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Foxconn Raises Full-Year-Outlook Despite Rising Inflation, Global Chip Shortage

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By Reuters | Updated: 5 July 2022

Taiwan’s Foxconn, the world’s largest contract electronics maker, raised its full-year business outlook on Monday thanks to strong sales of smartphones and servers despite concerns of slowing demand due to rising inflation.

Like other global manufacturers, the Taiwanese firm has grappled with a severe shortage of chips, which has hurt smartphone production including for its major client Apple, partly due to COVID-19 lockdowns in China.

But the company said in a statement late on Monday that June sales jumped 31 percent from a year earlier to a record high for the month, thanks to appropriate supply chain management and rising sales of consumer electronics. Smartphones make up the bulk of its revenue.

Foxconn’s better-than-expected June sales come at a time when investors are concerned about slowing tech demand during a downturn in major markets due to high inflation and the war in Ukraine.

Chip stocks across the world tumbled on Friday after memory chip maker Micron Technology forecast on Thursday significantly worse-than-expected revenue for the current quarter and said the market had “weakened considerably in a very short period of time.”

Foxconn said it was optimistic about its business in the third quarter, adding it could see “significant growth” compared with a year earlier.

For 2022, Foxconn said the outlook has improved compared with earlier expectations for no growth, without providing details.

The company, formally called Hon Hai Precision Industry, said it has seen double-digit yearly growth in sales from servers and telecommunications products so far this year.

The company has said that COVID-19 controls in China only had a limited impact on its production as it kept workers on-site in a “closed loop” system.

Analysts at Daiwa Capital Markets in Taipei said in a report that demand for servers from US-based cloud service providers helped propel double-digit growth for the sector. They expected Foxconn’s operating profit to grow 12-19 percent this year.

Morgan Stanley analysts said Foxconn’s upbeat guidance for the third quarter showed that strong demand for cloud servers and iPhone assembly will continue.

The company’s shares rose about 3 percent in Tuesday morning trade, outperforming the broader market which was up around 1 percent. They have dropped nearly 1 percent so far this year, giving the firm a market value of $46.52 billion (roughly 3.5 lakh crore).

© Thomson Reuters 2022

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Apple Suppliers to Reportedly Produce MacBook, Watch in Vietnam For the First Time

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By Reuters | Updated: 17 August 2022

Apple’s suppliers are in talks to produce Apple Watch and MacBook in Vietnam for the first time, Nikkei Asia reported on Tuesday, citing people familiar with the matter.

Apple’s Chinese suppliers Luxshare Precision Industry and iPhone assembler Foxconn have started test production of Apple Watch and MacBook in Northern Vietnam, the report added.

Apple has been shifting some areas of iPhone production from China to other markets, including India, where it started manufacturing iPhone 13 this year, and is also planning to assemble iPad tablets.

India, the world’s second-biggest smartphone market, along with countries such as Mexico and Vietnam are becoming increasingly important to contract manufacturers supplying American brands, as they try to diversify production away from China.

Apple, Foxconn and Luxshare Precision did not immediately respond to a Reuters request for comment.

Last week, Taiwanese contract manufacturer Foxconn gave a cautious outlook for the current quarter after posting results that exceeded expectations, citing slowing smartphone demand after a pandemic-fuelled boom.

Like other global manufacturers, Foxconn – formally called Hon Hai Precision Industry – has dealt with a severe shortage of chips that hurt production, as bottlenecks from the pandemic lingered and the Ukraine war further strained logistical channels.

© Thomson Reuters 2022

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China Claims US CHIPS And Science Act Will Disrupt International Trade, Distort Global Semiconductor Supply Chains

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By Associated Press | Updated: 11 August 2022

China on Wednesday criticized a US law to encourage processor chip production in the United States and reduce reliance on Asian suppliers as a threat to trade and an attack on Chinese business. The law signed this week by President Joe Biden promises $52 billion (roughly Rs. 4,11,300 crore) in grants and other aid to investors in US chip factories. It responds in part to warnings that supplies might be disrupted if China attacks Taiwan, which produces up to 90 percent of high-end chips. China’s ruling Communist Party claims the self-ruled island as part of its territory.

The measure will “disrupt international trade and distort global semiconductor supply chains,” said a Foreign Ministry spokesperson, Wang Wenbin. “China firmly opposes that.”

Parts of the law “restrict companies’ normal investment and economic and trade activities in China,” Wang said, without giving details.

Disruption in chip supplies following the coronavirus pandemic hampered production of goods from smartphones to autos and highlighted the world’s reliance on Taiwanese chips and Chinese factories that assemble most electronic devices.

