While many chip CEOs praise President Trump for taking on China for theft of intellectual property, they remain largely silent on their concerns about billions in tariffs on Chinese goods and the blacklisting of major companies like Huawei.
The Trump Administration regulations on China trade and Chinese electronics companies “are crippling the semiconductor industry in not only China, but here in North America too,” said one CEO of a chip venture fund. He asked not to be named, just like several other chip executives contacted for this article.
Asked why he and other executives don’t want to speak, the venture executive said, “There is a lot of fear and uncertainty surrounding this issue because it could have reprisals for individuals on many fronts. It will be difficult to get industry insiders to talk.”
Roger Entner, an analyst at Recon Analytics and a security expert, has praised President Trump’s attack on theft of IP by Chinese companies as have many others. But Entner said he understands why chip CEOs are not speaking out. They worry they will appear to be attacking the president and his policies.
“Nobody wants to speak up in public because attacking President Trump has not ended well for people. So, they keep their mouths shut, at least publicly,” Entner said.
Some U.S. retailers and their trade group have been openly critical of tariffs imposed on Chinese goods by the Trump Administration, but the semiconductor industry has been more reserved.
Privately, there is deep concern by chip executives over the issues with China, however. A visible sign of that concern appeared recently when more than 130 companies sought special licenses to sell U.S. goods to Huawei, which would help them get around a blacklisting when the U.S. Commerce Department placed Huawei on its entities list in May.
In 2018, Huawei spend $11 billion on electronics made by U.S. companies such as Intel, Qualcomm and Micron. Companies are obviously worried those sales could be lost if Huawei remains blacklisted or there is not some relief when U.S. and China meet in future trade talks, tentatively set for September.
Not counting revenues from “entities”
In one small example of the concern, Synopsys said in its third quarter earnings call on Aug. 21 that it would not count any revenue in the fourth quarter from companies on the U.S. government’s entity list.
Co-CEO Aart De Geus said the entities ban “has affected our revenues somewhat” but quickly added that even if the ban remains in place for the rest of the fiscal year, Synopsys is raising its revenue targets. “Given the sensitivity for our customers, we’ll refrain from making any further comments,” he said on the call.
Synopsys and other U.S. companies such as Mentor Graphics and Cadence Design Systems make Electronic Design Automation (EDA) tools used in chip design by foundries such as TSMC in Taiwan, United Microelectronics and GlobalFoundries.
If companies like Huawei on the entities list can’t have access to the EDA tools, they won’t be able to design future chips, two people familiar with the business said, asking not to be named. And in some cases, Huawei is making those chips for use by U.S. companies or companies that are from countries that are U.S. allies.
If Huawei and others on the entities list continue to be shut out, Americans and non-Chinese nationals working on the chip design supply chain could lose their jobs or be reassigned, those two people added.
Officials at the U.S. Trade Representative and Department of Commerce could not be reached for comment on job losses. Commerce officials have argued that Huawei and others on the entity list constitute a security threat to the U.S. Huawei denies it spies on customers and says it is not controlled by the Chinese government.
Trade groups for the semiconductor industry have published a regular stream of blogs, including testimony before a U.S. interagency panel, opposing trade tariffs against China primarily. “An escalation of the [trade] dispute could trigger a full-blown trade war and hasten deep, unintended damage including higher consumer prices, an expanded U.S. trade deficit and a slowdown in U.S. economic growth,” the trade group SEMI said in May.
Those comments came well in advance of two different tariffs imposed on $550 million in Chinese goods, including electronics. President Trump last week hiked up the percentage imposed on the tariffs, but then seemed to soften his approach on Monday to China trade, noting that China “very badly” wants to reach a trade deal with the U.S.
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Decades of China-U.S. interdependence
The analyst Entner said what seems to be missing in the overall U.S. trade approach to China is how interdependent the two countries have become with production of electronics since China because a member of the World Trade Organization in 2001.
“Our world is intricately intertwined already where both countries are critically dependent on each other,” Entner said. “Disentangling this puzzle is extremely difficult and takes time because the supply chain and interdependence has taken decades to build. You can’t change that within months or even a year.”
Entner said he agreed that losing access to EDA design tools could devastate foundries. “If you shoot the farmer in the head, don’t be surprised if you don’t get vegetables or meat anymore,” he said
If the trade war becomes more entrenched, U.S. companies could be seriously hurt with loss of IP, he argued. “If it gets to the point where China is not allowed to use any U.S. tech and we’re not importing any more from China, what will prevent China from nationalizing all these U.S. companies now in China? It has happened before.”
Entner noted that Germany-based Bayer, the makers of aspirin, had the brand and patent for aspirin confiscated as enemy property by the U.S. during World War I. The rights were regained in 1994.
“There’s plenty of precedent of the nationalizing of products, services and IP when things get really complicated,” Entner added.
All the goods that were being made by confiscated U.S. companies in China could be used for domestic consumption, and China could also sell to countries in Africa and Asia, Entner said.
“I don’t think we’re at a crippling point yet” with the trade war’s impact on semis, Entner said. “Let’s just say it is threatening to be crippling.”