AMEYA360:China, CHIPS and Supply Chain Disruption

　　Sanctions by the U.S. and its allies will, in the long term, limit China’s ability to manufacture leading-edge chips. But in the short term, China’s ability to produce more mature products may be a boon to the nation, said Richard Barnett, CMO of Supplyframe, a supply chain intelligence platform.

　　China, CHIPS and Supply Chain Disruption

　　A recent update to the U.S. CHIPS Act is discouraging international high-tech investment in China, according to market research firm TrendForce. The act now bans beneficiaries from investing more than $100,000 to expand existing facilities in China, Russia, Iran and North Korea for 10 years from the date of a CHIPS Act award. This move will further reduce the willingness of multinational semiconductor companies to invest in China for the next decade.

　　TSMC, for example, has expansion plans in both the U.S. and China. TSMC’s development at its Fab 16 plant in China has so far focused 28nm processes, according to TrendForce. Its plans for 16/12nm and 28/22nm processes at Fab 16 in China are limited for the next decade upon receiving the U.S. subsidies. Furthermore, 85 percent of the output must meet local market demand in China.The U.S. CHIPS Act could impact TSMC's plan to produce chips in China

　　Such measures only add uncertainty to an already-stressed supply chain, said Barnett. “Bottom line – constrained supply will linger for select devices in H2.”

　　Keeping China in check

　　U.S. restrictions on shipments to China of graphics processors and AI accelerators and other sweeping U.S. export controls mean that the expansion of both Chinese foundries and multinational foundries in China will be suppressed to varying degrees — regardless of whether they are advanced or mature processes, said Barnett.

　　The impact from restrictions on on fab equipment is still 18 to 36 months out, he added, as it applies to new machines  and new facilities. “There’s a lag between new equipment orders and new lines going up,” he said. “For mature, existing equipment it’s likely China is seeking alternative service providers. There’s little visibility into equipment orders and capacity plans that were made a year or more ago.”

　　Trade restrictions and sanctions could intensify further, he added, expanding more completely into semiconductor and passive component manufacturing and design intellectual property. This would spur China to seek IP from other Asian countries.

　　Chinese IC design companies are already shifting existing and new orders to Taiwanese foundries under pressure from clients, TrendForce reports. Tier-2 and -3 companies such as VIS and PSMC, which mainly focus on mature processes, are capturing orders rerouted from Chinese foundries. TrendForce predicts this shift in orders will ensure recovery for foundries currently impacted by inventory adjustment and low capacity-utilization rates, especially from 2H 2023 until 2024.