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Semiconductor Manufacturing Equipment Market is Projected to Reach USD 80 billion by 2026

Semiconductor Manufacturing

Semiconductor Manufacturing Equipment Market is Projected to Reach USD 80 billion by 2026

According to a recent study from market research firm Global Market Insights, The adoption of technologies like AI and IoT in fabrication will significantly impact the semiconductor manufacturing equipment market forecast. Software companies are keen on implementing advanced solutions to cater to the rising demands of compact chipsets and growing production.

For instance, TCS in May 2020, developed an AI and cloud-based solution to detect errors in wafers besides improving the production and quality of semiconductors. Constant use of advanced chipsets in automotive and consumer electronics to offer advanced infrastructure and technical expertise have bolstered growth opportunities in OSAT companies. Reportedly, the global semiconductor manufacturing equipment market could reach an annual valuation of over USD 80 billion by 2026.

Based on dimensions, the semiconductor manufacturing equipment market, from the 2D segment, is believed to register a CAGR of 6% up to 2026 owing to its lower initial cost of architecture. The 2.5D technological framework is mainly deployed across high-performance computing devices as it offers high chip functionality. It is additionally used in front-end equipment and graphene electronics to attain cost efficiency in production.

Foundries brought in more than 25% of the annual revenues in 2019, pegged to rise at a CAGR of 4% over the coming years. A surge in the demand for power electronics and cryptocurrency has urged foundry suppliers to upgrade their IC production with newer nodes. For instance, Apple received a 5nm chipset from TSMC to integrate the A14 SoC into iPhone12, in April 2020. The continuous decline in the node size has elevated the requirements for new semiconductor manufacturing equipment in foundries.

The ongoing COVID-19 pandemic has affected the production activities of semiconductor components and chips among facilities and fabrication plants, hampering the semiconductor manufacturing equipment market outlook slightly. There is a lot of complexity associated with patterns in the chipsets as they require high accuracy in transferring data to chips and ICs. Undetected electrostatic discharge damages and particle contamination in the chips will lead to higher investments.

Various business strategies are being developed by major brands to enhance silicon wafer production. STMicroelectronics acquired Norstel AB, a Sweden-based Silicon Carbide wafer manufacturer, to boost the supply of wafers for diode and MOSFET used in industrial and automotive sectors.

In the lithography process in the front-end segment, various technical advancements will increase the need for semiconductor manufacturing devices in the next few years. For instance, EV Group launched the next generation lithography process “MLE” (Maskless Exposure) equipment for high-density PCB, MEMS, and biomedical applications.

The wafer manufacturing equipment segment recorded over 15% of the global market in 2019. It is likely to garner a CAGR of 5% in the next few years due to the growing consumption of silicon wafers. There is a higher requirement for wafer manufacturing equipment in fab facilities. As per the Semiconductor Equipment and Materials International (SEMI), global shipments for silicon wafers incremented by nearly 2.7% in terms of square inches in the first quarter of 2020 compared to the last quarter.

North America’s semiconductor manufacturing equipment market crossed over 10% of the global share in 2019. The government-imposed restrictions on the export of semiconductor chipsets from China and external chipmakers due to the ongoing trade war between the U.S. and China, influencing higher manufacturing in the North America region. Consistent technological developments in the telecom sector and augmented need for portable and smart electronic devices have resulted in increased investments in the semiconductor industries.

The Semiconductor Industry Association (SIA) invested more than USD 10 billion to expedite the production of semiconductors together with driving R&D initiatives in chip technology. Semiconductor manufacturing equipment companies are incorporating business strategies and planning product launches to deliver advanced products.

Key Companies covered in semiconductor manufacturing equipment market are ADVANTEST CORPORATION, Applied Materials, Inc, ASML, Cohu, Inc, EV Group (EVG), Hitachi High-Tech Corporation, KLA Corporation, LAM RESEARCH CORPORATION, Modutek Corporation, Nordson Corporation, Onto Innovation, Plasma-Therm, SCREEN Semiconductor Solutions Co., Ltd, Tokyo Electron Limited, Veeco Instruments Inc.

Source: https://www.gminsights.com/pressrelease/semiconductor-manufacturing-equipment-market

export controls

UNPACKING US-CHINA SANCTIONS AND EXPORT CONTROL REGULATIONS: HUAWEI

This is the first in a series of articles by Eversheds Sutherland partners Ginger Faulk and Jeff Bialos explaining the legal and regulatory impacts of certain recent US sanctions and export control actions targeting various Chinese entities. Each article focuses on a different aspect of a recent US sanctions or export control regulatory action targeting China and explains in-depth the regulatory context. Recognizing that this is a highly charged political topic, the article does not condone or promote any governmental actions discussed here but is only explanatory in nature.

