How the Sino-US Chip Battle Impacts Semiconductor Players

The semiconductor scrap between the US and China is showing no sign of abating, with Washington attempting to put the squeeze on its rival’s chipmaking capabilities. But this febrile environment is creating a raft of issues from semiconductor stocks. This article will examine the issue with reference to NVIDIA Corporation (NASDAQ: NVDA), Micron Technology Inc. (NASDAQ: MU), ASML Holding N.V. (NASDAQ: ASML) and Magnachip (NYSE: MX).

The advent of artificial intelligence and other major technological advancements mean that powerful microchips are like gold dust. Competition for supply is fierce, with the US attempting to hamper Chinese efforts to grab hold of powerful tech, while Beijing is bending the rules as it looks to expand its domestic semiconductor industry.

NVIDIA Corporation (NASDAQ: NVDA) appears to have thrown its lot in with Taiwan, despite territorial threats from China. The advanced tech of outfits like ASML Holding N.V. (NASDAQ: ASML) has become gold dust, highlighting the need for IP security. Some outfits like Micron Technology (NASDAQ: MU) have seen their products banned or restricted for apparent political gain.

But what’s going on?

NVIDIA Corporation (NASDAQ: NVDA) depends heavily on Taiwanese manufacturer TSMC. Jensen Huang, the company’s CEO stated last month on a visit to Taiwan that it was “perfectly safe” for NVIDIA’s chips to be manufactured in the country despite the military threat from China.

However, he has also committed to spread the company’s manufacturing efforts to other locations in what he referred to as a “diversity and redundancy strategy”.

Even so, China poses something of a headache to the chip-making giant. That’s because the business is restricted from selling its most advanced graphics processing units to the East Asian superpower by US export controls. 

Beijing might have been hoping for a new offering from the semiconductor on Huang’s recent visit to the continent, but this did not emerge. Perhaps tellingly, Huang’s trip to Asia was cut short, with him skipping a scheduled visit to mainland China.

ASML Holding N.V. (NASDAQ: ASML) is another company well acquainted with the chip conflict.

Largely a supplier of materials and technology to the industry, the Dutch business is particularly famed for its extreme ultraviolet lithography photolithography machines. These machines play a key role in the construction of some of the planet’s most powerful semiconductors.

As such, ASML’s tech is highly sought after.

Apparently, sought after to such an extent that the company is a target for theft. The business stated earlier this year that a China-based former employee had pilfered some of its technology.

What has the response to this been? 

The business is now reported to be considering moving production to locations outside of China, while the Netherlands has joined with the US and Japan to limit semiconductor exports to China. It seems the company has been alienated by the incident.

Micron Technology Inc. (NASDAQ: MU) is another key player impacted by the back and forth between Beijing and Washington. While US legislators have limited sales of tech from US firms to China, this business has found itself on the hit-list of Chinese authorities. 

It appears that, in May, the Chinese Cyberspace Administration warned that “operators of critical information infrastructure in China should stop purchasing products from Micron”.

With the business reported to gain nearly a sixth of its revenue from mainland China and Hong Kong, it’s perhaps no surprise that Micron saw its share price quickly decline by more than 5% in the immediate aftermath.

While the company’s share price has since recovered, the incident is notable as it shows China’s ability to fight back at Western companies. This is not a one-way street.

Magnachip Semiconductor Corporation (NYSE: MX) is on the smaller side but has still found itself affected by the scrape.

Wise Road Capital, a Chinese private equity firm, had the South Korean outfit in its sights back in 2021. As such, the business was poised to become part of China’s growing semiconductor industry.

However, the Committee on Foreign Investment in the United States sought to block any deal due to national security concerns, as the company was a US-listed Delaware corporation. This meant the agreement collapsed and the business did not become a part of China’s growing domestic tech space.

Magnachip CEO, YJ Kim, remarked that the company was “disappointed” by the move. Wise Road Capital’s proposed purchase price of $29 per share was a solid premium at the time and still represents a marker the company’s share price has never reached.

As such, some shareholders might feel hard done by.

The chip war has touched each of these businesses differently, demonstrating the wide reach of such a trade spat. Nvidia and ASML have found themselves having to edge away from China, in one way or another, interfering with their business. Micron has seen its name dragged through the mud, and Magnachip and its investors have been robbed of a potentially lucrative merger.