restricted the flow of advanced technology to China, citing concerns about national security and technological supremacy.
China, in response, has sought to boost its domestic chip-making capabilities through initiatives like the Made in China 2025 strategy.
While Washington’s latest sanctions appear more measured, the fundamental rivalry remains unchanged.
The gradual decoupling of the two economies in critical sectors like semiconductors underscores the fragility of global supply chains and the importance of strategic industries in shaping international relations.
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