China remains an important market for US chipmakers amid rising tensions

The US has passed a series of export restrictions starting in October 2022 aimed at limiting China's access to advanced chip technology, particularly for use in AI applications.

“China is an important market for US chipmakers, and US restrictions on sales of advanced AI chips to China are specifically designed to allow most US companies to continue selling most types of chips to Chinese customers,” said Chris Miller, author of “Chip War”. ,” he told CNBC.

Used in a wide range of products, from smartphones to electric vehicles, semiconductors have become a top priority for governments worldwide.

China consumes 50% of the world's semiconductors because it is the largest market for assembling consumer devices, according to data from technology consultancy Omtia.

US chipmakers, which enjoy technological leadership over their Chinese rivals, have been able to tap into this demand as US export bans focus on certain products.

“There are still plenty of 'high-end' chips with all kinds of permissible use cases that would do well to go where US-based chip companies dominate, leading the way,” said leading technology, media and telecommunications analyst William P. Bailey said. In Nasdaq IR intelligence.

US chipmakers such as Micron Technology, AMD and Nvidia, even those with the majority of their business in the US, have tried to serve their Chinese customers despite facing export restrictions.

When the first wave of U.S. regulations take effect in late 2022, Nvidia and Intel are designing modified versions of AI chip products for the Chinese market.

A year later, the US updated its export rules to address these perceived loopholes. But soon, it was reported that Nvidia was working on a new chip made for China.

Thanks to an export license granted by the Donald Trump administration, Intel continues to sell hundreds of millions of dollars worth of laptop processor chips to US-sanctioned Chinese telecom giant Huawei.

The company did not respond to a request for comment on their plans for the China market.

AMD has also designed an AI chip for China, but failed to get one from US regulators last month, requiring it to apply for an export license.

Executives from Intel, Qualcomm and Nvidia were present is reported It was part of a group that planned to lobby Washington against tighter chip restrictions in July last year.

The companies are also members of the Semiconductor Industry Association, a major US semiconductor trade organization. issued a statement At the same time it called for an easing of tensions and an end to further sanctions due to the importance of the Chinese market for domestic chip companies.

Amid the tough US policy stance, China has also retaliated. In May last year, chips made by America's Micron were banned from critical information infrastructure in China after they failed a review by the country's Cyberspace Administration.

Micron is building a new assembly and test manufacturing facility in Xi'an, China, because the country is “an important market for Micron and the semiconductor industry,” a company spokesperson told CNBC. Production is estimated to begin in the second half of 2025.

China is striving for self-sufficiency by building its domestic semiconductor industry in response to countries such as the United States and the Netherlands limiting access to advanced technology.

Beijing has given billions of yuan in subsidies to its chip companies in an effort to boost domestic production.

Analysis of Huawei's Mate 60 Pro smartphone Technical intelligence It revealed an advanced chip made by SMIC, China's top chip maker. The smartphone is also said to be equipped with 5G connectivity – US sanctions aimed at preventing Huawei from accessing this technology.

The Chinese government is “very focused” on getting its companies to buy domestically-made chips, Miller said. “If foreign firms do not have significant technological advantages over their domestic Chinese competitors, they will lose market share in China.”

However, Felix Lee, an equity analyst at Morningstar, said while Chinese companies could innovate on legacy chips found in everything from home appliances to medical equipment, he did not expect a “transformation of the supply chain”.

Traditional chips are typically mature or low-end semiconductors. US Commerce Secretary Gina Raimondo said About 60% of these chips are manufactured by China.

According to Brady Wang, co-director of Counterpoint Research's AI GPU market segment, American companies such as Nvidia and Intel are estimated to have a three- to five-year technological lead over their Chinese rivals.

“We believe that China can still develop its local GPU supply chain for specific market segments, but the amount will be limited and the cost will be very high,” he added.