You undoubtedly will have heard by now that the United States has effectively blocked Huawei’s access to US exports of goods, software and technology, handicapping a giant in the global battle for 5G dominance, upsetting telecom supply chains and setting off a telecom cybersecurity crisis of conscience among many of the world’s developed and developing nations. As a result of Huawei’s designation on the US Department of Commerce’s “Entity List” in May 2019, all companies – no matter where they are – are prohibited under US law from exporting, re-exporting or transferring items that are “subject to the [US] Export Administration Regulations (EAR)” to 152 non-US Huawei affiliates. As a result, hundreds of telecommunication and software companies in third world countries are faced with the binary choice of whether to source technology and software from the United States or to transact business with Huawei.

The US government apparently concluded that this move alone did not work to prevent Huawei from benefiting from US-origin 5G semiconductor technology. Thus, more than a year later, recent rules have expanded the definition of what is “subject to the EAR,” with respect to Huawei specifically, to include offshore semiconductor production based on US technology. The changes to the rule demonstrate how US export controls are evolving to address perceived national security threats in the telecom sector writ large.

All of this is occurring against the backdrop of the US seeking to encourage friends and allies in Europe and beyond to eliminate or at least restrict the role of Huawei in their domestic telecom network infrastructure. This effort is based on concerns over the risk that Huawei theoretically could, at the behest of the Chinese government, either disrupt such infrastructure during periods of exigency or use their access to these platforms to conduct surveillance. In this regard, the new and more restrictive US regulatory approach to Huawei’s access to offshore semiconductor chips appears to have been effective. The UK has reportedly restricted its engagement with Huawei in 5G, apparently as a consequence of supply chain risks resulting from the new US rules, in other words, out of concern that Huawei might not have sufficient access to necessary semiconductor chips to meet the UK’s telecom needs. Whether other US friends and allies will do likewise remains to be seen.

 1. The initial Huawei ban

Since May 2019, the Export Administration Regulations have prohibited US and non-US persons and companies from exporting, re-exporting or transferring in the country, or causing, aiding, abetting or soliciting the export, re-export or transfer of, any item that is “subject to the EAR” to the designated Huawei affiliates.

Items that are “subject to the EAR”[1] include all commodities, software and technology, regardless of their sensitivity, that are:

1. a) in the US (even temporarily);

2. b) produced in the US, or

3. c) exported from the US.

The EAR state further that “items subject to the EAR” include all hardware, software and technology that meet the definition of that term, whether or not the items are listed on the Commerce Control List (CCL) in Part 774 of the EAR. Items subject to the EAR that are not listed in the CCL are designated as “EAR99,” which serves as a catchall category.

Non-US-origin items produced and sold from outside the US also may be subject to the EAR in the following ways:

(a)   Under the “De minimis Rule,” non-US items subject to the EAR include items anywhere in the world that contain more than a certain percentage (25% in most cases) US-origin content by value based on fair market price.

(b)  Under the “Direct Product Rule,” foreign items that:

(i)  are the direct product of certain “National Security”-controlled US technology, software, or

(ii)  are the direct product of a factory or major component of a factory (such as, chip manufacturing equipment) that is itself the direct product of specified controlled technology or software that may be subject to the EAR.

The Entity List designation created challenges for numerous US companies that are suppliers to Huawei or that afford it access to their technology platforms, such as Google’s Android operating system. Following the BIS designation, some of these US technology companies – including Google, Intel, Qualcomm and Broadcom – announced they would cease doing business with Huawei, effective immediately. Specifically, Google announced it would cut off Huawei’s access to the Google Play Store and to the core components of the Android ecosystem that are built by Google (i.e., not those distributed under the Android Open Source Project (AOSP)). Given that many third-party apps rely on Google Maps, this restricted the offerings of Huawei handsets, especially in the European markets. The chips manufacturers also were forced to shift outside of the US manufacturing and processing of silicon wafers that would ultimately be sold to Huawei.

Shortly after Huawei’s designation, in response to clamoring by industry, a Temporary General License (TGL) was issued to authorize the continued operation of existing networks and equipment, continued support to existing Huawei personal devices and equipment and cybersecurity research and vulnerability disclosures. It also authorized engagement with Huawei companies for the development of 5G standards. The goal of the TGL was to allow time in which to phase in the application of the designation for US firms with pre-existing arrangements with Huawei and allow them time to plan for an appropriate transition.

