Policy

The US plans to block sales of older chipmaking tech to China

The Biden administration will attempt to roll back China’s chipmaking abilities by blocking tools that make a widely used type of transistor other chipmakers have employed for years.

Chess board with a chip on it.

By using a specific, fundamental building block of chip design as the basis for the overall policy, the White House hopes to both tighten existing controls and avoid the pitfalls around trying to block a generation of manufacturing technology.

Illustration: Christopher T. Fong/Protocol

The Biden administration has for several months been working to tighten its grip on U.S. exports of technology that China needs to make advanced chips, with the goals of both hurting China’s current manufacturing ability and also blocking its future access to next-generation capabilities.

According to two people familiar with the administration’s plans, President Joe Biden’s approach is based around choking off access to the tools, software and support mechanisms necessary to manufacture a specific type of technology that is one of the fundamental building blocks of modern microchips: the transistor.

To achieve its objectives, the administration has elected to work to block China’s access to transistors that use a specific design called FinFET. The plans include blocking domestic exports of tools that are capable of printing chips with FinFET transistors, while also preventing the tool makers — such as Applied Materials, Lam Research and KLA — from servicing or supporting equipment they have already sold to various Chinese companies, according to the sources.

Big chip manufacturers achieved high-volume production of the transistor technology targeted by the Biden administration roughly eight years ago, but it is still widely used today to manufacture advanced chips designed for servers and iPhones alike. China’s largest chipmaker, SMIC, disclosed in 2019 it recently began high-volume production of FinFET-based chips.

“Officials walk a very fine line between too much control and too little control,” William Reinsch, senior adviser and Scholl Chair in International Business at the Center for Strategic and International Studies, told Protocol. “You control too little, and then bad guys can get stuff you don't want them to have. You control too much, and what you end up doing is kneecapping your own industry, because you deny them the revenue they need to invest in next-generation production.”

By using a specific, fundamental building block of chip design as the basis for the overall policy, the White House hopes to both tighten existing controls and avoid the pitfalls around trying to block a generation of manufacturing technology.

Yet in some corners of the industry, the administration targeting of FinFET transistors hasn’t been clear. Prior reports have pointed to the Biden administration’s plans to choke off China’s access to tech used to make chips with a 14-nanometer or below manufacturing process, which has led to industry insiders questioning how effective that approach might be.

According to chip industry experts, using the nanometer naming conventions as the basis to block tech exports has a key problem: At one point the names referred to the size of a specific feature on a chip, but today they are just marketing terminology. Intel’s 22-nanometer manufacturing process used FinFET transistors, for example, while TSMC and Samsung didn’t adopt FinFET designs until they produced chips with a 14-nanometer process or 16-nanometer process.

“How do you actually classify equipment and say, this can process 14-nanometer and smaller — because there is a lot of equipment that can also process 28 nanometers,” Gartner analyst Gaurav Gupta said. “And if the same tool can also process a smaller node, does it really qualify within that export control or not? That's why when you set up these definitions, there are obviously some loopholes.”

Beyond EUV

The Biden administration’s feature-specific approach for logic chips — the type of silicon that powers data centers, smartphones and PCs — narrows the Trump-era strategic decisions. Under former President Donald Trump, the White House and federal agencies largely continued policies the Obama administration had begun, such as adding SMIC to the U.S. entities list, according to one former Commerce Department official.

The Trump administration also worked to block China from obtaining a technique called extreme ultraviolet lithography, used for next-generation chipmaking. EUV tools are exclusively manufactured by Dutch firm ASML, but the administration was able to convince the Netherlands to block ASML from selling the equipment to China because one of the vital submodules is made in California. Without that component, ASML can’t build the EUV machines.

“There's a certain part of technology intellectual property which belongs to the U.S.,” Gupta said. “And that's why they're able to control and stop ASML. But they're also pushing [the Dutch government and ASML] to stop exporting [deep ultraviolet lithography] to China, but the U.S. doesn’t really have control over the IP.”

Adding similar restrictions for the EUV’s older sibling, deep ultraviolet lithography — machines made by ASML but also Japanese competitors — will likely be more difficult. Despite reports indicating the Biden administration intends to halt DUV equipment sales to China, it’s not clear if the U.S can succeed with that objective, Gupta said. One of the people familiar with the administration's plans said the White House is attempting to get allies on the same page to block FinFET equipment.

Everyone wants tools

The portion of the chip industry that will feel the restrictions most acutely is the collection of businesses that build the various manufacturing tools and systems. China is a big chunk of U.S. equipment makers’ business, representing roughly 30% of revenue for companies such as KLA, Applied Materials and Lam Research.

Part of that China revenue derives from the service and support necessary to keep the advanced tools humming along, pumping out working chips. As the tools become increasingly complex, they require more service, and teams from the tool makers are frequent visitors to chipmaking factories around the world. That’s not to mention software upgrades and other optimization that equipment requires. In its most recent quarter, for example, Applied Materials reported that about 22% of overall revenue came from its services and support operation.

Of the major U.S. tool makers, two — KLA and Lam Research — recently disclosed in earnings calls that they had received notification from the Commerce Department about tool exports to China. Though Applied hasn’t yet disclosed that it has received a notification letter, industry sources said that it likely has or will soon. The notifications were something of an opening effort, according to one of the people familiar with the administration’s plans, and the White House intends to follow the notification letters it has already sent out with an additional export control rule in the coming weeks and months.

Despite the likelihood of the U.S. government implementing further restrictions, Wall Street isn’t too worried about the potential damage to the tool makers’ business in either the short or the long run.

