How will Japan fab tool curbs impact Chinese semiconductor players?

Chiang, Jen-Chieh, Taipei; Willis Ke, DIGITIMES Asia 0

Credit: AFP

Japan has officially announced that it will tighten controls on exports of 23 types of semiconductor equipment to China starting July 23. How the new trade curbs will impact Chinese semiconductor industry is drawing increasing concerns from market and industry observers.

Japan will strictly restrict shipments of four types of exposure machines, three kinds of etching equipment, 11 film-forming machines, three cleaning equipment items, one thermal treatment system, and one front-end test solution, all needed to produce 14nm chips and more advanced ones. The restrictions come on the heels of similar curbs adopted by the US and the Netherlands against China.

Chinese Commerce Minister Wang Wentao urged Japan to halt semiconductor export controls, calling it a "wrongdoing" that "seriously violated" international economic and trade rules. He issued the call during talks with Japanese Trade Minister Yasutoshi Nishimura on May 26 at the Asia-Pacific Economic Cooperation (APEC) conference in Detroit, three days following Japan's announcement.

How large the impact of Japan's trade curbs will be on China's semiconductor industry?

Japan's Toyokeizai cited a report from China's Caixin Global that investors in China's semiconductor equipment manufacturing firms believe that most Chinese semiconductor manufacturers will not be much affected by the Japan export restrictions in the short term, as they have purchased a lot of equipment and materials from Japanese suppliers in advance.

The South China Morning Post also quoted a semiconductor analyst at Counterpoint Research as saying that Japan's increasing cooperation with the US in tightening exports of advanced semiconductor equipment and technologies to China will heap large pressure on Chinese semiconductor players, given that Japan was China's largest supplier of semiconductor equipment in 2022 as indicated in the United Nations merchandize trade statistics.

The analyst said that China is now capable of producing 14nm chips, yet in a small volume, and that Japan joining hands with the US to contain China will make it difficult for Chinese foundry houses to increase output of sub-20 nm chips.

But the analyst also noted that Japan's latest trade restrictions on China need to be observed further, as both China and Japan still need time to negotiate exemptions or buffer measures similar to those given by the US to Samsung Electronics and SK Hynix.

Japan's Diamond Weekly reported that five Chinese semiconductor firms will bear the brunt of impacts from the Japanese trade curbs, namely SMIC, Hua Hong Semiconductor, Huali Microelectronics, Yangtze Memory Technologies (YMTC) and ChangXin Memory Technologies (CXMT).

Meanwhile, as Chinese semiconductor companies are shifting production focus to non-advanced chips, they have placed increased orders with Japanese suppliers for equipment needed for producing semiconductor power devices, analog chips and other lower-end chips.

Tokyo Electron, for instance, saw its sales in the China market grow 11% on year to JPY131.3 billion (US$937.05 million) in the first quarter of 2023, and its president Toshiki Kawai has estimated the company's shipments to China in fiscal 2023 (April 2023 to March 2024) will contribute over 30% of its annual revenues, up from 23% of a year earlier.