How Applied Materials Could Be Impacted by Export Controls

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Semiconductor manufacturing equipment suppliers and China

Both domestic and foreign semiconductor companies have increased their capital spending on fabrication facilities in China (FXI). This trend has benefited SME (semiconductor manufacturing equipment) suppliers Applied Materials (AMAT), Lam Research (LRCX), and KLA-Tencor (KLAC). The three companies together earn almost 18% of their revenue from China, through sales to both Chinese and foreign companies operating in China.

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SMEs could be impacted by US export controls on China

The US is imposing tariffs on Chinese imports and tightening Chinese investments in the United States. If the two countries engage in a trade war, the United States could impose controls on exports to China. 

US export restrictions could impact the abovementioned three companies’ equipment sales to China, which offer critical technology for the “Made in China 2025” initiative. If the United States goes further and restricts the sale of equipment to non-Chinese semiconductor companies operating in China, such as Intel (INTC) and TSMC (TSM), SME suppliers could see their earnings fall significantly, as China is the second-largest semiconductor user after the United States. Moody’s has noted that export restrictions on SMEs could limit China’s initiative to achieve self-sufficiency in chip manufacturing, as there are no other non-US alternatives offering such solutions.

Companies operating in China 

US companies operating in China might also be impacted by export controls, and most mobile and PC original equipment manufacturers have plants in China. Next, we’ll look at the potential effects of the above restrictions on Advanced Micro Devices and Intel.

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