Fears of disruption have been heightened by Chinese threats to attack Taiwan, which split with the mainland in 1949 after a civil war.

Beijing launched military drills around the island last week in retaliation for a visit by Speaker Nancy Pelosi of the US House of Representatives. China believes visits by American officials to Taiwan might encourage its leaders to make its de facto independence permanent, a step the mainland says would lead to war.

The “CHIPS and Science Act” calls for research spending that would total about $200 billion (roughly Rs. 15,81,900 crore) over 10 years, according to the Congressional Budget Office.

The Communist Party has spent tens of billions of dollars developing China’s own chip production industry. Its factories make low-end chips for autos and other products but cannot supply high-end smartphones and other devices.

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CHIPS Bill: US President Joe Biden to Sign Bill to Boost US Semiconductor Industry on August 9

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By Reuters | Updated: 4 August 2022

US President Joe Biden next Tuesday will sign a bill to subsidize the US semiconductor industry and boost efforts to make the United States more competitive with China, the White House said on Wednesday. The legislation aims to alleviate a persistent shortage that has affected everything from cars, weapons, washing machines and video games. Thousands of cars and trucks remain parked in southeast Michigan awaiting chips as the shortage continues to impact automakers.

A rare major foray into US industrial policy, the bill provides about $52 billion (roughly Rs. 4,11,400 crore) in government subsidies for research and US production of semiconductors. It also includes an investment tax credit for chip plants estimated to be worth $24 billion (roughly Rs. 1,89,800 crore).

“The bill will supercharge our efforts to make semiconductors here in America,” Biden said Tuesday.

US President Joe Biden next Tuesday will sign a bill to subsidize the US semiconductor industry and boost efforts to make the United States more competitive with China, the White House said on Wednesday. The legislation aims to alleviate a persistent shortage that has affected everything from cars, weapons, washing machines and video games. Thousands of cars and trucks remain parked in southeast Michigan awaiting chips as the shortage continues to impact automakers.

A rare major foray into US industrial policy, the bill provides about $52 billion (roughly Rs. 4,11,400 crore) in government subsidies for research and US production of semiconductors. It also includes an investment tax credit for chip plants estimated to be worth $24 billion (roughly Rs. 1,89,800 crore).

“The bill will supercharge our efforts to make semiconductors here in America,” Biden said Tuesday.

The legislation authorizes $200 billion (roughly Rs. 15,82,000 crore) over 10 years to boost US scientific research to better compete with China. Congress would still need to pass separate appropriations legislation to fund those investments.

China had lobbied against the semiconductor bill. The Chinese Embassy in Washington said China “firmly opposed” it, calling it reminiscent of a “Cold War mentality.”

Many US lawmakers had said they normally would not support hefty subsidies for private businesses but noted that China and the European Union have been awarding billions in incentives to their chip companies. They also cited national security risks and huge global supply chain problems that have hampered global manufacturing.

Some progressive lawmakers had raised concerns about the size of government grants to profitable chip companies.

The Commerce Department said Friday it will limit the size of government subsidizes for semiconductor manufacturing and will not let firms use funding to “pad their bottom line.”

Congressional Progressive Caucus chair Pramila Jayapal said the group backed the legislation after lengthy negotiations with Commerce Secretary Gina Raimondo after the group expressed concerns chips companies would use funding for stock buybacks or pay dividends.

© Thomson Reuters 2022

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US Chip Export Restrictions to China May Hurt Global Supply Chain, Say Experts

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By Reuters | Updated: 3 August 2022

Export restrictions being considered by Washington to halt China’s advances in semiconductor manufacturing could come at a substantial cost, experts say, potentially disrupting fragile global chip supply chains – and hurting US businesses.

Reuters reported on Monday that the United States is considering limiting shipments of American chipmaking equipment to memory chip producers in China that make advanced semiconductors used in everything from smartphones to data centres.

The curbs would stop chipmakers like South Korean giants Samsung Electronics and SK Hynix from shipping new technology tools to factories they operate in China, preventing them from upgrading plants that serve customers around the world.

Samsung and SK Hynix, which control more than half of the global NAND flash memory chip market, have invested heavily in China in recent decades to produce chips that are vital to customers including tech giants Apple, Amazon, Facebook owner Meta, and Google. As well as computers and phones, the chips are used in products like electric vehicles that require digital data storage.

“Samsung’s China production alone accounts for more than 15 percent of global NAND flash production … If there’s any production disruption, it will make chip prices surge,” said Lee Min-hee, analyst at BNK Securities.

