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US chip industry to warn Trump against export controls on Chinese trade

Attempt to curb Beijing's 'Made in China 2025' could be devastating say companies

Talon Innovations employees work inside a clean room at the plant in Sauk Rapids, Minn.   © AP

TAIPEI -- The U.S. semiconductor industry will warn President Donald Trump's administration that curbs on exports of chips and equipment to China could damage American jobs when representatives gather in Washington in two weeks to lobby against a new wave of constraints on Chinese trade, according to an executive from a top U.S. chip equipment supplier.

"There is a business risk if the U.S. administration puts export controls [on China]," Oreste Donzella, KLA-Tencor's senior vice president and chief marketing officer, said in a news briefing at the SEMICON Taiwan exhibition on Thursday. "This is huge business to the U.S. economy. I cannot imagine the White House would reduce the economy when we [U.S. chip and equipment suppliers] make a lot of money from the exports."

Donzella said he remained hopeful that export controls would be avoided. Total spending on semiconductor equipment in China -- by local and foreign chipmakers -- reached $8 billion by the start of 2018, and much of the equipment comes from American suppliers.

However, his comments come as the trade tensions between the world's two largest economies looked set to escalate with a new round of tariffs on Chinese goods expected this week. 

"All the semiconductor companies are working together to voice our concern to the U.S. administration," said Donzella, citing trade groups SEMI and the Semiconductor Industry Association. 

His comments also follow a warning earlier this week by industry veteran Morris Chang, retired founder of Taiwan Semiconductor Manufacturing Co., that the global chip industry risks losing out to Chinese rivals who are exploiting generous government subsidies to invest in emerging technologies.

KLA-Tencor is the world's No. 1 supplier of chip inspection equipment. It offers process control and yield management solutions to global chipmakers such as TSMC, Samsung Electronics and Intel. It also counts Chinese chipmakers such as state-backed Semiconductor Manufacturing International Corp. and Yangtze Memory Technologies as clients.

KLA-Tencor is a member of the trade groups SEMI and the Semiconductor Industry Association and the company’s executives will also join as representatives from the two trade groups to Washington in two weeks. 

U.S. tech shares fell sharply on Thursday in U.S. trading time as companies braced for the impact of a new round of tariffs. KLA-Tencor fell 9.72%, and Micron Technology also plunged 9.87%.

Industry's concerns were sparked earlier this year when the administration vowed to enhance export controls in a bid to prevent sensitive technologies from being shipped to China. Washington also aims to restrain investment by Chinese companies in the U.S. The crackdown is Washington's attempt to curb Beijing's "Made in China 2025" plan to upgrade the country's industry from semiconductors to biotech.

Donzella said the tariffs imposed on China in July and August had not affected KLA-Tencor, because it did not ship equipment from China to the U.S. Beijing's retaliatory tariffs were also unlikely to hurt KLA-Tencor, he insisted, because China needed companies like his to develop its own semiconductor industry. 

"The negative impact from tariffs on the semiconductor supply chains is very limited," he said.

KLA-Tencor and other leading U.S. chip equipment makers such as Applied Materials, Lam Research and Teradyne have benefited from the massive growth opportunities in China, as both Chinese companies and foreign multinationals build chip facilities in the nation.

China could become the world's biggest semiconductor equipment market by 2020, reaching $20 billion, industry association SEMI says. Certain suppliers could be hurt if U.S. regulators limit their products from going to China. The emerging Chinese chip manufacturers also could be vulnerable if they cannot get production equipment in time for expansion plans.

Beijing is determined to nurture its own semiconductor capabilities, Donzella said. "They are investing all the money into the plan," he said.

The Chinese semiconductor industry is just getting started, he said, but more chips may be made in the country in the next two to three years.

KLA-Tencor revenue contribution from China this year is expected to double from 2017, as the mainland surpasses Taiwan to become the company's second-largest buyer after South Korea.

"China could become the biggest market to us next year," Donzella said.

China accounted for 32% of KLA-Tencor's revenue in the April-June quarter, up from 18% in the year-ago period, company data shows.

Growth in China is driven mainly by the new chip manufacturing facilities and the robust demand for process control equipment from local chipmakers, Donzella said. In addition, increasing investments in China by outside chipmakers such as Taiwan's TSMC and United Microelectronics Corp. as well as South Korea's Samsung and SK Hynix also support semiconductor equipment demand in China, he said.

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