China has officially announced the imposition of export controls on gallium and germanium-related items starting from August 1. While this regulatory change does not equate to a ban, its implications could be significant, particularly concerning the control of their end-use applications. It is anticipated that these measures could have a major impact on U.S. IDM (Integrated Device Manufacturer) firms, who maintain technological advantages in compound semiconductor technologies.
Businesses involved in optical communication and the LED industry anticipate minimal short-term impact. Following the official announcement, relevant companies have initiated contact with upstream suppliers to ensure smooth procurement after a formal application process. It's also worth noting that the new regulations are unlikely to impact standard electronic components like LEDs. As China's actions seem intended to counter US influence, the focus is expected to be on third-generation semiconductors, unless they aim to affect the prices of consumer electronics in the US.
Gallium is a crucial metal component in compound semiconductors, particularly Gallium Nitride (GaN) which is favored for its low power consumption and heat-resistant attributes. Beyond consumer quick-charge products, it is extensively used in applications such as 5G base stations, solar panels, network communication and even military radars. It is predicted that these areas that concern national defense and wireless communication development might be one of the reasons for China's recent control measures.
Both gallium and germanium are mainly sourced from China, with China contributing approximately 90% of the global supply of gallium and having over 80% of its reserves. Any significant change in the export policy could have a substantial impact on global supply stability. Although the US holds nearly 45% of global germanium reserves, the country has limited development and output, making the long-term effects of these restrictions uncertain.
China might retain the option of selective shipments as a bargaining chip even though a strict export control that would be perceived as a declaration of conflict with global customers is unlikely. It could scrutinize specific targets in the future, manipulating the global growth trajectory of compound semiconductors. U.S.-based IDM companies that are leaders in compound semiconductor technology could be particularly affected. If China cuts off these companies' supply sources, it could restrict the U.S. from expanding its footprint in compound semiconductor industry.
The situation is worth watching closely, especially as the U.S. recently announced a broadband deployment program exceeding USD$42 billion (known as the Broadband Equity, Access, and Deployment [BEAD] program). The extensive upgrades needed for broadband infrastructure will require key optical communication transceivers. It remains to be seen whether China's latest move will significantly hinder the upgrade plans for US broadband infrastructure.
Article translated by Julie Chang
