U.S. Chip Suppliers Sound Alarm Over Trade War With China

For years, the U.S. semiconductor industry warned that Washington’s chip export controls would hurt their business and fuel the rise of a Chinese competitor.

Applied Materials, the largest U.S. chip equipment manufacturer, issued a lukewarm revenue forecast last week, citing the risk of additional export restrictions from Washington. I Photo: Applied Materials Facebook

Yet, these concerns seemed unfounded as revenue continued to soar, driven by the AI boom.

However, recent earnings reports from chip equipment manufacturers suggest that the U.S. crackdown on China’s semiconductor sector may finally be taking a toll, Lionel Lim reported for Fortune’s Data Sheet.

Applied Materials, the largest U.S. chip equipment manufacturer, issued a lukewarm revenue forecast last week, citing the risk of additional export restrictions from Washington.

Revenue from China, its largest market, fell 25% in the most recent quarter, totaling $2.2 billion. Similarly, Lam Research saw a 10% year-over-year drop in revenue from China during the last three months of 2024, bringing it to $1.4 billion.

“Our sales to customers in China, a significant region for us, have been impacted and are likely to be materially and adversely affected by export license requirements and other regulatory changes or governmental actions related to U.S.-China trade,” Lam Research warned.

For now, chip equipment manufacturers continue to report overall revenue growth, thanks to AI-driven demand.

However, analysts caution that these companies will struggle to replace China’s significant role in the industry.

“China is not just a semiconductor manufacturing hub,” said Bain & Company partner Moonsup Shin.

“More than 50% of the semiconductors manufactured by Chinese firms are consumed domestically.”

To mitigate the impact, regions like Southeast Asia are investing in local semiconductor manufacturing to position themselves as neutral players in the U.S.-China chip war. However, these emerging markets lack both China’s manufacturing capacity and its consumer demand, making them an imperfect substitute.