The potential for fresh turmoil – the curbs have yet to be approved – comes just as a global chip supply shortage that has disrupted businesses from autos to consumer devices for more than a year is finally showing signs of easing. Supply chain adjustments and weakening consumer demand amid the slowing global economy have combined to repair damage.

But the shortage has yet to be fully resolved. Any signs of fresh disruption could rekindle supply uncertainty, triggering a price surge – as seen earlier this year when China imposed COVID-19 restrictions in Xian where Samsung manufactures chips.

Chipmaking equipment has to be installed and fully tested months before production is due to start. Any delay in shipping the gear to China would pose a real challenge to chipmakers as they seek to manufacture more advanced chips in China facilities.

“Many US companies, like Apple, use Samsung and SK Hynix memory chips. No matter what strategy (the South Korean firms) end up choosing, it will have global implications,” said BNK Securities analyst Lee.

Samsung and SK Hynix declined to comment. Apple, Amazon, Meta, and Google didn’t respond to emails seeking comment outside regular US business hours.

Ambitions, complications

In Samsung’s memory chip operation in Xian, central China, one of the largest foreign chip projects in the country, the company has invested a total of about $26 billion (roughly Rs. 2,05,310 crore) since it broke ground on the site in 2012, including chip production as well as testing and packaging.

The tech giant makes 128-layer NAND flash products in Xian, analysts said, chips that store data in devices such as smartphones and personal computers, as well as in data centres.

The facility accounts for 43 percent of Samsung’s global NAND flash memory production capacity and 15 percent of the overall global output capacity, according to TrendForce late last year.

The US crackdown, if approved, could also complicate SK Hynix’s ambition to expand its presence in the NAND market where it is ranked third as of first quarter behind Samsung and Japan’s Kioxia Holdings, which was spun out of Toshiba.

SK Hynix completed late last year the first phase of its $9 billion (roughly Rs. 71,070 crore) purchase of Intel’s NAND business, including its Dalian, China NAND manufacturing facility.

China strategies

The move being considered by the United States is one of several recent signs of deepening tensions between Beijing and Washington over the tech sector.

Congress last week approved legislation to subsidise semiconductor production in the United States. It bars any company that receives federal subsidies from investing in certain chip technology in China during the subsidy period.

The deepening tensions could leave Samsung and SK Hynix having to review strategies on China investments, analysts and industry sources said.

“Until now, companies tended to invest in countries like China, where costs were cheap,” said Kim Yang-jae, analyst at Daol Investment & Securities.

“That’s no longer going to be the only consideration. The biggest change these potential limits will bring will be where the next chip factories are built.”

They could also face potentially diminishing returns from their multi-billion dollar China plants, which could be stuck making older-technology, less lucrative chips.

SK Hynix has not been able to upgrade its DRAM memory chip production facilities in Wuxi, China with the latest extreme ultraviolet lithography (EUV) chipmaking machines made by Dutch firm ASML as US officials do not want advanced equipment used in the process to enter the country.

The EUV machines are used to make more advanced and smaller chips that are used in high-end devices such as smartphones.

© Thomson Reuters 2022

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Chip Manufacturer Stocks Fall Globally as Taiwan Tensions Mount Ahead of Expected Nancy Pelosi Visit

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By Reuters | Updated: 2 August 2022

Semiconductor stocks fell globally on Tuesday as an expected visit by the US House of Representatives Speaker Nancy Pelosi to Taiwan, which China claims as its territory, fueled a fresh escalation in tensions between Washington and Beijing.

China views the visit by Pelosi, second in the line of succession to the US presidency and a long-time critic of China, as sending an encouraging signal to the pro-independence camp in Taiwan and has repeatedly warned against it.

Taiwan is home to the world’s biggest manufacturer of semiconductors on contract, Taiwan Semiconductor Manufacturing Co (TSMC). Shares of the company closed down 2.4 percent, while peer United Microelectronics Corp (UMC) fell 3 percent.

Taiwanese stocks dropped 1.6 percent, marking their biggest percentage decline in three weeks, while stocks in China posted their biggest fall in more than two months as mounting tensions unsettled Asian financial markets.

“The outlook for trade in Asia is likely to weigh on semiconductors, given how much of the world’s global production comes from Taiwan,” said Michael Hewson, chief markets analyst at CMC Markets UK.

Semiconductor stocks globally felt the heat. Germany’s Infineon declined 2.3 percent, while Dutch firms ASML, ASMI, and BESI fell between 3 percent and 4 percent. The US chip stocks such as Nvidia, Intel, Qualcomm, and Micron dipped more than 1 percent each in trading before the bell.

