Why do American chip manufacturers prefer to be penalized rather than withdraw from the Chinese market?

Has Intel recently increased its advertising investment in China? Will the American semiconductor industry be in a bloodbath by 2024? Is this really true?

This matter is far from as simple as it appears; Huawei's chips are just the butterfly flapping its wings, not the root cause.

A global chip industry in a storm of blood and rain

In May of this year, the American chip manufacturer Micron was investigated, and some of its products were fined and banned from sale. On June 16th, Micron announced that the company plans to invest over 4.3 billion yuan in its packaging and testing factory in Xi'an over the next few years.

We have noticed that recently, Intel has increased its advertising investment in China, and its ads can be frequently seen on major advertising platforms.

The most eye-catching event, of course, is still the launch of three new smartphones, including the Huawei Mate 60 Pro, at the end of August and the beginning of September, with real-world 5G speed tests showing the re-emergence of the Huawei Kirin 9000S chip. Subsequently, suppliers revealed that the order volume for Huawei's new smartphones has skyrocketed to 15 million units, which means that this chip has already entered mass production.

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Some experts have indicated that if the Huawei Kirin 9000S is mass-produced, its cost would be equivalent to only 60% or even lower than that of major American chip manufacturers.

These are still just appearances; the global chip industry's storm of blood and rain has already quietly begun.

Many signs indicate that the year 2024 will usher in the greatest transformation in the global chip industry in 20 years.This year, the global chip industry has been in a state of panic, which is not triggered by Huawei's breakthroughs at the end of August and the beginning of September, but rather the inherent laws of the global chip industry are the fundamental reasons.

Before this, major American chip manufacturers had already started layoffs at the end of last year. In May of this year, the research institution SEMI revealed that Intel planned to cut its budget by 10%, with layoffs reaching up to 20% in two key departments: the Client Computing Group (CCG) and the Data Center Sales Group (DCG).

Layoffs are still just the tip of the iceberg. Intel often says "due to the slowdown in global PC sales..." Behind this, the global chip industry is facing a huge change that no one can stop.

The global chip industry is facing a winter.

Since 2022, the performance of global chip giants has collectively plummeted.

In the second quarter of 2022, Intel broke its 30-year profit myth, with a single-quarter loss of $500 million; in the fourth quarter, revenue continued to decline, and the net loss reached $700 million. In 2022, Intel's revenue fell by 20%, and net profit fell by as much as 60%.

The Micron we mentioned earlier is far from Intel's performance. In the fiscal year 2023 (ending August 31, 2023), revenue plummeted by 49.5%, with a net loss of $5.8 billion. Its revenue was only $15.5 billion, which is basically a rhythm of being scrapped!

The two major chip manufacturers in South Korea fell even more tragically. In the fourth quarter of 2022, Samsung's chip revenue fell by 24%, and profits plummeted by 97%! SK Hynix's profits in 2022 also fell by 74.6%.

The decline in the performance of chip giants has dragged the entire supply chain to slow down significantly, which is the disaster for the next few years.

ASML's photolithography machines are about to sell out.In fact, TSMC and Intel were planning to reduce production capacity at the beginning of this year, and ASML's lithography machine orders have been delayed by several major chip manufacturers since the first half of the year.

Recently, a report from Goldman Sachs showed that TSMC plans to reduce its capital expenditure from $28 billion to $25 billion in 2024. A significant portion of this investment is used to purchase ASML's most advanced EUV lithography machines. Because it had ambitious factory construction plans in the United States, Japan, and Germany in the past few years, it preemptively ordered 60% of ASML's EUV lithography machine orders.

In August 2023, ASML CEO Peter Wennink admitted in an interview that shipments of EUV lithography machines to several chip manufacturers have been temporarily suspended. In September 2023, he told the media that he would receive $2.2 billion in revenue from the Chinese market before the end of the year. However, whether Chinese companies will still purchase lithography machines in large quantities is itself a huge question.

You are not mistaken, ASML's lithography machines are almost unsellable, and the more advanced the lithography machines, the more unsellable they are.

The real underlying reason

On the surface, the global chip industry is facing a cold winter because they collectively lost most of the Chinese market, but the deep-seated reason is not so. At the same time, this is not just caused by U.S. sanctions and technology embargoes, at least this is not the main reason.

For more than 10 years, with the rapid development of the global electronic information industry and the inherently challenging nature of chip production, chip supply has become increasingly tight. A few years ago, the United States began a technology war, disrupting the global chip supply layout. Under the superposition of these two factors, a large-scale shortage of global chips occurred.

Seeing the situation as very good, countries around the world and major chip manufacturers have expanded production capacity on a large scale. The United States has taken action to seize the chip industry, subsidizing Intel and other American companies to build chip factories domestically, and forcing foreign companies such as Samsung and TSMC to build factories in the United States. Europe, Japan, and South Korea have also expanded chip factories.

Unfortunately, these actions are all based on three strategic misjudgments.

Three strategic misjudgmentsFirstly, the chip shortage cannot be resolved in the short term; secondly, major economic entities must establish their own chip manufacturing capabilities to ensure security; thirdly, China cannot break through the blockade in the short term and cannot join the global chip supply chain.

This has created a huge chip industry bubble!

In 2024, the global chip overcapacity cannot be alleviated, and further decline has become a foregone conclusion. Coupled with the emergence of Huawei, a dark horse that may disrupt the chip capacity and price situation.

The United States will undoubtedly become a heavy disaster area, as it has to deal with the declining industry, and continue to impose technology embargoes and chip sanctions.

Therefore, if a large American factory suddenly goes bankrupt, it would not be surprising.