Chip stocks sink to lowest level since 2020 as US expands China restrictions

Shares of semiconductor companies fell on Monday, with the sector selling off globally after new U.S. restrictions on China’s access to American technology added to a disappointing start to the earnings season, fueling concern that the industry’s recession is far from over. end.

The Philadelphia Stock Exchange’s semiconductor index fell 3.5% to close at its lowest level since November 2020. The index fell nearly 10% over the past three trading days and is now down more than 40% so far this year. Semiconductor capital equipment companies led the day’s decline, with Applied Materials Inc . to fall 4.1%, Lam Research Corp. down 6.4% and KLA Corp. to decrease by 4.7%. Advanced Micro Devices Inc. fell 1.1% to close at its lowest level since July 2020, while Marvell Technology Inc. fell 4.8%.

Shares of U.S.-listed chip equipment maker ASML Holding sank 2.9 percent and Chinese bellwether Semiconductor Manufacturing International Corp. fell 4% in Hong Kong, the biggest in five weeks. The declines were greater in smaller stocks.

The US measures include restrictions on the export of certain types of chips used in artificial intelligence and supercomputers, as well as stricter rules on the sale of semiconductor equipment to any Chinese company. Separately, the U.S. added more Chinese companies to a list of companies it considers “non-verified,” meaning U.S. suppliers will face new hurdles in selling technology to these entities.

“The changes represent a further escalation and we don’t know what China might do in response,” wrote Stacy Rasgon, an analyst at Bernstein. “Potential retaliation remains a risk.”

The new strategy suggests Washington aims to “freeze” China at its current level, allowing the US to increase its lead, said Gabriel Wildau, an analyst at consultancy Teneo Holdings.

Chinese Foreign Ministry spokesman Mao Ning said on Saturday that the measures, which are due to take effect this month, are unfair and “will also harm the interests of US companies”. “They are dealing a blow to global industrial and supply chains and the global economic recovery,” he said.

The new US rules come at a time when the chip industry is already facing an inauspicious start to the earnings season and has gone from a global chip shortage to a glut in a matter of months due to its boom-and-bust nature. semiconductor demand.

Samsung Electronics Co., the world’s largest maker of memory chips, and computer processor maker AMD reported results last week that suggested a deeper-than-expected slowdown.

Among smaller chip-related companies, equipment maker ACM Research Inc. It plunged 27 percent in New York trading on Monday, while its Shanghai-listed subsidiary, ACM Research Shanghai Inc., sank 20 percent. In Hong Kong, Hua Hong Semiconductor Ltd. fell 9.4% and Shanghai Fudan Microelectronics Group Co. saw a steep 20% drop, the most since July 2020. China’s Will Semiconductor Co. and Maxscend Microelectronics Co. were down more than 6% each.

The restrictions are a “big setback in China” and “bad news” for global semiconductors, Nomura Holdings Inc. analyst wrote in a note. David Wong. China’s localization efforts may also be “at risk as it may not be able to use advanced foundries in Taiwan and Korea,” he wrote.

The U.S. Commerce Department added Beijing Naura Magnetoelectric Technology Co., a subsidiary of Naura Technology Group Co., to its non-verified list, Naura Technology said in a filing. Naura Technology fell by the 10% daily limit in China.

Certainly, rising Sino-US tensions could prompt Beijing to step up support for domestic companies in an effort to achieve its goal of becoming an independent chipmaker.

A drop in Chinese chip stocks could hit the industry hard globally. Markets in Japan, South Korea, Taiwan and Malaysia will have a chance to react on Tuesday as they were closed on Monday.

“This will not only be negative for the Chinese semiconductor industry, but also indirectly affect the business opportunities of global semiconductor manufacturers in the long run,” Citigroup analysts including Laura Chen wrote in a note.

The broader Chinese stock market also fell on Monday after returning from the Golden Week holiday, hurt by a global stock sell-off and gloomy holiday data that heightened worries about an economic recovery.

Bloomberg writers Debby Wu, Henry Ren, Divya Balji and Phil Serafino contributed to this report.

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