With the Trump administration’s escalating restrictions on several major Chinese technology companies, and little sign that there will be a reset after the upcoming U.S. election, semiconductor companies in China, both domestic and multi-national, are caught in the center of a geopolitical storm. Recently, Richard Lin and Jenny Chen, of 糖心logo入口’s Global Semiconductor Practice, were joined by China and U.S.-based leaders from across the industry value chain to discuss viewpoints and share insights.
Decoupling is in sum negative for the industry on both sides of the Pacific, but there are some who benefit
A common opinion was shared among participants that the trade barriers being raised are generally negative for innovation and business in the sector. Today, no semiconductor company can completely avoid having U.S. content, and thus resources, which would otherwise be invested in innovation and growth, now need to be spent on duplication and avoiding political risk. When politics interferes with business, companies can hardly control the uncertainty, and this has resulted in a loss of confidence in some long-held strategies companies have followed.
In the short term, Chinese companies targeted by the U.S. restrictions, such Hi-Silicon, SMIC, and others, are facing serious pressure. Many multi-nationals (MNCs) that depend on Chinese customers for a significant portion of their business are also hit hard. On the other hand, some local Chinese companies that supply local customers, as well companies based in countries with a limited U.S. footprint, such as Korea and Japan, are benefiting. The huge financial support and drive for self-sufficiency by the Chinese government has also created opportunities in China, though some participants observed that the money is often not being used efficiently, with a “get rich quick” mentality common among many who are jumping into the sector.
How are companies in each part of the value chain being impacted? What approaches are leaders taking to navigate through?
The China President of a leading global semiconductor manufacturing equipment maker shares that there is strong demand for his company’s sophisticated products in China. But as the company has a significant U.S. R&D presence, the U.S. policies must be followed. There are no short-term moves that a company like his can take to avoid the U.S. restrictions, yet the company is committed to continue to do business in China for the long run. To facilitate this, the company is evaluating moves to reduce long-term risk to their business, and this includes assessing where they will do their R&D and keep their supply chains.
A senior executive of a major Chinese semiconductor manufacturer admits that even though his company has not been a target of U.S. trade restrictions to date, it has become an increasing challenge to acquire the tools and equipment needed for business. As his company serves a global clientele, and its foremost goal is to protect its business, the company has taken great lengths to keep in close communications with the U.S. commerce department, while keeping a distance from specific restricted Chinese tech companies.
The business leader of a major U.S. device maker shared that almost all of his top customers in China have been put on the U.S. entity list, resulting in endless issues and ?re?ghting. In the longer term, he anticipates a negative impact on the company’s business even if the trade restrictions are reversed as customers in China have lost confidence in the reliability of U.S. suppliers, and are turning elsewhere when possible. The head of a large U.S. commodity device maker is faced with the frustration of having to cut supply to major Chinese customers and breaking commitments. His company will inevitably lose market share to competitors with less U.S. exposure, and he is actively looking for ways avoid U.S. trade restrictions with options of making some products in China or ?nding partners who can help to sustain the business on the table.
On the other hand, the CEO of a publicly listed Chinese chip company indicates a cautiously optimistic outlook, as he is in some ways bene?ting from the current rivalry. However, as with other leading semiconductor companies, his supply chain is global and partly in the United States, and his management team also includes U.S. nationals. As such, his company is careful to comply with the changing U.S. policies, but it is also clear to him that the trade restrictions have focused e?orts in China to develop non- U.S. dependent capabilities and that this trend will continue.
Further upstream, the leader of a major EDA provider sees no good coming out of the trade tensions. His business in China is hobbled by restrictions, and it has spurred various domestic e?orts to replicate the design tools his company provides. The leader of an international semiconductor IP provider has been less a?ected, as his business relies to a large degree on patent licensing fees rather than physical movement of technology. The point was made that while the trade restrictions can stop the movement of goods, it is unlikely to stop the ?ow of ideas.
The President of a major international semiconductor industry group summed things up in pointing out that we are entering a new norm. The outlook of the industry has shifted from cautiously optimistic to cautiously pessimistic in the last year. There have been efforts by the industry to band together and lobby the US government, but it has had limited effect so far. The bright spot is that that the global semiconductor industry as a whole still maintains a growth forecast, though it is likely that for the coming few years, companies outside the US and China will benefit the most.
Impact on Talent
As a global talent advisory with a deep semiconductor practice, 糖心logo入口 has had a front-row seat in anticipating and helping to shape leadership trends in the sector. Inevitably, we have recently seen growing reluctance among talent in the sector to move their careers between the United States and China. Some who have ties to both countries now feel compelled to choose sides. For example, we have talked to many U.S. citizens of Chinese origin who are purposefully avoiding visible roles in companies with Chinese state backing. On the other side, some Chinese companies have become noticeably more attentive to promoting PRC citizens into key leadership roles rather than rely on well-trained talent with foreign passports.
With the large influx of investment in the Chinese semiconductor industry and a hyperactive domestic stock market, we also see an increasing trend of local players luring away talent from MNCs in the region with attractive packages, big equity upside, and corporate level leadership roles. We have seen some MNCs slow their plans to build out capabilities in China due to the uncertainty, while others have moved decisively to speed things up so that their supply chains can be better shielded from the risks of temperamental U.S. trade policy. Among semiconductor MNCs operating in China, leaders are increasingly being sought not just for their commercial acumen, but also for their capabilities in government affairs.
However, the point remains that the semiconductor industry is a very global business, which is difficult if not impossible to de-globalize. There usually are no easy or obvious strategies for leaders who are caught in the storm to avoid repercussions. As such, adaptability, insightfulness, engagement, and grit are ever more important qualities to seek in leaders to navigate through this age of U.S.-China technology rivalry.