2. What was the perceived “loophole” in the rule?

Meanwhile, chipmaking factories outside of the United States, including Taiwan-based manufacturers, apparently continued to fabricate cutting-edge chips for Huawei using certain equipment that was designed, in part, based on US-origin technology.

This is because, for the first year of the rule (until May 16, 2020), whether intentionally or not, chips manufactured outside of the United States – even those designed or produced using US technology – appeared to fall outside of the EAR’s jurisdiction. Indeed, for purposes of determining US content value, the value of technology incorporated into a software or hardware component or used to design chip manufacturing equipment is not valued. As such, the “direct product rule” (prior to May 15, 2020) applied only to certain types of controlled technology to certain countries and did not extend to reexports to China of non-US-manufactured semiconductors not containing US-manufactured components.

3. How did US regulators fill in the loophole?

On May 15, 2020, almost exactly a year after the Entity List ban came into place, a new “footnote 1” was added to the Entity List banning the unlicensed export specifically to listed Huawei entities (but not to others on the Entity List) of a broad spectrum of foreign-produced telecom and computer components and equipment that are (i) the “direct product” of US technology or US software, or (ii) are the “direct product of manufacturing equipment that itself is a direct product of US technology or software. This extended the ban to, for example, semiconductor designs – and chipsets produced from those designs – that are developed on the basis of US software or technology. It also extended the ban to chipsets produced using semiconductor manufacturing equipment, even in Taiwan, if that equipment was designed on the basis of US-origin technology. According to industry experts, this seems to cover almost any chip currently in production. “To prevent immediate adverse economic impacts on foreign foundries utilizing US semiconductor manufacturing equipment that have initiated any production step,” the US provided a 120-day grace period for exports to Huawei of items based on (US-derived) Huawei design specifications as of May 15, 2020.

Under this revised rule, foreign-produced chips are prohibited for export or re-export when there is “knowledge [including awareness of a high probability] that they are destined for re-export, export from abroad, or transfer (in-country) to Huawei or any of its affiliates on the Entity List.” This change threatens to impact Huawei’s access to 5G microprocessors and appears to have caused the UK to rethink the role of Huawei in its developing 5G network. The US work to close the loophole was not yet complete, however…

4. The grip tightens…

The most recent rule change on August 20 ended the Temporary General License and also further tightened the screws on Huawei by clarifying that the ban applies (1) not only when a listed Huawei affiliate is the destination for or receives an item but also whenever it is an indirect party to a transaction involving a subject item, e.g., as a “purchaser,” “intermediate consignee,” “ultimate consignee” or “end-user,” and (2) when the foreign-produced item will be incorporated into or used in the production or development of any part, component or equipment produced, purchased or ordered by a listed Huawei entity. These changes were principally designed to address concerns raised by public commenters that Huawei could continue to procure US manufactured items through third-parties who incorporate the subject US-controlled component into a system that is ultimately sold to Huawei.

Critics of the rule have commented that the new rule will encourage China to develop its own computer and telecom system chips and technologies in order to support Huawei and other Chinese companies that rely on such chips for their products. Others have voiced concerns that – without US security patches and software updates permitted under the TGL – overseas consumers and operators will be vulnerable to severe disruptions and cyber-security risks.

Meanwhile, the global telecom sector is carefully watching countries like Germany, which is deciding the role that Huawei will play in domestic telecoms infrastructure. These decisions will signal whether continental Europe and other US friends and allies in Asia and elsewhere will fall in line behind US efforts to exclude Huawei from global networks – thereby decoupling US-China telecom supply chains. Or alternatively, whether these countries will assert their own “digital sovereignty” and allow Huawei a continued role – with attendant repercussions on their security relationships with the United States.

Meanwhile, the Department of Commerce enjoys the latitude to issue specific export licenses to firms that request to keep supplying Huawei with software or components. The stage is set for the battle to continue as China is reportedly considering retaliatory measures of its own, possibly to include its own export controls.

_______________________________________________________________

Ginger T. Faulk, partner at Eversheds Sutherland, represents multinational companies in matters involving US government regulation of foreign trade and investment. She has extensive experience advising and representing global companies, counseling clients in matters arising under US sanctions, export controls, import and other national security and foreign policy trade-related regulations.

Jeffrey P.  Bialos, partner at Eversheds Sutherland, assists clients in making multi-faceted business decisions, structuring transactions and complying with complex regulatory requirements. As former Deputy Under Secretary of Defense for Industrial Affairs, he brings deep experience in defense, homeland security and national security matters, including antitrust, procurement, export controls, industrial security and the Foreign Corrupt Practices Act.