“I think it's fairly neutral because the demand is going to be there — so whatever can’t be built in one geography [is] going to get built into a different one,” Baird analyst Tristan Gerra said. “I think that it's going to be fairly neutral for the equipment companies, but the Chips Act is clearly going to really drive an expansion of capacity in the U.S.”

A 'Soho house for techies': VCs place a bet on community

Contrary is the latest venture firm to experiment with building community spaces instead of offices.

Contrary NYC is meant to re-create being part of a members-only club where engineers and entrepreneurs can hang out together, have a space to work, and host events for people in tech.

Photo: Courtesy of Contrary

In the pre-pandemic times, Contrary’s network of venture scouts, founders, and top technologists reflected the magnetic pull Silicon Valley had on the tech industry. About 80% were based in the Bay Area, with a smattering living elsewhere. Today, when Contrary asked where people in its network were living, the split had changed with 40% in the Bay Area and another 40% living in or planning to move to New York.

It’s totally bifurcated now, said Contrary’s founder Eric Tarczynski.

Keep Reading Show less
Biz Carson

Biz Carson ( @bizcarson) is a San Francisco-based reporter at Protocol, covering Silicon Valley with a focus on startups and venture capital. Previously, she reported for Forbes and was co-editor of Forbes Next Billion-Dollar Startups list. Before that, she worked for Business Insider, Gigaom, and Wired and started her career as a newspaper designer for Gannett.

Sponsored Content

Great products are built on strong patents

Experts say robust intellectual property protection is essential to ensure the long-term R&D required to innovate and maintain America's technology leadership.

Every great tech product that you rely on each day, from the smartphone in your pocket to your music streaming service and navigational system in the car, shares one important thing: part of its innovative design is protected by intellectual property (IP) laws.

From 5G to artificial intelligence, IP protection offers a powerful incentive for researchers to create ground-breaking products, and governmental leaders say its protection is an essential part of maintaining US technology leadership. To quote Secretary of Commerce Gina Raimondo: "intellectual property protection is vital for American innovation and entrepreneurship.”

Keep Reading Show less
James Daly
James Daly has a deep knowledge of creating brand voice identity, including understanding various audiences and targeting messaging accordingly. He enjoys commissioning, editing, writing, and business development, particularly in launching new ventures and building passionate audiences. Daly has led teams large and small to multiple awards and quantifiable success through a strategy built on teamwork, passion, fact-checking, intelligence, analytics, and audience growth while meeting budget goals and production deadlines in fast-paced environments. Daly is the Editorial Director of 2030 Media and a contributor at Wired.
Fintech

Binance CEO wrestles with the 'Chinese company' label

Changpeng "CZ" Zhao, who leads crypto’s largest marketplace, is pushing back on attempts to link Binance to Beijing.

Despite Binance having to abandon its country of origin shortly after its founding, critics have portrayed the exchange as a tool of the Chinese government.

Photo: Akio Kon/Bloomberg via Getty Images

In crypto, he is known simply as CZ, head of one of the industry’s most dominant players.

It took only five years for Binance CEO and co-founder Changpeng Zhao to build his company, which launched in 2017, into the world’s biggest crypto exchange, with 90 million customers and roughly $76 billion in daily trading volume, outpacing the U.S. crypto powerhouse Coinbase.

Keep Reading Show less
Benjamin Pimentel

Benjamin Pimentel ( @benpimentel) covers crypto and fintech from San Francisco. He has reported on many of the biggest tech stories over the past 20 years for the San Francisco Chronicle, Dow Jones MarketWatch and Business Insider, from the dot-com crash, the rise of cloud computing, social networking and AI to the impact of the Great Recession and the COVID crisis on Silicon Valley and beyond. He can be reached at bpimentel@protocol.com or via Google Voice at (925) 307-9342.

Enterprise

How I decided to leave the US and pursue a tech career in Europe

Melissa Di Donato moved to Europe to broaden her technology experience with a different market perspective. She planned to stay two years. Seventeen years later, she remains in London as CEO of Suse.

“It was a hard go for me in the beginning. I was entering inside of a company that had been very traditional in a sense.”

Photo: Suse

Click banner image for more How I decided seriesA native New Yorker, Melissa Di Donato made a life-changing decision back in 2005 when she packed up for Europe to further her career in technology. Then with IBM, she made London her new home base.

Today, Di Donato is CEO of Germany’s Suse, now a 30-year-old, open-source enterprise software company that specializes in Linux operating systems, container management, storage, and edge computing. As the company’s first female leader, she has led Suse through the coronavirus pandemic, a 2021 IPO on the Frankfurt Stock Exchange, and the acquisitions of Kubernetes management startup Rancher Labs and container security company NeuVector.

Keep Reading Show less
Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.

Enterprise

UiPath had a rocky few years. Rob Enslin wants to turn it around.

Protocol caught up with Enslin, named earlier this year as UiPath’s co-CEO, to discuss why he left Google Cloud, the untapped potential of robotic-process automation, and how he plans to lead alongside founder Daniel Dines.

Rob Enslin, UiPath's co-CEO, chats with Protocol about the company's future.

Photo: UiPath

UiPath has had a shaky history.

The company, which helps companies automate business processes, went public in 2021 at a valuation of more than $30 billion, but now the company’s market capitalization is only around $7 billion. To add insult to injury, UiPath laid off 5% of its staff in June and then lowered its full-year guidance for fiscal year 2023 just months later, tanking its stock by 15%.

Keep Reading Show less
Aisha Counts

Aisha Counts (@aishacounts) is a reporter at Protocol covering enterprise software. Formerly, she was a management consultant for EY. She's based in Los Angeles and can be reached at acounts@protocol.com.

Latest Stories
Bulletins