Biden’s clamp down on chips, tools to China is already working— and hurting Applied in US too

The Biden administration’s trade restrictions on sales of advanced chips and chipmaking tools to Chinese companies are already making an impact, although in some cases will hurt US companies.

Applied Materials, based in Santa Clara, Calif., estimated the new regulations, announced last Friday, will reduce fourth quarter net sales by about $400 million, with a similar impact in the first quarter of 2023. Sales for 4Q will be about $6.4 billion, down from an earlier estimate, the company said. It is expected to announce earnings Nov. 17.

The company is one of the largest producers of technology used to produce chips, including tools that deposit layers of materials on wafer surfaces. Other major US chip toolmakers include KLA, which makes inspection and testing equipment, and Lam Research, which produces etching machines.  Neither KLA or Lam have commented on the trade restrictions.

Even though share prices have declined for all three in recent months, Applied saw a share increase of 4% Thursday, reaching $79.31.

Applied is pursuing export licenses and authorizations where needed, the company said.  Both Intel and SK Hynix said Wednesday they had won exceptions to keep their China-based manufacturing operations running.

China is the biggest market for the three toolmaking companies and provides about 30% of their revenues. That number includes revenues from international companies that operate chip production in China and would not be affected by the trade restrictions.

In one example, the three companies support Yangtze Memory Technologies Co., a Chinese state-owned company, with dozens of employees at a factory in Wuhan. Unnamed sources told The Wall Street Journal the US companies are pulling out staff at YMTC and pausing business activities there.

Biden administration officials and trade officials in the US Commerce Department have long expressed concerns about China’s ability to use US-made chips and tools to advance work in AI and to crack encrypted data streams. In some cases, Commerce said last week, the US is unable to determine if a company or research effort in China is already involved in activities deemed “contrary to national security or foreign policy interests of the United States.”

Leonard Lee, analyst at neXt Curve, said the Biden approach to trade with China on chips and chipmaking tools will be challenging for some US allies, particularly South Korea, which is concerned with repercussions from Beijing for supporting the Biden agenda. "These concerns have challenged Washington's effort to martial Taiwan, South Korea and Japan around a commitment to curtail the advance of China's domestic semiconductor industry," he said via email to Fierce Electronics.

Lee said it is still not clear how the new Biden approach will impact US chip firms. "Washington will have to find a diplomatic balance to press its China containment agenda outside US," he added. "It is more likely that retaliatory moves by China in response to US actions will have the detrimental impact on the US chip sector and that of its allies." 

RELATED: Biden crackdown forces chip toolmakers to choke Chinese-owned fabs producing logic chips

RELATED: Biden clamps down on trade to 31 Chinese companies, universities