[1] See generally 15 CFR Parts 732 and 734.

semiconductor

CONTROLS ON SEMICONDUCTOR TRADE ARE A HARBINGER FOR “TECHNO-NATIONALISM”

Major nations are in a race to achieve supremacy in the “technologies of the future” that include data analytics, robotics, AI and machine learning, surveillance technology and 5G networks. What all these new technologies have in common is the semiconductor microchips that drive them. Gaining the technology upper hand requires the secure production or supply of advanced semiconductors, which makes the controls on trade in semiconductors a harbinger for how “techno-nationalist” trade policies are reshaping global supply chains.

China’s failure to launch?

The global semiconductor industry was historically dominated by a small group of primarily American semiconductor companies. In the past two decades, a handful of Asian semiconductor companies including Toshiba (Japan), Samsung (South Korea) and TSMC (Taiwan), have managed to grow market share. Latecomers in Asia benefited from a combination of ambitious industrial policies and government support, a narrow focus on specialization and innovation, and access to key foreign partnerships and foreign direct investment.

The Chinese government seeks to replicate these models on a much larger scale under its Made in China 2025 industrial policy. Geopolitics may prevent China from achieving its goals. Key Chinese tech firms, including Huawei, HikVision, and SenseTime, now find themselves on a U.S. restricted entities list, which means “controlled” American technology may not be sold to them.

Global Semi Shares

China’s push to reduce semiconductor tech dependence

The Chinese market is almost entirely dependent on foreign firms for microchips. Domestic production accounts for just nine percent of China’s semiconductor consumption – leaving 91 percent of China’s demand to be satisfied by imports, 56.2 percent from the United States.

Yet semiconductor technology is vital to China’s manufacturing base and to China’s top exports that include smartphones, personal computers, and smart televisions. China’s continued dependence on U.S. and foreign semiconductor technology has been a catalyst for Beijing to double down on policies to promote homegrown companies.

China’s National Integrated Circuit Plan calls for $150 billion in R&D funding from central, provincial and municipal governments, twice as much as the rest of the world combined. U.S. companies spent $32.7 billion on R&D in 2018, followed by European companies ($13.9 billion), Taiwanese companies ($9.9 billion), Japanese companies ($8.8 billion) and Korean companies ($7.3 billion).

Some 30 new semiconductor facilities are either under construction or in the planning stages in China – more than any other country in the world. But even the most sophisticated fabricator in China must rely on licensing chip designs from foreign firms and on high-volume commercial production lines outside of China. And foreign firms still dominate niches in China’s semiconductor market such as microchip packaging and testing, semiconductor equipment, memory and AI chips, as well as contract microchip making.


National champions require international supply chains

China is not alone in its interdependence on global value chains. Leading American, European, Japanese and South Korea semiconductor companies have all developed and optimized geographically dispersed production networks. Research and development, design, manufacturing, assembly, testing and packaging have become hyper-specialized with activity taking place across multiple countries as microchips cross borders dozens of times before being finally embedded into a finished product.

Chinese tech companies have been able to grow and innovate because of unfettered access to collaborative relationships with foreign research and academic institutions, as well as access to foreign companies through acquisitions and (often state-funded) mergers – until recently.

Semi R&D Spending

American trade countermeasures

The U.S. government has taken steps to block Chinese acquisitions and investments in American technology companies and has also made critical changes to the U.S. export controls program. The U.S. Department of Commerce manages a list of “emerging” and “foundational” commercial technologies or products which can be used for military purposes. It recently expanded the technologies included on the Controlled Commodity List (CCL). Technologies on the CCL require issuance of an export license prior to sale and transfer to a foreign market.

An export control is not, by itself, a prohibition to sell or buy a traded good. In the vast majority of cases, when the facts surrounding a controlled item are reviewed (including who the buyer is and how the controlled item will be used), U.S. government agencies issue export licenses. But export controls and related measures add a layer of uncertainty to global value chains, potentially turning long-time suppliers into unreliable suppliers.

Part and parcel of the Chinese Communist Party’s approach to leapfrogging in the semiconductor industry is to appropriate special technology funding toward “military-civil fusion,” designed to bring tech startups and private companies together with the People’s Liberation Army. The deepening of those direct links virtually ensures that innovations and technologies pertaining to industries of the future will be considered by the U.S. government as dual use technologies subject to scrutiny, control and prohibitions when it comes to exporting them from the United States, especially to China.

