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US semiconductor customer not accepting 'Made in China’ products

Daniel Nenni

Admin
Staff member
US semiconductor customers seem to refuse products from China. The customers are demanding a 'certificate of origin' that it was not manufactured by a Chinese foundry even if it was designed by a Korean semiconductor fabless. It is a move to minimize the damage caused by the US government sanctions. It will affect the semiconductor production supply chain due it being a ‘De-Sinicization foundry’.

Company A, a domestic power semiconductor company, recently received a request from a US customer to prove that it did not produce semiconductors in China with a 'certificate of origin’. Supply conditions have become stricter, such as having to attach the semiconductor country of origin indication to the contract. Domestic fabless company B that supplies semiconductors to the US market has withdrawn its mass production plan for Chinese foundry Semiconductor Manufacturing International Corporation (SMIC) due to concerns about US export restrictions.

A semiconductor industry official said, "The demand for proof of origin of semiconductors to exclude Chinese-made products is spreading in the fabless industry since July to August. It seems like most of US customers are trying to avoid various sanctions that may arise from the US government checking on Chinese semiconductors.” Some of the companies are proving the country of origin by changing their Taiwanese foundry production site to 'Taiwan' instead of 'Republic of China’. Supply to the US may be blocked if 'China' is indicated and this might be connected to US customers requesting for the origin of the products.

The demand for proof of origin to avoid Chinese products has been present since the US-China trade conflict intensified. However, the scope of application was limited, such as only requesting for certain parts. However, it is unusual to prove the country of origin even to the semiconductors that are at the bottom of the finished product.

The sanction against 'Made in China' semiconductors is expected to have a ripple effect on the domestic fabless and foundry industries. Many domestic fabless companies use domestic foundries such as Samsung Electronics, DB HiTek, and Key Foundry. Most of companies use Taiwanese foundries such as TSMC and UMC. Seo-gyu Lee, the CEO of the Korea Fabless Industry Association said, “It is highly likely that a reorganization in foundry supply chain will occur in order to respond to American customers. It can be an opportunity for Korean fabless, which has a low proportion of mass produced products in China.”

Fabless that has depended on China due to bottlenecks in domestic foundries and price surge is likely to return to Korea and Taiwan. The proportion of Asia, Europe, and North America including Korea shows decrease in sales when looking SMIC's sales by region in the second quarter. It is interpreted that the US's move to exclude Chinese products as well as restrictions on exports of materials, parts, and equipment has had an impact. On the other hand, SMIC's share of China and Hong Kong continued to increase.

 

‘Sense of crisis’ has gripped South Korean chip industry, warns minister​


South Korea’s science minister has said a “sense of crisis” is gripping the country’s semiconductor industry, as the east Asian nation braces for greater challenges from the US and China in an intensifying global chip war. There is growing fear among Korean officials and industry executives that the country will shed production facilities as domestic chipmakers, lured by subsidies and tax incentives, rush to build semiconductor plants in the US. China is also catching up fast in the memory chip sector on the back of generous state funding. Lee Jong-ho, minister of science and information communications technology, and a renowned semiconductor expert, told the Financial Times that legislation enacted last month had “laid the legal groundwork to support the semiconductor industry against severe competition from countries like the US, China, Japan [and in] Europe and Taiwan”.

“It reflects a sense of crisis about our competitiveness on the global stage and the act is designed to strengthen our competitiveness in supply chain and security,” said Lee. “Korean companies have received relatively smaller tax benefits from the government and suffered from a lack of talent compared with China, the US and Taiwan, so we addressed the problems with the legislation.” Washington is using $52bn in grants outlined in the Chips and Science Act to entice global chipmakers to expand their manufacturing in the US. But the legislation also includes “guardrails” that prohibit recipients of US federal funding from expanding or upgrading their advanced chip capacity in China for 10 years.

 
US semiconductor customers seem to refuse products from China. The customers are demanding a 'certificate of origin' that it was not manufactured by a Chinese foundry even if it was designed by a Korean semiconductor fabless. It is a move to minimize the damage caused by the US government sanctions. It will affect the semiconductor production supply chain due it being a ‘De-Sinicization foundry’.

Company A, a domestic power semiconductor company, recently received a request from a US customer to prove that it did not produce semiconductors in China with a 'certificate of origin’. Supply conditions have become stricter, such as having to attach the semiconductor country of origin indication to the contract. Domestic fabless company B that supplies semiconductors to the US market has withdrawn its mass production plan for Chinese foundry Semiconductor Manufacturing International Corporation (SMIC) due to concerns about US export restrictions.

A semiconductor industry official said, "The demand for proof of origin of semiconductors to exclude Chinese-made products is spreading in the fabless industry since July to August. It seems like most of US customers are trying to avoid various sanctions that may arise from the US government checking on Chinese semiconductors.” Some of the companies are proving the country of origin by changing their Taiwanese foundry production site to 'Taiwan' instead of 'Republic of China’. Supply to the US may be blocked if 'China' is indicated and this might be connected to US customers requesting for the origin of the products.

The demand for proof of origin to avoid Chinese products has been present since the US-China trade conflict intensified. However, the scope of application was limited, such as only requesting for certain parts. However, it is unusual to prove the country of origin even to the semiconductors that are at the bottom of the finished product.

The sanction against 'Made in China' semiconductors is expected to have a ripple effect on the domestic fabless and foundry industries. Many domestic fabless companies use domestic foundries such as Samsung Electronics, DB HiTek, and Key Foundry. Most of companies use Taiwanese foundries such as TSMC and UMC. Seo-gyu Lee, the CEO of the Korea Fabless Industry Association said, “It is highly likely that a reorganization in foundry supply chain will occur in order to respond to American customers. It can be an opportunity for Korean fabless, which has a low proportion of mass produced products in China.”

Fabless that has depended on China due to bottlenecks in domestic foundries and price surge is likely to return to Korea and Taiwan. The proportion of Asia, Europe, and North America including Korea shows decrease in sales when looking SMIC's sales by region in the second quarter. It is interpreted that the US's move to exclude Chinese products as well as restrictions on exports of materials, parts, and equipment has had an impact. On the other hand, SMIC's share of China and Hong Kong continued to increase.


I don't think Taiwanese foundries and US companies had changed their product origin from "Republic of China" to "Taiwan" (as quoted from the Korean IT News article) in order to deal with the PRC avoidance situation. US government agencies and businesses are capable to tell the difference for the past 30 ~ 50 years.
 
I did know China export chips to the US,since China cannot even produce enough chips for domestic market. The 70% home-made chips target set by "MIC 2025" still lags far behind
 
In the Defense world it’s interesting to watch the ongoing contradiction of sourcing allowances over time. NO to Lenovo servers when they bought IBM’s business ~ 10 years ago, and they all use a clause (drawing a blank on the 3 letter acronym) that require that Windows PCs are assembled in friendly countries (ex: Dell/Ireland).

At the same time the CISOs and other leaders of government agencies see iOS as a very safe OS for Mobility purposes, and there is widespread allowance of Mac computers for government contractors. They’ll allow these (made in China) devices to both access critical servers as well as store and share proprietary information via email, chat, etc. The only real difference here is that Apple has really solid control over the firmware, drivers, and OS..

It’s hard to tell if these changes are a series of knee-jerk reactions or just part of a longer term strategy/self-guided direction away from ‘Made in China’. CHIPS feels knee-jerk but it could just be due to the prevailing IT security winds of the last 10-15 years.
 
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