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Sony and Kioxia Request Exemptions from the US’ Foreign Direct Product Rule (FDPR)
Japan's Sony and memory chipmaker Kioxia have applied for U.S. approval to restart supplies of components to China's Huawei Technologies, now under a de facto ban on accessing equipment made with American tech, Nikkei has learned. There was no indication that their applications had been approved. The Japanese companies join South Korea's Samsung Electronics and SK Hynix in seeking licenses from the U.S. Department of Commerce to sell to Huawei, one of the world's top makers of smartphones and telecommunication infrastructure. Without Commerce Department approval, Sony and Kioxia face a risk to their earnings. The two companies supply components for products, such as 5G devices, that have become caught up in the high-tech race between the U.S. and China. Sony is the world's top supplier by market share of image sensors for mobile phones. Huawei is estimated to account for about a fifth of the Japanese company's roughly 1 trillion yen ($9.5 billion) in image sensor sales, making it the second-biggest buyer, after Apple.
Kioxia Holdings' recently decided to delay a Tokyo initial public offering that had been set for Oct. 6. Intel have secured licenses to supply Huawei with components for personal computers. But U.S. restrictions on Huawei's access to technology for telecommunications -- an area where Washington has identified China's rapid advances as a threat -- are expected to become tighter. Japanese, Taiwanese and South Korean companies together supply 2.8 trillion yen ($26.4 billion) worth of parts to Huawei yearly, estimates Akira Minamikawa, a director at U.K. research firm Omdia. That business would be left in limbo if Huawei's production is disrupted.
Huawei's procurement from Japanese suppliers grew by more than 50% last year, Jeff Wang, chairman of the Tokyo-based subsidiary Huawei Japan, said in an online presentation in August. Wang credited the gain to Japan's "extremely important role in global supply chains."
China is expected to provide over $100b in subsidies to its semiconductor industry through 2030, which would give it the largest share of the chip market according to a study by the SIA and Boston Consulting. Congress is now considering a plan for between $25b and $50b in US subsidies to rebuild the US chip industry, targeting the development of 19 new fabs based in the US over the next ten years and while that might seem like an over-reaction, as US based companies account for 48% of global chip sales, only 12% of global chips are produced in the US itself. And that is down from 37%, 30 years ago.
It costs ~30% more to build the same chip production fab in the US as it would in Taiwan, South Korea, or Singapore, and between 37% and 50% more than in China, which means even if we spent as much in subsidies as China, we would still be getting far less in fab value over a 10 year period. But the real question is not who produces the most chips or has the most chip production share, but what chips are being produced and what value do they hold. Throwing money at an industry to gain share is a tactic that China has been able to use in both the LED and display industries, but 7nm parts is the current state-of-the-art and would be required to acquire market share.
Japan's Sony and memory chipmaker Kioxia have applied for U.S. approval to restart supplies of components to China's Huawei Technologies, now under a de facto ban on accessing equipment made with American tech, Nikkei has learned. There was no indication that their applications had been approved. The Japanese companies join South Korea's Samsung Electronics and SK Hynix in seeking licenses from the U.S. Department of Commerce to sell to Huawei, one of the world's top makers of smartphones and telecommunication infrastructure. Without Commerce Department approval, Sony and Kioxia face a risk to their earnings. The two companies supply components for products, such as 5G devices, that have become caught up in the high-tech race between the U.S. and China. Sony is the world's top supplier by market share of image sensors for mobile phones. Huawei is estimated to account for about a fifth of the Japanese company's roughly 1 trillion yen ($9.5 billion) in image sensor sales, making it the second-biggest buyer, after Apple.
- Sony in August forecast a 45% decline to 130 billion yen in the sensor segment's operating profit for the year ending March 2021. The company attributed this slump mainly to a drop in smartphone sales during the coronavirus pandemic, but analysts say the image sensor earnings outlook could see further downgrades as a result of the escalating U.S. crackdown on Huawei.
- Kioxia, a spinoff of Toshiba formerly known as Toshiba Memory, also stands to take a hit from sanctions on Huawei. Smartphone memory chips provide about 40% of the company's sales, with Huawei accounting for several percent of the total.
Kioxia Holdings' recently decided to delay a Tokyo initial public offering that had been set for Oct. 6. Intel have secured licenses to supply Huawei with components for personal computers. But U.S. restrictions on Huawei's access to technology for telecommunications -- an area where Washington has identified China's rapid advances as a threat -- are expected to become tighter. Japanese, Taiwanese and South Korean companies together supply 2.8 trillion yen ($26.4 billion) worth of parts to Huawei yearly, estimates Akira Minamikawa, a director at U.K. research firm Omdia. That business would be left in limbo if Huawei's production is disrupted.
Huawei's procurement from Japanese suppliers grew by more than 50% last year, Jeff Wang, chairman of the Tokyo-based subsidiary Huawei Japan, said in an online presentation in August. Wang credited the gain to Japan's "extremely important role in global supply chains."
China is expected to provide over $100b in subsidies to its semiconductor industry through 2030, which would give it the largest share of the chip market according to a study by the SIA and Boston Consulting. Congress is now considering a plan for between $25b and $50b in US subsidies to rebuild the US chip industry, targeting the development of 19 new fabs based in the US over the next ten years and while that might seem like an over-reaction, as US based companies account for 48% of global chip sales, only 12% of global chips are produced in the US itself. And that is down from 37%, 30 years ago.
It costs ~30% more to build the same chip production fab in the US as it would in Taiwan, South Korea, or Singapore, and between 37% and 50% more than in China, which means even if we spent as much in subsidies as China, we would still be getting far less in fab value over a 10 year period. But the real question is not who produces the most chips or has the most chip production share, but what chips are being produced and what value do they hold. Throwing money at an industry to gain share is a tactic that China has been able to use in both the LED and display industries, but 7nm parts is the current state-of-the-art and would be required to acquire market share.
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