A special designation

U.S. companies or individuals may also be denied or restricted from doing business with restricted entities/parties or with “specially designated nationals”. In May 2019, the U.S. government designated Huawei, China’s telecommunications giant, a restricted entity. In this scenario, the application for an export license to a Huawei entity would be presumed denied, effectively banning the sale of American technology to Huawei or any of its 68 non-U.S. affiliates in other countries.

The designation has widespread ripple effects. Huawei purchased some $70 billion components and parts from more than 13,000 suppliers globally in 2018 – approximately $11 billion worth of microchips from American technology companies alone. American companies may not sell to Huawei and Huawei must replace all U.S. technology from its smart phones, which previously included U.S. radio frequency chips, DRAM and NAND chips, design software and Google’s Android operating system.

Prohibitions may be applied to individual end-users, to financial institutions that may seek to process transactions for a restricted buyer or supplier, and to academic and research institutions that may be prevented from using technologies from restricted entities in their research.

Driving a wedge and choosing sides

Washington’s countermeasures aim to impede the Chinese Communist Party’s ability to promote U.S. technology and intellectual property transfer to Chinese entities – either by stopping sales of technology, stifling investment flows into China’s semiconductor industry, or blocking the acquisition of strategic assets from U.S. and foreign companies by Chinese state-backed entities.

This evolving trade policy landscape will inevitably lead to the reconfiguration of global value chains as companies comply with export restrictions. Foreign companies that seek to maintain their relationship with a restricted entity must reduce the value of U.S. content to below an acceptable “de minimis” level, increase the value of non-U.S. made products in their sourcing and production, or avoid doing business with U.S. companies altogether. This has induced companies to move value-added operations out of the United States, to ring-fence operations in China, or to consolidate into more vertically integrated value chains.

In an attempt to close the de minimis loophole, the U.S. government has modified the “foreign direct product” rule. In the example of Huawei, this change prevents foreign manufacturers from supplying Huawei, the Chinese tele-communications manufacturer, with microchips and other products, if the production of these items uses any U.S. technology, including manufacturing equipment, designs or software. U.S. firms dominate these technology niches.

This change was clearly aimed at Taiwan Semiconductor Manufacturing Company (TSMC), which manufacturers microchips for HiSilicon, Huawei’s subsidiary. Cutting off the supply of microchips to HiSilicon presents an existential crisis for Huawei, as no Chinese companies are capable of producing leading-edge microchips on par with TSMC and other foreign manufacturers.

Compliance has become more complicated as the ranks of restricted entities swell. Nearly 170 Chinese individuals and entities (across a wide swathe of industries) are on the U.S. Specially Designated National list. U.S. companies must navigate restrictions that are enforced by more than a dozen different U.S. government agencies.

American firms are also concerned about diminished opportunities to do business in key global value chains, effectively ceding market share to Chinese and other foreign firms not under similar restrictions. Limited or foregone sales in China may reduce funds for R&D. Restrictions also choke off collaborative innovation across specialized clusters and between human capital networks. Huawei and other Chinese tech companies are looking to withdraw from U.S.-influenced supply chains, forming alliances with non-American technology companies, putting TSMC, Samsung and others in the position of having to choose sides.

Just the beginning

When Washington announced Huawei would be placed on the U.S. Restricted Entity List, Huawei’s management tapped 10,000 engineers, requiring them to work continuously in shifts to re-write code and re-design specifications so that Huawei might minimize the damage of U.S. export controls.

The United States is not alone in its trade countermeasures. Europe is also turning to techno-nationalism. Brussels recently issued a report that emphasized the importance of working with America to create an economic model that would compete directly with Beijing, particularly with the intent of blocking the Chinese Communist Party’s attempts to influence global standards in 5G and other next-gen technologies. Japan has blocked Huawei 5G technology.

By enacting policies intended to protect against theft or transfer of domestic semiconductor technology from opportunistic or hostile state and non-state actors, governments have opened more fronts in the deepening tech war with China, which portends to reshape existing global value chains for semiconductor production. And semiconductors are just the beginning.

This article is drawn from a detailed research report: Semiconductors at the heart of the US-China tech war

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Alex Capri

Alex Capri is a Research Fellow with the Hinrich Foundation, Senior Fellow at the National University of Singapore, and Lecturer in the Lee Kuan Yew School of Public Policy. He was previously the Partner and Regional Leader of KPMG’s International Trade & Customs practice in Asia Pacific, based in Hong Kong.

This article originally appeared on TradeVistas.org. Republished with permission.