Semiconductor stocks experienced a significant surge following a report from Reuters indicating that the Biden administration plans to exempt key chip equipment makers in Japan, the Netherlands, and South Korea from impending export restrictions.
The news led to substantial gains for major players in the industry, with ASML Holding NV and Tokyo Electron Ltd. leading the charge.
ASML shares jumped 11%, marking their biggest intraday gain since March 2020. Tokyo Electron’s stock rose by 7.4%, the highest increase since February.
Other companies in the sector also saw notable gains: Disco Corp., a manufacturer of silicon dicing tools, increased by 5.8%, and Screen Holdings Co., which produces wafer cleaning and chip packaging equipment, climbed by 9.2%.
What is Biden’s plan?
The Biden administration plans to unveil a new rule next month that will expand US powers to stop exports of semiconductor manufacturing equipment from some foreign countries to Chinese chipmakers.
The US will utilize the Foreign Direct Product Rule (FDPR) to execute this plan which will directly impact Chinese semiconductor manufacturing facilities.
The rule, still in draft form, could bar about half a dozen Chinese fabs at the forefront of China’s advanced chipmaking efforts from receiving exports from various countries.
Affected nations include Israel, Taiwan, Singapore, and Malaysia.
But shipments from allies that export key chipmaking equipment — including Japan, the Netherlands and South Korea — will be excluded, limiting the impact of the rule, said the sources in the Reuters report.
Introduced in 1959, the FDPR allows the US to place controls on the transfer of certain items made abroad with the benefit of US technologies.
The US has earlier used the rule in a big way to strike a blow on Huawei’s smartphone business, and US regulators used it on Russia and Belarus after the invasion of Ukraine to cut off chips.
ASML, Tokyo Electron earlier fell on reports of discussions
Earlier, Bloomberg News reported discussions between the US and its allies regarding the FDPR, which initially triggered a downturn in shares of companies like ASML and Tokyo Electron.
The US government’s focus on curbing China’s technological advancements, particularly in artificial intelligence and quantum computing, has led to stringent export controls on semiconductor production equipment.
By exempting companies like ASML and Tokyo Electron, Chinese manufacturers could potentially bypass the stricter restrictions that would apply to US companies such as Applied Materials Inc., Lam Research Corp., and KLA Corp.
Strategic importance and diplomatic nuance
This strategic move aims to prevent diplomatic fallout while maintaining pressure on China’s semiconductor industry.
The planned exemptions highlight the importance of diplomatic finesse in implementing export controls.
The US aims to curb China’s technological advancements without alienating its allies, whose cooperation is crucial for effective enforcement.
“Effective export controls rely on multilateral buy-in,” a US official said.
We continually work with like-minded countries to achieve our shared national security objectives.
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