China's Semiconductor Industry 'Decapitated Overnight': What 'Annihilation Looks Like'

The Biden administration unveiled a comprehensive strategy recently to move the U.S. forward and hold China back in the production of advanced semiconductors, virtually eliminating China's semi industry overnight, escalating the high-tech battle with Beijing.

“Every American executive and engineer working in China’s semiconductor manufacturing industry resigned yesterday, paralyzing Chinese manufacturing overnight,” wrote Twitter user @lidangzzz, translated by Rhodium Group analyst Jordan Schneider.

“One round of sanctions from Biden did more damage than all four years of performative sanctioning under Trump.”

What happened: Yangtze Memory Technologies Co, a company owned by China, and 30 other semiconductor companies in China have been put to the Unverified List by the Bureau of Industry and Security, a division of the U.S. Department of Commerce. 

Sanctions imposed by the Biden administration also prevent businesses from sending the cutting-edge processors required to run or train the most efficient AI algorithms to China.
Also read: US Said To Mull Sanctions On China To Deter Invasion Of Taiwan And It Could Be A 'Far More Complex' Exercise Than One With Russia

The extensive new regulations are intended to keep China's AI industry in the stone age as the U.S. and other Western nations advance.

The limitations also prohibit the export of chip manufacturing tools and design software and forbid the top silicon fabs in the world, such as Taiwan Semiconductor Mfg. Co. Ltd. TSM and Samsung, from producing cutting-edge chips for Chinese businesses.

Why Did American Execs Resign? One of the provisions of President Joe Biden's executive order is that any U.S. citizen or green card holder working in China cannot work in the Chinese semiconductor industry or risk of losing American citizenship.

According to the @lidangzzz thread, it is not just affecting Americans.

“Everyone from Lam Research Corporation LRCX at Yangtze Memory left today, and on the 12th the Applied Materials, Inc. AMAT folks will leave as well — not just Yangtze, but also HLMC [Shanghai Huali Microelectronics], ICRD’s [Shanghai Integrated Circuit R&D Center Co], Jiading fab, [and] Hefei’s CXMT DRAM fab.”

ASML Holding NV ASML, one of the world’s most important semiconductor toolmakers, told U.S. employees to stop servicing Chinese customers.

“The starting point for this round of sanctions is to go all the way up the food chain and ensure the elimination of all American products and technologies from the entire ecosystem,” the thread reads.

Why It Matters: Taiwan Semi reduced its forecasts for capital expenditures and Applied Materials cut its outlook for revenue and profit following the sanctions. Both businesses said the demand for semiconductor products would decline.

Chinese officials described the U.S. limitations as a significant step intended to thwart the development of the nation. The decision might have wide-ranging effects, such as restricting the development of artificial intelligence that underpins algorithms for driverless vehicles, and other risks.
"This is what annihilation looks like: China’s semiconductor manufacturing industry was reduced to zero overnight. Complete collapse. No chance of survival," the thread continued.

Benzinga's Take: While the new sanctions are a sharp blow to China's semi industry, U.S. leverage could fade eventually as Shenzhen, China's innovation powerhouse, intensified efforts to develop its domestic chip sector by giving significant subsidies and financial incentives to semiconductor companies registered in the city.
Stay up to date on U.S. sanctions here. 

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