‘Producing in China and exporting abroad is no longer viable’

The president of a major producer in the chip supply chain thinks companies will soon stop relying on China to manufacture their products, thanks to new rules from the U.S.

“The business model of producing in China and exporting abroad is no longer viable,” Hideo Tanimoto, president of Kyocera, told the Financial Times, though he added that manufacturing for the Chinese domestic market would still be possible. He pointed to worsening relations between Washington and Beijing: “Obviously with all that’s happening between the U.S. and China, it’s difficult to export from China to some regions.”

Newly-passed regulations are a problem for Japan-based Kyocera, which has 70% market share of the ceramic components in the tools used to make chips. Tanimoto blamed U.S. controls, at least in part, for the company’s decision to slash its forecasted full-year operating profit by 31%.

Last October, the Biden administration imposed tough export controls on China, limiting the sale of advanced chips and chipmaking equipment to the country’s chip industry.

Earlier this year, Japan and the Netherlands—whose companies manufacture the equipment needed for the most advanced chips—are also moving to bar exports of this technology to Chinese companies.

Tanimoto noted to the Financial Times that Japanese companies are being “asked not to ship their non-cutting-edge tools,” implying that even lower-end technology are running afoul of geopolitical strife.

In its recent earnings reports, the company also blamed a drop in demand for smartphones and inflation for its downward revisions to income. Kyocera reported $846 million in operating profit in the most recent quarter, a 3.9% decrease from the year before.

Companies are considering moving manufacturing out of China, in part to diversify their supply chains after Beijing’s COVID-zero policies disrupted manufacturing. Costs are also increasing, with Tanimoto noting to the Financial Times that Chinese wages have gone up. Apple and Foxconn have recently expanded production of consumer electronics in both India and Vietnam.

Still, despite rhetoric around decoupling, trade between China and the U.S. hit a record high in 2022, with the U.S. importing $536.8 billion worth of Chinese products.

Controls on China

Biden’s new chip controls are dragging down China’s semiconductor industry. Yangtze Memory Technologies Corp (YMTC), China’s largest manufacturer of memory chips, has cut its orders for some chipmaking equipment by up to 70%, according to the South China Morning Post

Semiconductor Manufacturing International Corporation, China’s largest chip foundry, admitted earlier this month that one of its newest factories will start operations later than anticipated. The company cited the difficulty of getting advanced equipment.

Both SMIC and YMTC are on the U.S.’s Entity List. U.S. companies can’t sell certain advanced technologies to companies on the list without a license from the U.S. government.

Beijing, for now, has yet to impose retaliatory measures on the U.S. Officials are considering export controls on advanced technologies used to create advanced solar wafers. China produces 97% of these components.

Instead, Chinese officials are ramping up funding for advanced technologies, with Guangzhou on Monday announcing a new $29 billion fund towards investments in semiconductors, renewable energy and other high-tech industries.

This story was originally featured on Fortune.com

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Source: https://finance.yahoo.com/news/kyocera-president-says-biden-chip-082310837.html