AI Boom Spurs US-China Chip Race

The semiconductor chip tug-of-war between the US and China has chip companies scrambling to keep business going as usual.

AI is ruling the tech world right now, as gadget makers and software giants integrate the tech into everything to enhance and empower their products. And this AI push has created an unprecedented demand for semiconductor chips.

If you don’t know what semiconductor chips do, know that they’re in almost all your digital consumer products like mobile phones, smartphones, digital cameras, televisions, washing machines, refrigerators, and LED bulbs. And some of them are mighty powerful.

For example, Apple’s M4 chip is a powerful Neural Engine, that can conduct 38 trillion operations per second, making it much better for AI tasks and enhancing features like Live Captions and Visual Look Up on the iPad Pro. Deemed Apple’s most powerful Neural Engine, it’s “a breathtaking 60x faster than the first Neural Engine in A11 Bionic.”

When this is the kind of power a chip can generate, it’s no wonder that nations are getting involved in its market share.

US Pushes to Expand its Chips

The US has been aggressive about expanding its chipmaking. In April, under the Chips Act, the US government announced an award of up to $6.4 billion in grants to South Korea’s Samsung to expand its chip production in central Texas.

Under pressure from the US to curb chip exports to China, countries like The Netherlands, Japan, and South Korea have also placed restrictions on their companies. Last June, The Netherlands’ government announced plans to restrict exports of semiconductor technology to protect national security. At the beginning of the year, the Deutch government rescinded an export license to halt the shipment of two older lithography machines to Chinese customers. Last year, Japan imposed export controls on advanced microchip technologies in China.

China’s Chip Stature

China manufactures semiconductors, but also consumes a lot of them, creating a snug ecosystem of chips. In 2020, the country purchased 53.7% of the world’s supply of chips to the tune of US$240 billion. The country controls the majority of the business of semiconductor companies. In 2022, Qualcomm earned 50% of its revenues from China, NVIDIA 26.3%. Dutch company ASML Holding NV recorded 14% of its sales in the country and Apple 24%.

In response to US’ aggressive chip market tactics, China has started upping its chip-making game. In a bid to gain self-reliance in chips, China has been working on a US $143 billion+ support package for its semiconductor industry.

As part of its effort to reduce dependence on foreign suppliers, in May, Reuters reported two Chinese chipmakers have started producing high bandwidth memory (HBM) semiconductors, which are used in AI chipsets.

In fact, Chinese tech conglomerate Huawei’s latest high-end phone now sports more Chinese suppliers. This includes a new flash memory storage chip and an improved chip processor. Some Chinese universities and research institutes even got hold of Nvidia’s high-end AI chips via resellers, according to Reuters.

US Companies Rebel

Another reason China isn’t bogged down yet is that US tech companies aren’t ready to let China go as a business partner yet. According to reports, many companies, like Qualcomm, ASML, and Apple, are ready to skip the US’ grants for business with China, owing to the smooth business relationship they’ve enjoyed so far with Chinese companies.

This is why US chip sanctions aren’t appealing much to tech giants in the US. While these governments scramble to restrict Chinese business, companies are following their own path. In March, amongst all the political hubbub, Intel was able to sell chips worth hundred of millions of dollars to Huawei.

China’s commerce minister has been wooing ASML to assure of China’s reliability as a business partner. Huawei, along with Nokia and Ericsson, are among the companies contracted to build 5G networks in China, with Samsung and Qualcomm also looking to gain greater market share in the country.

A Shift in Chip Sentiment

As the pressure mounts, some companies are beginning to toe the line though. The current chip situation has been setting off alarm bells for US companies like Intel, which depend on chip technology in a major way. They say they’re getting antsy about semiconductor manufacturing becoming concentrated in a single geographical location and have started taking steps for the future.

In 2022, Intel signed the purchase agreement to become a landowner in Magdeburg, Germany, a planned site for its European semiconductor manufacturing facility. The tech company also brought on Bechtel as its general contractor for Intel’s new Ohio site already under construction.

Semiconductor manufacturing is especially vulnerable given that 80 percent of current capacity is concentrated in one small geographic region. Our strategy is the industry’s strategy: Diversify our footprint today to bolster the chip supply needed for tomorrow

Keyvan Esfarjani, Executive vice president and chief global operations officer at Intel Corporationnone

“Semiconductor manufacturing is especially vulnerable given that 80 percent of current capacity is concentrated in one small geographic region. Our strategy is the industry’s strategy: Diversify our footprint today to bolster the chip supply needed for tomorrow,” Keyvan Esfarjani, Executive vice president and chief global operations officer at Intel Corporation, said in a statement.

Other companies are chipping in. November, last year, Nvidia offered a new advanced chip in China that meets the export restriction rules. According to Reuters, the chip, called the A800, represents the first reported effort by a US semiconductor company to create advanced processors for China that follow the new rules.

In December, Taiwanese chipmaker TSMC announced tripling its planned investment in its Arizona plant to US$40 billion. The news was one of the largest foreign investment news in US history, with President Joe Biden personally going down there to hail the project.

Chips to Chiplets

Meanwhile, chip technology continues to innovate with rising demand. Chip makers like Nvidia, Intel, and AMD are pushing up their semiconductor abilities. These companies have introduced chiplet technology, a cheaper way to pack small semiconductor groups. Interestingly, China is offering this tech as well.

The battle for supremacy in the semiconductor chip market between the US and China not only showcases geopolitical rivalries but also highlights the intricate interplay of technology, business, and international relations shaping the future of this critical industry.