“This market reaction is expected following the strong performance of equity markets in July,” said Andrea Cicione, head of strategy at TS Lombard in London.

“The longer-term impact is unlikely to be significant unless the situation escalates, which wouldn’t be my expectation right now.”

Pelosi was set to visit the island on Tuesday, three sources said, as several Chinese warplanes flew close to the median line dividing the Taiwan Strait, a source told Reuters.

© Thomson Reuters 2022

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US Said to Consider Crackdown on Chinese Memory Chip Manufacturers: All Details

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By Reuters | Updated: 1 August 2022

The United States is considering limiting shipments of American chipmaking equipment to memory chip makers in China including Yangtze Memory Technologies Company Limited (YMTC), according to four people familiar with the matter, part of a bid to halt China’s semiconductor sector advances and protect US companies.

If President Joe Biden’s administration proceeds with the move, it could also hurt South Korean memory chip juggernauts Samsung Electronics and SK Hynix, the sources said, speaking on condition of anonymity. Samsung has two big factories in China while SK Hynix is buying Intel’s NAND flash memory chips manufacturing business in China.

The crackdown, if approved, would involve barring the shipment of US chipmaking equipment to factories in China that manufacture advanced NAND chips.

It would mark the first US bid through export controls to target Chinese production of memory chips without specialized military applications, representing a more expansive view of American national security, according to export control experts.

The move also would seek to protect the only US memory chip producers, Western Digital and Micron Technology, which together represent about a quarter of the NAND chips market.

NAND chips store data in devices such as smartphones and personal computers and at data centres for the likes of Amazon, Facebook and Google. How many gigabytes of data a phone or laptop can hold is determined by how many NAND chips it includes and how advanced they are.

Under the action being considered, US officials would ban the export of tools to China used to make NAND chips with more than 128 layers, according to two of the sources. LAM Research Corp and Applied Materials, both based in Silicon Valley, are the primary suppliers of such tools.

All the sources described the administration’s consideration of the matter as in the early stages, with no proposed regulations yet drafted.

Asked to comment on the possible move, a spokesperson for the Commerce Department, which oversees export controls, did not discuss potential restrictions but noted that “the Biden administration is focused on impairing (China’s) efforts to manufacture advanced semiconductors to address significant national security risks to the United States.”

Fast-growing company

YMTC, founded in 2016, is a rising power in manufacturing NAND chips. Micron and Western Digital are under pressure from YMTC’s low prices, as the White House wrote in a June 2021 report. YMTC’s expansion and low-price offerings present “a direct threat” to Micron and Western Digital, that report said. The report described YMTC as China’s “national champion” and the recipient of some $24 billion in Chinese subsidies.

YMTC, already under investigation by the Commerce Department over whether it violated US export controls by selling chips to Chinese telecoms company Huawei, is in talks with Apple Inc to supply the top US smartphone maker with flash memory chips, according to a Bloomberg report.

LAM Research Corp, SK Hynix and Micron declined comment on the US policy. Samsung, Applied Materials Inc, YMTC and Western Digital Corp did not immediately respond to requests for comment.

Congress acts

Tensions between China and the United States over the tech sector deepened under Biden’s predecessor Donald Trump and have continued since. Reuters reported on July 8 that Biden’s administration is also considering restrictions on shipments to China of tools to make advanced logic chips, seeking to hamstring China’s largest chipmaker, SMIC.

The US Congress last week approved legislation aimed at helping the United States compete with China by investing billions of dollars in domestic chip production.

Chipmakers that take money under the measure would be prohibited from building or expanding manufacturing for certain advanced chips, including advanced memory chips at a level to be determined by the administration, in countries including China.

According to Walt Coon of the consulting firm Yole Intelligence, YMTC accounts for about 5 percent of worldwide NAND flash memory chip production, almost double from a year ago. Western Digital stands at about 13 percent and Micron 11 percent. Coon said YMTC would be greatly hurt by restrictions like those that Biden’s administration is contemplating.

“If they were stuck at 128, I don’t know how they would really have a path forward,” Coon said.

Production of NAND chips in China has grown to more than 23 percent of the worldwide total this year from under 14 percent in 2019, while production in the United States has decreased from 2.3 percent to 1.6 percent over the same period, Yole data showed. For American companies, nearly all of their chip production is done overseas.

It was unclear what impact the potential restrictions might have on other players in China. Intel, which retains a contract to manage operations in the factory it is selling to SK Hynix in China, is already producing memory chips with 144 layers at the Chinese site, according to an Intel press release.

© Thomson Reuters 2022

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